I learned a lot about government finance from my mother. Once, when I was 8, on hearing that a prosperous local farmer was tooling around in a new Buick, she sniffed, “Yes, and the county pays his mother’s nursing home bill.” When, on reading the county budget in the local newspaper, I asked why the county hired a “Veteran’s Service Officer” when most veteran’s affairs were federal. “Oh,” she said, “he is so good at getting old veterans or their widows on VA pensions that he saves the county welfare department a lot of money.”
I am sure she would be doubly amused if she were alive to hear a descendent of the same old lady in the nursing home decry “the soaring growth of state spending in the last 40 years.” Part of that soaring growth came from state (and federal) government picking up much of what long had been the burden of counties, including the cost of taking care of indigent old people.
Keep that in mind when thinking about how government has grown. Some increases in state and federal outlays result in a shift in burden rather than a net increase in spending. Moreover, you cannot calculate the total cost of government simply by adding up total spending at local, state and federal levels. That would involve double counting of transfers from one level to another in areas like roads, retirement home and medical costs and unemployment compensation.
A century ago things were simpler. The federal government took care of defense, foreign relations and some civil works like harbors and rivers. State government administered some courts, operated universities and prisons and oversaw local government. The latter ran elementary and secondary schools, built streets and roads and provided public safety. County government bore the responsibility of caring for the poor and indigent, often still through the institution of the county “poor farm.” (The barns and silo of Ramsey County’s poor farm remain on White Bear Avenue.)
Transportation changes came first. As cars gained importance, existing township and county roads became inadequate. Farmers wanted farm-to-market roads. Local government clearly would not build the statewide transportation highways that a modern economy needed.
So, in the 1930s, states began to construct more roads, and the federal government bought into the game. Both state and federal governments introduced gasoline taxes. However, it was not until 1956 that the federal government got into highway funding in a big way.
Federal government fuel taxes funded new interstates, but the actual construction was managed by individual states. Federal funds also paid for part of state roads. States funneled part of their own fuel tax revenues to counties and cities. And there were special programs like the federal one for rural bridges, that when funneled through MnDOT and Murray County built the bridge in the Moulton Township Road east of our farm.
Similar shifts took place in terms of welfare and social services. Some states created unemployment compensation funds. The federal government followed, to spread the rolling effects of localized slumps across the nation. But payments from both programs were administered by states.
Supplemental Security Income subsumed sundry programs of “Old Age Assistance” and “aid to the blind,” relieving counties of substantial costs. Federal funding for Aid to Families with Dependent Children and food stamps, administered by states and counties, similarly took over much expense from local welfare offices. Medicaid assumed both the cost of health care for some poor people and their eventual stays in nursing homes.
The largest shift took place in education, where states began to funnel money to local school districts, often with the objective of providing the same level of K-12 education regardless of the real estate “tax capacity” of local school districts.
Yes, some of this involved inefficiencies. The bridge near our farm had to be built to federal specifications and thus is overbuilt. But the one it replaced clearly had been underbuilt. And yes, the availability of Medicaid motivated farmers to transfer ownership of their operations to the next generation so that they would be indigent by the time they needed “to go into the home.”
At the state level, much of the growth in budgets results from the assumption of what had been local responsibilities. That is one reason the combined cost of state and local government as a percentage of personal income is substantially less in 2011 than it was throughout the 1990s.
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.