States, including Minnesota, have lower revenues due to recession

State government revenue dropped by about 30 percent from 2008 to 2009, according to the Census Bureau. That’s a huge drop, and much of it is attributed to the crash in investment income at the beginning of the recession.

The biggest hit came in what the Census Bureau calls “social insurance trust revenue.” That includes public employee retirement, unemployment compensation, workers compensation and other insurance trusts. For example – public employee retirement funds are invested in stocks and bonds. When the stock market crashed, so did the value of these funds. The drop in revenue for retirement funds does not mean that state  governments had less money to spend on day-to-day or even year-to-year operations, but rather than they have less money in reserve to pay pensions.

Unemployment insurance and workers comp funds also took a big hit because of increasing unemployment. When people aren’t working, they aren’t paying into these funds, and the unemployment insurance fund is being drained. Most states, including Minnesota, had to borrow from the federal government to pay unemployment compensation and now owe the federal government substantial amounts. Unemployment compensation payments increased by 86 percent from 2008 to 2009.

Total taxes collected also fell. Increased federal grants made up some of the difference. Overall, the Census Bureau reports:

State government general revenue was composed of 47.8 percent from taxes, 32.0 percent from federal grants, 10.6 percent from service charges, and 9.6 percent from other revenue in 2009.

Education is a big part of state government expenditures. In Minnesota, education expenditures make up slightly more than 40 percent of general government expenditures. Education spending increased by 3.7 percent from 2008 to 2009 in Minnesota, which is slightly less than the general expenditure increase of 4.3 percent.

For the Census Bureau summary report (pdf), click here.

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