Better Reflecting Transitions in Market Production by Government Functions Over Time: Updating the Classification of State and Local Government Enterprises in the National Income and Product Accounts

Government enterprises are government agencies that operate like market producers by covering a substantial proportion of their operating costs by selling goods and services to the public. The current surplus of state and local government enterprises in the National Income and Product Accounts (NIPAs) was –$17.5 billion in 2020, driven by negative operating surplus for two government functions: housing and urban renewal and public transit. Using Census of Government data for 1967–2017 to better identify government functions that charge economically significant prices and therefore operate like market producers, this paper shows housing and urban renewal and public transit should no longer be classified as state and local government enterprises in the NIPAs as of 1972 and 1982, respectively. Additionally, hospitals and solid waste management should be classified as state and local government enterprises beginning in 1977 and 1992, respectively. This updated reclassification would better reflect changes in market production behavior over time for government functions and result in positive current operating surplus in the NIPAs for state and local government enterprises.