| May 2, 2010

Oklahoma Government Growing Faster Than Oklahomans' Ability to Pay

When it comes to government spending in Oklahoma, the 800-pound gorilla in the room that everyone seems to ignore is the simple question, Should government grow faster than people's ability to pay?

The chart below illustrates the growth differentials between state and local government (S&L) expenditures and two different benchmarks. (It's important to look at state and local expenditures combined, rather than just state expenditures, because responsibilities between the state government and Oklahoma's local governments can change over time.)

The first benchmark is population growth plus inflation. As you can see, when S&L expenditures are compared to population growth and inflation, there is no contest. The growth in government expenditures rapidly pulls away on day one and never looks back.

The second benchmark is Oklahomans' personal income. Between FY 1960 and FY 1983, the rate of growth between S&L expenditures and personal income were virtually identical. But after 1983 the situation is very different; the growth in S&L expenditures begins to pull away from the growth in Oklahomans' personal income. Between 1984 and 2000, the gap between the growth in S&L expenditures and personal income expanded and then reached a plateau, with neither able to grow significantly faster than the other (with the exception of the early 1990s, which saw a small widening of the growth gap). Unfortunately, this tentative equilibrium was shattered after 2000, and by 2002 the gap between the growth indices had reached an all-time high. Fortunately, in the ensuing years personal income growth exceeded the growth in S&L expenditures, bringing the gap down by FY 2006, but, alarmingly, the trend reversed itself in 2007.

Whichever benchmark one uses-population plus inflation or personal income-the conclusion is the same. Oklahoma's state and local government expenditures have become a runaway train, outstripping taxpayers' ability to pay.

So how do we slow the growth in government?

One way is to put speed limits on spending. This means government spending can only grow at a predetermined rate. Based on our analysis, that speed limit would have to be (at a minimum) below the rate of growth in personal income. And a more stringent speed limit, such as population plus inflation, may in fact be in order.

Research Notes

The data are for fiscal years (FY) 1960 to 2007, which is the latest year of data available from the U.S. Department of Commerce's Census Bureau. S&L expenditure data for fiscal years 1973, 1974, 1975, 1976, 2001, and 2003 are interpolated due to lack of data. Between FY 1960 and 1971, a small residual of approximately 12 percent of state and local expenditures was estimated by the authors (details provided upon request). The comparative growth indices shown in the chart were created by setting the base year (1960) equal to one and then multiplying each successive year by the growth rate. This makes it easier to visualize the relative growth differentials without worrying about the differences in starting values.

Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows.

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