Email, Lori L. Taylor, associate professor, George H.W. Bush School of Government and Public Service, adjunct associate professor, Department of Economics, Texas A&M University, July 30, 2012

11:24 a.m.

Well, the first thing to notice is that the baseline, unadjusted spending estimates do not match.  According to the figure, TPPF is charting appropriations.  The LBB is charting expenditures.  Expenditures exceed appropriations because the state has additional sources of revenue  (see exhibit II http://www.window.state.tx.us/finances/financial_report/afr12/AFR-2012.pdf ).   The unadjusted appropriations for 1992 and 1993 from the TPPF graph add up to something less than the LBB All Funds expenditures for the 1992-93 Biennium, while the unadjusted appropriations for 2012 seem reasonably close.  Since the 1992-93 biennium, the LBB estimates that All Funds spending has grown by 176%  (173484-62784)/62784=1.76);  Best I can tell, TPPF estimates that spending has grown by  at least 225% (assuming that TPPF appropriations for 1992 were $29B  then (94.3-29)/29 = 2.25).  That is a big difference.

TPPF is starting from an unusually low base year (1990), which through compounding, tends to exaggerate the difference after 22 years.

It’s not really fair to use All Funds as the baseline, since at least some of that spending is federal pass-through.  General Revenue Funds is a more appropriate frame of reference for this argument because it is the part of the budget over which the Legislature has discretion.

The biggest difference, however, is in the way the two sources adjust for population growth.  Although people who want to make a political point do it all the time, you shouldn’t just add the inflation rate and the population growth rate and call that the baseline.  You should calculate the expenditures per capita and then apply an inflation adjustment like the CPI to get to the real (i.e. inflation adjusted) growth in spending.  In other words, multiply the population and inflation factors, don’t add them.  Using TPPF’s population numbers, appropriations per capita were $1,353 in 1990 ($23B/17m) and $3,572 in 2012  (94.3B/26.4m).  According to the BLS inflation calculator http://stats.bls.gov/data/inflation_calculator.htm , $3,572 in 2012 has the same buying power as $2,033.42 in 1990.  In other words, adjusted for inflation, appropriations per capita have increased by 50% (2,033.42/1,353=1.50).  Which is a lot, but nowhere near the doubling TPPS implies.  I don’t have access to Moody’s analytics, so I can’t make a similar calculation for the LBB tables, but the Census Bureau estimated that Texas Population was 17.65m is 1992 ( http://www.census.gov/popest/data/state/totals/1990s/tables/ST-99-03.txt ).  Using that figure to adjust the 1992-93 biennium and TPPF’s 26.4m population to adjust the 2012-13 biennium, I calculate that adjusted for inflation and population growth, expenditures in 2012-13 were $70,875, which is pretty darn close to the LBB estimate of $72,440.  (Differences between the LBB and me are probably attributable to different estimates of population growth.  I used the first year of the biennium for the population figure; they may have used something else.)  So it looks like the LB calculations are appropriate.

Finally, it is a misleading comparison to expect government spending to remain constant on an inflation adjusted, per capita basis (TPPF’s underlying premise).  As incomes rise, people want more of all types of goods and services—including government services.  If incomes are growing, then we would expect to see growth in real, per capita government expenditures.   The more appropriate frame of reference, in my opinion, is spending relative to state personal income.  Or to ask whether or not voters are getting what they paid for.

Hope this helps,

Lori

Lori L. Taylor

Verlin and Howard Kruse '52 Founders Associate Professor

Bush School of Government and Public Service

College Station, TX

From: Selby, Gardner (CMG-Austin) [mailto:wgselby@statesman.com]

Sent: Tuesday, July 30, 2013 9:43 AM

To: Taylor, Lori L.

Subject: Calculating impact of population and inflation growth

 

Professor Taylor:

 

As mentioned, I write because I am trying to reconcile divergent conclusions about the same question. I need both to explain the divergence and say why one method or another might be best/preferred.

 

The situation is that an Austin foundation concludes that state spending has consistently exceeded pop plus inflation growth, per this pub: http://www.texaspolicy.com/sites/default/files/documents/2012-04-PB08-UpdateTrendsInTexasGovernment-StateGovernmentSpending-CFP.pdf

 

In contrast, the Legislative Budget Board indicated in Figure 22 of the latest Fiscal Size-Up report, posted here, that GR spending did not outpace inflation plus population growth in four of the six past budgets.

 

I am striving to explain this gulf and would be interested too in whether you have guidance for our story on which method is the right one and why. If you think we should also enlist other experts, please say.