In June, the federal Congressional Budget Office released its periodic report on federal investment—a report that catalogs federal spending on physical capital, education, and research and development over time and compares it to the growth of the overall economy. After seeing this report, I was interested in seeing how Ohio’s state investments compared.
The Ohio Legislative Service Commission provides historical data on Ohio’s revenues and expenditures going back to 1975 for operating funds and 2008 for capital funds. In order to mirror a previous study we did on the state economy, I looked at data from 2009 to the present to look at state investments throughout Ohio’s recovery from the Great Recession.
Unfortunately, the Legislative Service Commission does not provide readily-accessible data on state research and development spending. That being said, the agency does a good job of making physical capital and education spending available. Below are some of the takeaways I had looking at this data.
1. Total physical capital and education spending is down 11% in the past decade. In inflation-adjusted terms (using the Bureau of Labor Statistics’ CPI-U measure), the state spent 11% less on physical and human capital in 2019 than in 2009. This is driven by a $600 million reduction in education spending and a $700 million reduction in physical capital spending over that time period. Spending on physical and human capital is up $1.1 billion in 2019 from its nadir in 2012, but has not reached 2009 levels in real terms.
2. Reductions in education spending over the past decade were driven by higher education cuts. While K-12 real expenditures were flat from 2009 to 2019, higher education spending was cut by 23% over the time period. Reductions in higher education expenditures made up almost half of the total reduction in combined human and physical capital over the past decade.
3. Reductions in physical capital spending were driven by school facility investment cuts. The state of Ohio spend almost $900 million less on school facilities in 2019 than in 2009, representing two-thirds of the net reduction in human and physical capital spending over the decade. This may have been due to a “catch-up” period in K-12 facility building in the late 2000s or may represent a policy decision to reduce facility spending.
While K-12 facility cuts cuts were partially offset by increases in investment in natural resources, corrections, and transportation capital, they weigh down total physical capital spending, leading to an over 40% reduction in physical capital spending from 2009 to 2019. While physical capital investment is up $175 million from its low point in 2013, it was lower in 2019 than any year since 2014.
4. State human and physical capital investment has declined as a percentage of Gross State Product (GSP) over the past decade. Taken as a percentage of GSP, or total economic output for the state as reported by the Bureau of Economic Analysis, state human and physical capital investment is down almost a full percentage point from 2009 to 2018 (the most recent year we have BEA GSP data for), a reduction of one third of its previous level. Spending as a percentage of GSP has not had the recovery that human or even physical capital has, reaching 1.7%, its lowest point over the time period, in 2018. This could mean that more investments are being made privately, but also means the state is investing less in capital that could have economic spillovers or equity benefits for the population.
5. State human and physical capital investment has declined as a percentage of Genuine Progress Indicator (GPI) over the past decade. GPI is an economic growth indicator that adjusts for factors not included in GSP that have known economic impacts like environmental damage, the value of unpaid housework and child care, and the cost of family breakdown. GPI in Ohio is currently calculated by Scioto Analysis and data is available through 2016. Using this measure as the calculation for the size of the economy, human and physical capital investment is down by a percentage point from 2009 to 2016, which only amounts to a reduction of a fifth of state human and physical capital investment as a share of the economy as a whole. Much of this, though, owes to slower GPI growth over the period fueled by rising inequality, culminating in a GPI “recession” in 2016. The slower growth in GPI thus makes the reduction in human and physical capital investment by the state look smaller as well, though investment is still lower in 2016 than in 2009.
Overall, the Legislative Service Commission data suggests that the state of Ohio has reduced human and physical capital investment over the past decade. Total real human and physical capital investment, human and physical capital investment as a share of the economy, human capital investment, physical capital investment, and K-12 facility spending are all down in the past decade, while K-12 non-facility investment is flat and there have been smaller increases in natural resource, corrections, and transportation investments. This signals a belief among current policymakers that investments are not the most effective strategy for reducing market failures or achieving equity goals over the period of recovery from the Great Recession.