Methodology of The Budget Project

The Budget Project is based on a fiscal rule of a spending limit on state funds (excluding federal funds) or on all funds (including federal funds), calculated as the average of the rates of state population growth plus U.S. chained consumer price index (CPI) inflation over the prior three years before a legislative session. This is similar to Colorado’s Taxpayer’s Bill of Rights (TABOR), which has been around since 1992, though now needs improving. 

The Budget Project provides a sustainable spending limit that ensures a budget does not grow beyond the average taxpayer’s ability to pay, as reasonably measured by the rate of population growth plus inflation. This metric accounts for more people and higher wages, which usually track inflation while accounting for economies of scale and the fact that each dollar is more productive at the margin in the private sector.

For example, the Budget Project for the FY 25 budget, developed during the 2024 session, uses the 3-year average rate of state population growth plus inflation from 2021-23. The Budget Project for FY 25 uses the base budget for FY 24, adjusted for changes in FY 24 spending if actual spending in FY 24 changed by at most the 3-year average rate of population growth plus inflation, given that FY 24 spending amounts are not yet available by state.

These amounts may be different than actual spending. However, the state should ensure that the burden of government spending does not grow excessively by keeping growth to no more than the rate of population growth plus inflation in each budget period. Also, this helps address excessive spending over the last few years in many states during government-imposed lockdowns in response to the COVID-19 pandemic. 

The data used in this analysis are actual spending data collected from the National Association of State Budget Officers (NASBO). Using these data, our analysis shows the cost or savings of state funds and all funds per state per capita and per family of four, on average. These are based on the difference between the latest budget and what it would have been if it had followed the rate of population growth plus inflation since the first year considered, and the cumulative difference for each budget compared with what it would have been if it had followed this metric since that first year. These data from NASBO may not equal total spending per state, depending on what was reported.

Definitions

• General Funds: predominant fund for financing a state’s operations. Revenues are received from broad-based state taxes. However, there are differences in how specific functions are financed from state to state.
• Federal Funds: funds received directly from the federal government, primarily for Medicaid, education, and transportation expenditures.
• Other State Funds: expenditures from revenue sources restricted by law for particular governmental functions or activities.
• State Funds: general funds plus other state fund spending, excluding state spending from bonds.
• All Funds: state funds plus federal funds for the total budget.