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 all funds (including federal funds) based on 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 by more than the average taxpayer’s ability to pay for it as reasonably measured by the rate of population growth plus inflation. This metric accounts for more people and higher wages, which usually tracks inflation while accounting for economies of scale and how each dollar is more productive at the margin in the private sector.

The Budget Project for the FY 25 budget developed during the 2024 session uses the 3-year average rate for population growth plus inflation from 2021-23. The Budget Project for FY 25 uses the base budget for FY 24 determined by changes in the budget if actual spending in FY 24 changed by a maximum of the rate of the 3-year average rate of population growth plus inflation given the FY 24 spending amounts are not yet available per state.

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

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 in the latest budget compared with 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 if it has followed this metric since that first year. 

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.