HomeMy WebLinkAboutCity Council Packet 08-28-1996 SpecialPLYMOUTH CITY COUNCIL
SPECIAL COUNCIL MEETING
1997 PROPOSED BUDGET
WEDNESDAY, AUGUST 28, 1996
7:00 P.M.
PUBLIC SAFETY TRAINING
ROOM
Page
I. Response to requests for General Information
A. Tax Increment Districts Expiring.................................................................. 1
B. Timetable for Future Revenue Forecasts.......................................................... 4
C. Cost estimate for a 1997 Special Election........................................................ 5
D. Calculation of levy reduction needed to level the tax burden for average
residence, 1993-1997.................................................................................6
E. Assessors comments on limiting valuation increases or decreases .......................... 7
F. Comments on gift catalogue concept.............................................................. 8
II. Response to Specific Budget Inquiries
A. Computers: PC needs and Replacement Schedule ........................................... 11
B. Computers: Contract In -House Technical Services ....................................... 14
C. Appraising: In -House Contract...............................................................16
D. Dump Trucks: Steel Aluminum Dump Bodies ............................................ 18
E. Storm Water Utility Plan .......................................................................... 20
F. Utility Franchise Fee Study....................................................................... 26
G. Earth Day........................................................................................... 31
III. Capital Project Needs ill be provided at meeting)
A. Intent of Capital Fund Proposal
B. List of possible future projects
C. Cash Flow of Park Dedication Funds
D. January, 1995 Memo on Community Improvement Fund
E. Updated CIF Projections
F. Graphic on Expenditure Components
IV. Alternative Budget Scenarios ill be provided at meeting)
V. Direction to Staff
General Information
N
MEMO
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: August 15, 1996
TO: Dale Hahn, Finance Director
FROM: Nancy Bye, City Assessor
SUBJECT: TAX INCREMENT DISTRICT TERMINATION DATES, ESTIMATED
MARKET VALUES AND TAX CAPACITY VALUES
The following is a list of the TIF Districts and the dates they will terminate along'with the 1996
estimated market values and tax capacity valuations for payable 1997.
TIF DISTRICTS TERMINATED IN 1996/PAYABLE 1997
ESTIMATED
DISTRICT # MARKET VALUE TAX CAPACITY
1-4 11,405,000 515,030
2057
2-1 5,312,700 241,184
2059)
4-1 20,230,500 915,540
2056 & 2096)
4-2 5,089,800 229,331
2058)
4-3 25,058,900 1,102,870
2063 & 2099)
TOTAL 67,096,900 3,003,955
August 15, 1996
Dale Hahn, Finance Director
Page Two
TIF DISTRICTS TERMINATING IN 1997/PAYABLE 1998
ESTIMATED
DISTRICT # MARKET VALUE TAX CAPACITY
1-5 14,934,600 672,031
2060)
3-2 6,694,300 306,338
2061)
3-3 21,216,200 972,746
2062)
5-1 15,762,700 703,117
2064 & 2098)
6-1 10,287,100 428,520
2065 & 2097)
TOTAL 68,894,900 3,082,752
TIF DISTRICT TERMINATING 1998/PAYABLE 1999
ESTIMATED
DISTRICT # MARKET VALUE TAX CAPACITY
7-1 $24,877,300 $1,142,751
2066)
TIF DISTRICT TERMINATING 2000/PAYABLE 2001
ESTIMATED
DISTRICT # MARKET VALUE TAX CAPACITY
7-4 $1,627,300 $74,856
2069)
August 15, 1996
Dale Hahn, Finance Director
Page Three
TIF DISTRICT TERMINATING 2004/PAYABLE 2005
ESTIMATED
DISTRICT # MARKET VALUE TAX CAPACITY
7-2 $3,584,000 $164,864
2067)
TIF DISTRICT TERMINATING 2006/PAYABLE 2007
ESTIMATED
DISTRICT # MARKET VALUE TAX CAPACITY
7-3 $1,186,000 $52,956
2068)
3
DATE: August 21, 1996
TO: Dwight D. Johnson, City Manager
FROM: Dale Hahn, Finance Directo
SUBJECT: Revenue Forecasts
I have met with Fred Moore, Anne Hurlburt, and Kathy Lueckert to look at different
scenarios for the preparation of revenue forecasts. In the short-term, a plan can be
prepared that will include a review of.
What revenue is related to development?
What are the costs associated with development services?
What are the core services?
What happens to revenue and expenditures if development stops?
What percentage of development revenue is related to new construction versus
remodeling/expansion?
What are trends in other cities?
What do we project, based on current MUSA, applications, available land etc.
in the pipeline?
What happens if the economy goes sour?
This plan will make projections for five years, and will be complete by year end. It will
form the foundation for future MUSA line studies.
As a longer range project, we will be looking at the possible MUSA line extension
development options:
Changes in density
Residential versus Commercial/industrial
Timing
Capital Improvement Program impact
Property owner input
Other trends.
It is estimated that the long-range project will require at least another year to complete.
M
DATE: August 22, 1996
TO: Dwight Johnson, City Manager
Kathy Lueckert, Assistant City Manager
FROM: Laurie Ahrens, City Cler///
SUBJECT: Cost Estimate for Special Election
The following is an estimate of costs for a special election in 1997. This assumes that the
election would be by paper ballot in the 20 precincts. Miscellaneous costs such as
photocopying, postage, absentee ballots, and voter registration can be accommodated in
the existing budget.
Temporary Salaries $8,000
4 judges per precinct; existing hourly rates; 17 hours)
Overtime $ 400
Supplies $1,000
Precinct Rental Fees $ 800
Ballot Printing (paper ballots) $2,500
Print and Publishing (legal notices) $ 300
Cost Estimate Total: $13,000
50
DATE: August 21, 1996
TO: Dwight D, Johnson, City Manager
FROM: Dale Hahn, Finance Director
SUBJECT: Reduce 1997 taxes to same level as 1993
The proposed budget assumes a tax rate of 14.27 plus a market value levy of $8.89. This
rate equates to $407.59 in City taxes on a $175,700 home. To attain the same City taxes
on this home as in 1993 ($406.62) requires a reduction in the tax rate from 14.27 to
14.235, or $.97 less. The total City-wide impact on the budget amounts to a cut of
22,114 from the proposed budget.
This reduction can be achieved by reducing the General Fund contingency or the Capital
Improvement Fund levy. In either case, the affect will be minimal.
MEMO
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: August 21,1996
TO: Dale Hahn, Finance Director
FROM: Nancy Bye, City Assessor z7z
SUBJECT: Limited Market Adjustments for Commercial & Industrial Properties
I can see advantages and disadvantages in placing a limit on the increase or decease in
market value on commercial and industrial properties. The advantage may be to create a
stabilization of the values for the tax base. However, because of the volatility of the
commercial and industrial real estate market, the city could lose substantial tax base value
when the market values increase rapidly and we are limited to a certain percentage of
adjustment. I believe the owners of these properties would be in favor of a limit on the
increase their valuation could go up in a year especially in the boom years. However, in a
down market they would not be so ready to except a valuation higher than true market
value. Because of the existing appeals process (tax court) they still would have the
opportunity to have their valuation lowered. Thus, we would still have the possibility of
numerous tax abatements. There are many attorneys whose main practice is tax litigation
and I would anticipate them challenging any legislation limiting the rights of property
owners to appeal their valuation.
The legislature has established a law that limits the amount a residential property can
increase in value in a year. There is not a law limiting the amount it can go down in
value. Because of this limited law the city currently has $14,159,600 of true market value
not being taxed. Administratively this law has been expensive for the city to implement
in computer and staff time. This is due to the need to track these parcels, calculate the
limited value and maintain dual property values.
u
DATE: August 22, 1996
TO: Kathy Lueckert, Assistant City Manager
FROM: Eric Blank, Director of Parks & Recreation
SUBJECT: 1997 Budget - Council Inquiries at First Work Session
1. At the first budget work session, the Council inquired about the possibility of expanding
contributions to the City. By way of background, let me explain a little bit of the current
status. The City currently is working with the community on numerous projects where
contributions are made either directly or indirectly to city programs. Just to highlight a few of
these, both the Police and Fire Departments have a number of outlets whereby community
businesses and individuals make contributions towards such things as the Canine Unit,
D.A.R.E., a new water rescue boat, and other special programs. These funds go to the Crime
Fire Prevention Fund, which is administered by an independent board. Within our
department, we solicit and receive numerous contributions such as the entire Summer Concert
Series being underwritten by various local businesses. We do a great deal of fund raising for
the Fire & Ice Festival, the History Fest, and the Arts Festival. We have also received
individual contributions for the construction of playgrounds, park benches, trees, and other
items throughout the park system.
We also have to consider that the Plymouth Civic League is out looking for major
contributions annually to fund the Music in Plymouth program. Many of our local businesses
are aware of the close relationship the City has with the Civic League, and some may consider
a gift to the Civic League as a gift to the City also.
My final point in this area is that the City, because of our responsibility as a regulatory agency
over many different areas of life within the City of Plymouth, needs to be very cautious in the
method in which we solicit funding for various City projects. There is a very definite line over
which it would be both ethically and legally wrong to step.
With all of the caveats which I have mentioned above, I do, however, think that it would be a
very practical and a good idea for the City of Plymouth to consider developing a gift catalog.
This catalog could be published annually by the City, listing various types of needs that we
have. Needs could be anywhere from benches, a square foot of asphalt for a new trail,
planting and shrubbery for various parks and trees, contributions to fund low-income children
to recreation programs, etc. All departments could submit ideas for contributions each year.
A gift catalog would be generally distributed throughout the community and available at City
Hall to provide equal access to all members of our community and our business community,
thus removing any particular staff member from having to seek private funding. If the
Council is interested in pursuing a program such as this, I believe there would need to be some
money placed in the Communication Coordinator's budget for the printing and publication of
a gift catalog that could be generally distributed throughout the community. There are
numerous examples of gift catalogs throughout the country.
2. The Council inquired about the net revenue effect of raising the anticipated ice rental fee from
120 to $125. I asked the Rink Manager, Bill Abel, to look at both $125 and $130 in terms
of what this might do for our revenue. Bill believes that for each $5 increase in ice rental we
will generate approximately $25,000 on an annual basis.
Bill is in the process of refining the rink budget and developing use policies. He will present
these to the Council by the end of the year after the Park and Recreation Advisory
Commission has reviewed them.
EB/ds
City—ply\vol l\PARKS\STAFF\ERIC\MEMOS\STAMCounclnq.doc
Specific Budget Inquiries
DATE: Aug. 20, 1996
TO: Dale Hahn
FROM: Stan Birnbaum
SUBJECT: PC placement strategy
In response to the council request, I am providing some rationale on our approach to managing
desktop computer performance standards:
The starting point for determining hardware requirements for Plymouth system users
is based on the mix of software applications in use. For most users, this will include
use of between one and three "office automation" applications (such as word
processing or spreadsheets), electronic mail, a terminal emulation package (for
accessing the Unisys mainframe) and in an increasing number of cases, a client -server
product that integrates the new core software systems (such as new financials) with
our network capability. In addition to these shared products, a number of more
specialized products are used by various departments in the City. A typical user is
operating three to five of these programs simultaneously. The computing power
required to meet this load effectively calls for current equipment (mid-range Pentium -
class processors with 16 megabytes of memory). Purchasing mid-range, current
equipment provides the most "bang for the buck," combining a long-term warranty on
the equipment (three years) while purchasing enough computer "muscle" to still be
useful for the three-year duration of the warranty.
In addition, a growing number of users is involved with applications requiring more
aggressive capability, such as GIS software. These systems require greater capability
than the City's standard minimum.
Managing our multi -server network always requires that all computers connected to
the network are capable of using tools shared on the network. For example,
connecting to the City's new client -server application software requires high-
performance equipment. Any staff person without high performance equipment lacks
access to this data. A receptionist with out up-to-date capability would not be able to
query the payables systems and route an incoming package correctly. Likewise,
automating our in -coming and out -going fax capability requires involving a system
gatekeeper." Logically, this should come from a reception function—but it does
require providing significant capability at a receptionist's system. It is generally quite
difficult to predict the minimum computing power required by a given position to
meet current as well as emerging needs.
Achievement of standards—which results in significant purchasing, support and
training savings—requires providing a standard tool set throughout the City. Today,
it is a struggle to make computers support standard tools for even three years.
Therefore, the City would be well served by replacing desktop systems every three
years. This gives us the best opportunity of maintaining standard tools city-wide.
Our oldest computers cannot be upgraded to meet the requirements of the operating
systems we are installing today (which, in turn, is required to implement new
software systems we have chosen to utilize).
Even the highest -quality computers tend not to hold up well in a networked
environment after three years. Complex networks with high-performance tools
tolerate less marginal failure in components than smaller networks or stand-alone
systems. The costs of diagnosing and resolving these failures is not cost effective.
95% of our repair costs come with machines older than 30 months. Equipment is out
of service longer because component availability is more complex. Repair costs on
these older systems generally exceed the current market value of the system.
In general, a network is only as capable as the weakest link in the system. The oldest
technology in the network tends to create barriers to development as well as
significant support problems. In all organizations, networks have become
increasingly fragile as they become more complex and are asked to do more complex
tasks. We have many examples of our older technologies creating barriers to
effective performance in the network throughout the organization. For example, a
poorly functioning $80 network connection device in an out-of-date computer can
bring the entire network down.
We are evaluating—and expect to implement—workflow technologies, including
imaging, that can significantly reduce the City's use of paper and redundant
processing. Achieving these savings in staff time and paper requires providing robust
equipment and the desktops of all City staff who use the system. Failure to achieve a
sufficiently aggressive level of hardware at all workstations severely limits
opportunities to achieve workflow gains.
Any type of "trickle-down" approach requires constant moving of equipment down a
chain of perceived power requirements. This means that each computer is
reconfigured regularly as it moves down the chain. This process of constant
reconfiguration and equipment moves costs significant staff time and effort. Adding
one computer could easily result in moving two or three other machines.
Increasingly, organizations are tending to "level the playing field," selecting a fiscally
responsible replacement cycle as new equipment is placed.
I believe the most cost-effective way to manage these issues is to recognize the relatively short
lifetime of equipment at the time of purchase and to build replacement costs into our planning.
I 00
Capital expense detail notes
Account Component/description Cost
721.00 Minor equipment
50 replacements PCs @ 2300 ea.* 115,000
T-1 speed DSU/CSU (frame relay) 1,300
4 100-BaseT hubs 8,400
4 print servers 2,400
2 modems 1,200
1 laser printers 2,300
3 color printers 4,500
GIS to the desktop (8 seats) 17,600
Replace 50 NIC cards 5,500
Memory upgrades 9,600
Router upgrade 1,700
Network CD-ROM 400
Misc. products and upgrades 10,000
Replace 20 monitors @ $800/ea. 16,000
Replace 30 monitors @ $500/ea. 15,000
Total 210,900
906.00 Capital equipment
4 laserjet 5 printers 12,800
upgrade NT server 19,000
communications server 16,000
3 laptop computers 11,100
network tape drive 11,000
100 -meg. Ethernet switch 8,000
HP 655 plotter 7,500
Total 85,400
note: all prices include taxes and shipping
13
Technical services coordination: contract model
Assumptions:
Providing minimal continuity in advanced technical services would require
on-site presence of an expert resource on a minimum basis of three days per
week (150 days annually)
The City would purchase contractual resources from organizations with a
proven track record recruiting and training the appropriate level of expertise
75 % of needs are in Netware and Windows/NT; 25 % Unix and advanced
systems (wide -area networking, SQL products, etc.)
Pricing examples:
OPM Information Systems
Best rate on Netware and Windows/NT expertise: $720/day
Best rate on Unix and other advanced system services: $960/day
Annual cost:
Connect
117,000
Best rate on Netware and Windows/NT expertise: $800/day
Best rate on Unix and other advanced system services: $1,000/day
Annual cost: $127,500
Disadvantages of a consulting model
Provides on-site capability only 60% of the time
Requires using a variety of people (consultants in this area tend to specialize
in one or two areas, rather than cover multiple areas broadly); coordinating
work among multiple consultants introduces considerable commitments of
internal staff time
Skilled resources are difficult to secure—the most competent consultants go
to sites that purchase their time in much larger volumes. Because of these
marketplace dynamics—which are extremely unfavorable to the purchaser—
we would only be able to "compete" for somewhat less skilled personnel.
The organization would have only limited options to develop long-term
expertise that it "owns"—expert knowledge will remain with the consultants
rather than with the City.
M
Technical services coordination: benefits
Key benefits of adding a position coordinating technical services to the information
technology department include the following:
Provide capability to advance the City's utilization of new technologies to
provide service to citizens, such as enhancing our Internet capability. This
position will help us utilize more complex technologies, making more
interactive information and resources available to citizens.
By focusing technical resourcing in a single position (today it is shared by
several persons, none of whom specialize in these skills), other IT staff can
focus on projects that have immediate payoff in services to citizens or
improved operational performance at city offices. Projects such as the use
of imaging, automated fax systems, interactive voice systems, GIS,
communication technologies, etc. will get a more appropriate level of
attention. These systems provide significant value to citizens by stretching
the capability of staff to meet citizen needs without extending hours or
increasing staffing levels.
A specialized position will increase the availability of network computer
resources, reducing the cost of system downtime (we can estimate system
downtime" costs at about $2,000 per hour).
A specialized position will also free up considerable IT resources to work
more closely with our system users. Increased IT assistance to staff makes
it significantly more possible for them to work effectively and utilize
technology appropriately.
A specialized position also significantly decreases the City's risk as our
computer operating environment becomes more complex. Complex
networks featuring multiple systems, have an inherent "fragility" that comes
from the integration of diverse tools and systems. The "care and feeding"
of these types of networks require skills that are beyond the skills of the
current IT staff.
it
MEMO
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: August 23, 1996
TO: Dale Hahn, Finance Director
FROM: Nancy Bye, City Assessor - 4
SUBJECT: Analysis of costs and benefits of an in-house permanent appraiser
verse contracting out for a part-time appraiser
Appraisers performing appraisals for Counties or Cities for tax purposes must be
licensed through. the State Department of Revenue. These appraisers are licensed
Minnesota Assessors trained in the mass appraisal and the assessment process. Private
appraisal firms have appraisers licensed with the State to do fee appraisals. They are not
licensed or trained in performing mass appraisals and have minimal knowledge of the
assessment process.
I have checked with the Hennepin County Assessor's Office in regard to the costs
involved with contracting for a 24 hours/3 days a week appraiser. At the present time
Hennepin County is not willing to contract out a residential appraiser. They do not have
extra residential appraisers on staff and would have to hire an additional appraiser. They
would not contract out an appraiser for only part-time residential work. Hennepin County
only hires full time appraisers and would require the position be paid for full time work
and the cost of all benefits received from the county. This cost would be in a range from
35,000 to $40,000 a year for an entry level appraiser compared to the $25,400 for the
City to hirer a part-time staff appraiser.
In checking with a number of private appraisal companies, I have not found any
companies, who have appraisers on staff with training or licensed in mass appraisal.
If the city were to contract out for an appraiser from one of these firms we would
probably be required to pay for the schooling and training of this appraiser in addition to
the contract salary. Because of the ever changing laws regarding the property tax system
it is important that the appraisers are well informed and appropriately trained. State law
requires they be licensed. The residential fee appraisers in these companies now earn
between $35,000 to $75,000 a year depending on years of experience. Appraisers
working for a City or County, either full time or part-time, are not allowed to perform fee
lu
appraisals in that city or county. It is considered a conflict of interest by the State. At the
present time, considering the restrictions, training and licensing required for appraisers to
work for cities/counties, private appraisal firms have not been contracting out this service.
When dealing with the volume of properties in Plymouth it is vital to have the person
doing the appraising and determining valuations on staff so they can be held accountable
for their work and are available to answer any questions. The results will be better
service to the citizens of Plymouth and the overall confidence by the citizens that their
market values are supportable and fair.
With the addition of a regular part-time appraiser we will be able to increase the number
of parcels inspected in the quartile. The new computer system will enable us to track the
parcels that we were unable to perform an interior inspect on and flag them for the next
quartile.
III
MEMO
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: August 20, 1996
TO: I Fred Moore, Director of Public Works
FROM: ( Tom Vetsch, Superintendent of Public Works
SUBJECT: STEEL VS ALUMINUM DUMP BODIES
When the Central Equipment Division takes on a task to purchase and set up a new dump
truck, every component of the truck is looked at and analyzed. This is literally front to
end, selecting starters, alternators, rear ends, suspensions, lights, etc. One of the
selections that needs to be made is the size and type of the dump box. In the past the
City has used steel constructed dump bodies. Aluminum boxes have been analyzed to
determine if they would be a good choice of dump body box for our use. This decision
was based on our experiences, talking to others that have aluminum boxes, and vendors
who supply boxes. Aluminum boxes are installed on trucks that are used to haul soft
materials exclusively. This is because the overall weight is lighter than a steel box. On a
single axle dump truck, an aluminum box would weight approximately 800 to 900 lbs
less than a steel constructed box, consequently allowing them to haul more material.
Our dump trucks are a different weight at different times of the year depending on how
much of the plow/sanding equipment is installed. With the additional equipment added
we reduces the net weight of certain materials that we can haul. The net weight difference
with the aluminum box would become insignificant. When our plow/sanding equipment
is removed there are material that we haul where we fill the boxes full and are still not
over legal axle weight. These materials would be street sweepings, leaves, composted
materials, black dirt and similar materials to these. In these instances the steel boxes
allow us to haul as much as we can load in to the box. The aluminum boxes would be of
no advantage while hauling these materials.
The City of Plymouth cannot designate a single axle truck as a truck to transport
materials only. Our trucks need to be multi purposed with many different operators using
the truck. We need to haul concrete curb, asphalt chunks, debris from watermain breaks
to name a few. We feel that during the life of the dump truck, the steel box will with
stand the use and abuse it will receive during it's life far better than aluminum. In cases
of the truck being used for ice control, vendors have told me that aluminum boxes are
subject to more stress and strain in the up position than our steel boxes. During sanding
operations our boxes are halfway up or go through the up down motion many times
during a sanding operation.. This adds to the stress and strain of the aluminum box.
The only way that aluminum boxes could work for the City of Plymouth is if we would
line the inside of the box with plywood so it could absorb some of the shock as we are
loading our larger types of material. This in turn would defeat the purpose of trying to
minimize the weight of the box. Furthermore, we have just added $3,000 to $4,000 to the
price of the aluminum box and we would not receive full benefit.
In the future we will continue to have our boxes built so that they can be used for all the various
work we must do in Public Works and the Park Maintenance Division. If in the future we do get
enough vehicles that we can designate certain trucks as primary haulers, that would be the time
to consider aluminum boxes. If you have any further questions, please give me a 5991
iq
DATE: August 23, 1996
TO: Dwight D. Johnson, City Manager
FROM: Fred G. Moore, P.E., Director of Public Works
SUBJECT: STORM WATER UTILITY
IMPLEMENTATION PROGRAM
At the City Council Budget Study meeting on August 14, 1996 the Council indicated
that they were interested in implementing a storm water utility as soon as possible. The
concept of the storm water utility is to provide the necessary funding for the
implementation of the Plymouth Water Resources Management Plan. I am attaching
very preliminary information from the draft of the water plan which indicates a need for
4,238,500 of funding for the next five year period. Also included within that material
is an estimate of rate for the various types of property within the City. Based upon this
first preliminary analysis it indicates a rate of $1.48 per month for a single family
residential property.
As part of the process to establish the storm water utility, the area and usage of all
property needs to be classified in order that the appropriate rate can be applied to that
property. Some of this information is already in the City's computer system, but much
work needs to be done in order that it can be used for the final determination of an
appropriate rate for each parcel of land within the City. On Page 5 of the attached
materials is a description of the implementation of the storm water utility. The
estimated cost is $87,000.
Based upon discussion at the Budget Study meeting, we are requesting a written
proposal from our consultant preparing the Water Resources Management Plan to begin
the first phase of establishing a storm water utility. Upon receipt of this proposal it will
be presented to the City Council.
attachment
0
CitySlyWol l\ENG\GENERAL\MEMOS\FRED\STM WTRUT.DOC
U': 25. 96 U9 : 30 FIX SEH ST. ?AUL 002,'014
PLYMOUTH 41'AT ER RESOURCES MANAGEMENT PLAN
low's yilt wAy8j? ?
Preliminary Five -Year Implementation Plan Summar
July 24, 1996
Five Year Implementation Plan
Plan 1997 1998 1999 2000 2001 TotalElement
SUMMARY $256,500 $1,112,500 $7,431,500 $777,500 $666,500 $4,238,500
Implement 87'000
Storm Water 7,000
Utility
Utility
Customer
10,000 4,000 4,000 $4,000 $22,000
Service and
Accounts
Management
Conduct
Fozzxtal
56,000 6,000 6,000 6,000 $6,000 $30,000
Pond/Ditch
Inspection
Program
Develop and T$330,,000 330,000 $330,000Implement$990,000
Annual
Pond/Ditch
Maintenance
Program
Purchase/Lease
Special
10,000 10,000 10,000 10,000 $10,000 $50,000
Pond/Ditch
Cleaning
Equipment
Page 7 Plymouth Water Resources Management Plang pcelimp1.724
07,'25/96 09: 30 Fal SEH ST. PAUL L 003%O13
Prelimina fiive-Year im lementation Plan Summa
July 24, 1996
Plan 1997 1998 T999 2000 2001 TotalElement
Develop and
Implement
5,000 5,000 5,000x5,000 5,000 $25,000
Public
Inforu ation/
Education
Program
Establish
Citizen Assisted
5,000 5,000 55,000 5,000 $5000 525,000
Monitoring
Program
CAMP)
Purchase City 7,000
Monitoring 7,000
Equipment
Annual
Laboratory
35,000 35,000 35,000 $35,000 $140 000
Costs
Complete 35,000
Parkers Lake 35,000
Improvement
Feasibility
Study
Construct 7501000
Parkers Lake 750,000
Improvement
Facility
Complete 40,000
Medicine Lake 40,000
Improvement
Feasibility
Study .
Construct
Medicine Lake
750,000 750,000
Improvement
Facility
Fara Plymouth Water Resources Mara ement Plan prelimp1.724
I&
0--23-'96 09:31 EiX SEH ST. PALL [a 004-'014
Prelimina • Fxve-Year Im lementation Plan Summa
July 24, 1996
Plan 19971998 F;997 2000 2001 TotalElementIT
Complete Bass
Lake 20,000 20,000
Improvement
Feasibility
Study
Complete
Schmidt lake 20,000 20,000
Improvement
Feasibility
Study
Study Wetland 15,000
Hydrology 15,000
impacts to
Wetlands
Strengthen
Water Quality
30,000 30,000
and Floristic
Elements of
Wetland
Classification
System
Implementation
of WCA
14,000 14,000 14,000 14,000 14,000 70,000
Acquisition of
Signi%cant
IQQ,QQQ I on, 100,000 100 ,000 400,006
Wetland
Resources
GIS/MIS Data
base
7,000 7,000 7,000 7,000 7,000 35,000
management
Storm drain 100,000 100,000 I00,000 100,000 400,000System
maintenance
and
rehabilitation
Construction
Site Standards
3,500 3,500 3,500 3,500 3,500 17,500
and In ection
Plymouth Water Resources Management Plan prelimp1.724
3
V
07- 23.96 09: 32 FAX SEH ST. PAULC)J 005•'014
Prelimina Five -Year Im lenientation Plan Summa ry
July 24, 1996
Plan 1997 1998 1999 2000 2001 TotalElement
Ordinances 3,000 3,000 3,000 3,000 1 $3,000 1,5,000
Map Potential 5,000
Sites for Pond 5,000
Retrofitting
Storm Water
Runoff and 60,000 60,000
Precipitation
Monitoring
Grantsmanship 5,000 5,000 51000 5,000 5,000 25,000
Revise
Development
3,000 3,000 3,000 3,000 3,000 15,000
Standards
Storm Drainage 35,000
System ca35,000
Development
Charge
Establish 6;000
Runoff and 6,000
Pollutant
Loading
Control Fee
Prepare
Wellhead 45,000 45,000
Protection Plan
Complete
Watershed
4,000 4,000 4,000 4,000 4,000 20,000
Inventory -
Pond/Wetland
Data Base
Participation in
Elm Creek
2,000 2,000 2,000 2,000 2,000 10,000
Watershed
Programs
Participation in
Minnehaha
1,000 1,000 1,000 1,000 1,000 5,000
Creek
Watershed
Programs
MPlymouthWater Resources Management Plan prelimpl.724
ail
0711-115,196 09:32 FAM SEH ST. PAUL IM006.^014
Preliminary Five -Year Implementation Plan Summary
July 24,1996
Plan 1997 1998 1999 2000 2001 Total
Element
Participation in 5,000 5,000 5,000 5,000 5,000 25,000
Basset Creek
l Vatershed
Prograrns
Participation in 4,000 4,000 4,000 4,000 4,000 20,000ShingleCreek
Watershed
Programs
TOTAL 256,500 1.,11-2,500 1,431,:00 1$771,500 666,500 4,238,500
e°
31I
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: May 20, 1996
TO: Dale Hahn, Finance Director
FROM: Michael A. Kohn, Financial Analyst
SUBJECT: Utility Franchise Fees
BACKGROUND
In today's environment where the growth in property values has or will eventually
slow, and state aid is declining, it is necessary for communities to look at sources of
revenue other than the property tax. One such source of revenue that some state
communities are utilizing is a utility franchise fee. A utility franchise fee is a fee
which is levied by a community in exchange for a utility company's use of streets,
alleys and public grounds for its utility distribution system. It is typically levi6d as a
percentage of gross revenues earned within the community.
The legal right for a municipality to charge such fees is vested in State Statute (Section
216B.36) which states that a "...utility may be obligated by any municipality to pay to
the municipality fees to raise revenue or defray increased municipal costs accruing as a
result of utility operations or both. The fee may include but is not limited to a sum of
money based upon gross operating revenues or gross earnings from its operations in the
municipality...." As stated above, several state community's have taken advantage of
this right and have utility franchise fees in place. A listing of some of these
communities follows:
Municipality
Minneapolis (Gas & Electric)
St. Paul (Gas & Electric)
South St. Paul (Gas & Electric)
St. Cloud (Gas & Electric)
Lake City (Gas)
f go
Rate Revenue
5%* 16,595,000
8%* 14,280,000
3% 405,000
1.5% 1,200,000
2% 32,939
West St. Paul (Gas & Electric) 5% 489,500
Coon Rapids (Gas & Electric) 4% 1,363,137
East Grand Forks (Gas) 3% 90,754
White Bear Lake (Electric) 1.5% 150,000
Winona (Electric) 4% 615,000
Mounds View (Gas & Electric) 3% 235,937
Tiered rate structure.
Based upon the revenues received by these communities it would seem fairly
reasonable to expect that the City of Plymouth could raise about $500,000 for each 1 %
of a fee imposed on both gas and electricity. Accurate figures could be obtained if the
utility companies were asked to supply their gross revenues. However, such a request
might start an undesirable and unnecessary battle at this time.
ANALYSIS
While other communities have used a utility franchise fee to raise substantial sums of
money the question remains as to whether it would be feasible or reasonable for the
City of Plymouth to follow suit.
Feasibility
The City of Plymouth has franchise agreements with Northern States Power (NSP),
Wright -Hennepin Cooperative Electrical Association (W -H) and Minnegasco (see
attached). All contracts are for a period of twenty years with the electric franchises
expiring in 2007 and the gas franchise expiring in 2003. All of these contracts do
contain a provision for the collection of a franchise fee of up to 5% of gross revenues.
The contracts of the electric utilities require that the imposition of fees must be by
separate ordinance which may not be adopted until at least 60 days have expired after a
written notice enclosing such a proposed ordinance has been served upon the utility by
certified mail. The contracts for the electrical utilities also impose the additional
condition that an equal percentage fee must be levied on all other public utility energy
providers in the City.
What this means is that the process of adopting a utility franchise fee would be as
follows:
1. Provide a written notice, including a copy of the proposed ordinance
adopting a franchise fee, to each effected utility by certified letter.
2. Forward the proposed ordinance through the typical legislative process.
3. Adopt the franchise fee ordinance no earlier than 60 days from the date of
service of the written notification to each effected utility.
4. Impose fee effective at least 60 days after written notice enclosing such
adopted ordinance has been served upon the effected utilities by certified
mail.
9-7-
Reasonableness
A utility franchise fee is technically very simple to adopt and could potentially bring
the City a significant amount of revenue. However, the question remains; is it a good
idea?
Positive Attributes
Utility franchise fees like all new revenue sources have positive qualities. The
following list describes several of them:
1. A utility franchise fee could be a significant source of non -property tax
revenue.
2. The revenue stream from a utility franchise fee would be a stable source of
revenue.
3. Utilization of a utility franchise fee would achieve a wider distribution of the
local tax burden among those who benefit from public services. The
franchise fee would be paid by tax-exempt institutions as well as apartment
dwellers who are not directly affected by the property tax. As of 1992 there
were approximately 55 non-governmental parcels in the City of Plymouth
with a estimated valuation of $50,000,000 that were exempt from the
property tax.
4. Imposition of a utility franchise fee would have low administrative costs.
The only significant costs could be for an optional audit on a periodic basis
to ensure that the fees were being properly remitted by each of the utilities.
5. A utility franchise fee would be a reasonable alternative source of revenue if
the property tax is limited by legislative action such as a rate freeze.
All of these attributes make the utility franchise fee an attractive source of revenue
from an internal (city government) perspective.
Negative Attributes
A utility franchise fee also has some negative attributes:
1. A utility franchise fee, which is effectively an excise tax on energy
consumption, is more regressive than the property tax. According to figures
compiled by the U.S. Department of Labor for the year 1984 (see table
below) the consumption, as a percentage of income, falls at a faster rate as
income increases for utilities than it does for housing. What this means is
that those with the least ability to pay are hit hardest by this type of tax.
Consequently, on an equity basis, traditional economic theory would regard
the franchise fee as a poorer choice than the property tax.
Income Class Utilities & Fuel Housing
5,000-9,999 17.1% 29.8%
10,000-14,999 11.0% 21.0%
15,000-19,999 8.9% 17.8%
20,000-29,999 7.1% 15.3%
30,000-39,999 5.6% 12.9%
40,000 & Over 4.1% 11.1%
Percent Difference (5,000 to 40,000) 317.07% 168.47%
2. Utility franchise fee payments would not be deductible from state and
federal personal income tax. Property tax payments are currently deductible
from personal income tax for persons who itemize. This enables the
community to "export" a portion of its tax payments to the other citizens of
the country. Consequently, revenues from a utility franchise fee would cost
City residents more than an equal amount of revenues from the property tax.
3. A utility franchise fee negatively affects market efficiency. While the
incidence of the fee will fall almost entirely on the consumer the higher
price will also effect the producer. It is estimated by (Kohler, 1982) that the
price elasticity of residential electricity is -.13. What this means is that for
each 1 % rise in price, consumption will be reduced by %13 %. More
important than corporate profits is the fact that users of gas .and electricity
may choose to locate elsewhere to avoid higher prices for those services.
This may marginally affect Plymouth's ability to attract business, especially
from industries which are high energy users.
j
4. Adoption of a utility franchise fee is politically difficult to accomplish. All
of the communities with utility franchise fees have had them in place for 10
or more years with the exception of Mounds View which adopted their fee
with a 3 year "sunset clause" which expires in 1997. Other communities
such as Prior Lake, Mankato and Bloomington (see attached news clipping)
have attempted to put franchise fees in place but have been thwarted by very
c intense media and political campaigns mounted by the utility companies.
The utility companies intent to take such action in Plymouth if the need
arises is evidenced by a February 5, 1987 letter from NSP to a law firm
representing the City. This letter (see attached) states:
NSP, as you have been informed, is firmly opposed to franchise
fees. NSP primarily objects to the fees because they represent a
regressive form of taxation on our customers and result 'in an
increase in the cost of NSP's electric service as compared to the
costs imposed on the same service in a neighboring community or on
other direct or indirect competitors of the Company in the sale of
energy.
A
At the same time, in recognition of the concerns of the cities which
you have expressed, NSP changed its position in regard to no new
franchise fee agreements, but only if certain conditions are met. One
of these conditions was the recognition that NSP plans to oppose the
imposition of a franchise fee even if it agrees to a franchise which
authorizes the imposition of the franchise fee. The separate
ordinance and notice provisions required by Section 9.1 give NSP a
short, but reasonable, opportunity to do so.
Consequently, I believe that it is safe to assume that any attempt to impose
a utility franchise fee would be difficult and messy at best.
RECOMMENDATION
I would recommend that no effort be made to adopt a utility franchise fee
ordinance at this time. I believe that the fee has too many economic flaws and
political liabilities to make sense at this time. However, due to its significant
revenue raising potential and other attributes it shduld be considered when and
if legislative initiatives affect the City's ability to control its own property tax
levy or rates. It may also make some sense when other sources of revenue dry
up such as state aid and development fees. At that time a political decision
would have to be made regarding an increase in property taxes as opposed to
the imposition of a utility franchise fee.
FISCAL IMPACT
At this time there would be no fiscal impact of the recommendation.
FRAN FEE.DOC
al
fs
5
A' Earth Dayl. Mif t L iF.
to` think about reen taxes Fk
tLme g
arth Day is usually an occasion for : The Minnesota Legislature this ses
fpting trees, cleaning trash from nv- sion heard testimony on a state tax-`.
J#;anks and protesting against pollu- shifting bill sponsored ty. House Tax
Minn in less visible guises. But so close Committee Chairwoman, Ann . Rest; .
income-tax day in a presidential DFL-New Hope. Its main ,element - aY= {
16ction season, this years Earth Day tax on, the carbon content:, of fuels' s.
celebration should also help the public traded against a payroll_ tax credit •=
understand the relationship between was too new and unexamined even to
tC environment and taxes. There is generate controversy, not to mention -
3b 1, and a few countries are already votes.
on their way to chan ging it. This But the benefits of environmenfal
try should consider doing so too. lenergy r
tax shifts can be huge. Raising energy
expert David Morris of the taxes can encourage industry.: to be-.
1-Kneapolis-based Institute for Local come more efficient and consumers to
SW-Reliance; talks about shifting taxes purchase fewer gas-guzzler cars and`."
f dm "goods" — for example, employ-. trucks, now 40 percent of all vehicle;
orient — to "bads" -- pollution, trash, sales. The trade deficit with oil-pro-
Itdxins. Sweden began just such "tax ducing countries, projected to climb,°
Sh4fting" in 1991, cutting income taxes from $50 billion to $100 billion annu . -
4 ?a nt, substituting charges on sul- ally over the next decade. could be cut'. ;
br dioxide and carbon'dioxide emis- The nation could be pushed to honor
jdns from power plants. Denmark"cut international obligations to reduce
A ndard taxes 3 percent, instead tax-
water use, battery sales, pesticides
acid rain and greenhouse gas produc-
tion. Long-tern urban sprawl might be
and carbon emissions. Spain, suffering'. reduced, along with mercury contami-
9. percent unemployment, recently nation of lakes, and acid rain damage", .
Vg payroll taxes 1 percent by raising to forests (confirmed in the most re-
gasoline taxes 3.5 percent. Since the cent study released this week) •:-
er ppling oil embargoes of the 1970s, Too good to be true? Well, yes.
most European and ;Asian nations There are, losers when . electric rates
have maintained gasoline taxes $1 to and gasoline prices . go up — people
3`a gallon more than .the United who must travel often. or great dis-.1
9, es, with proceeds funding pro- tances, industries that are heavy con-
from education to defense to sumers of electricity (aluminum in the
healthcare. northwest; taconite, steelmaking and
President Clinton ignited the do- and plastic injection molding here) ' ' -
M stic issue in 1992 by proposing a tax The 26th anniversary of Earth Day,
energy content of fuels. That officially on Monday, in this presiden- VtJe
idea was shot down in the ensu- . tial campaign year is a good time to
ing budget war, in part because he undertake a national discussion of so-
never made explicit the implied trade- called "green" tax policies. Such a pol-
Alwith deficit reduction, education icy shift might offer many, "goods"aFz
programs and income tax credits., for the nation, and the Earth. '
al
DATE: August 20, 1996
TO: Dale Hahn, Finance Director
FROM: Jan Wendland, Accounting Clerk
SUBJECT: Copier
The large copier currently is in the 30`h month of a 60 month agreement. It produces 120
copies per minute, reduces and enlarges, staples, collates, produces two-sided copies, and
has a number of other features. The cost to lease a backup copier that produces 60 copies
per minute and has many of the similar features is about $800 per month. This pricing is
under the State of Minnesota bid.
The old copier currently in Finance, is scheduled for replacement in 1997, and would be a
logical place to put the smaller copier from the copy room. We would then plan to lease a
larger scale copier, and place it in the copy room for backup.
TAX INCREMENT TERMINATION TAXES PAYABLE INCREASES
TIF Termination
Taxes Payable ACCUMULATED TOTALS BY YEAR
Year 1997 1998 1999 2001 2005 2007
1997 284,900 $284,900 284,900 284,900 284,900 284,900
1998 292,300 292,300 292,300 292,300 292,300
1999 108,400 108,400 108,400 108,400
2001 7,100 7,100 7,100
2005 15,600 15,600
2007 5,000
Total 284,900 $577,200 685,600 692,700 708,300 713,300
Page 1
INTENTION OF PROPOSED CAPITAL IMPROVEMENT LEVY
The intention of the proposed capital improvement levy is to supplement
dwindling traditional revenues for future capital improvements. Available park
dedication funds, project administration funds, and Community Improvement Funds are
all substantially lower than several years ago, and will not replenish themselves. A
new, stable source of capital funding is needed if we are to continue with the orderly
development of various projects.
The proposed capital levy, which will begin producing revenue next June, will
be deposited in the Community Improvement Fund created by the City Charter if the
Legislature has taken no significant action to reduce state aid to the City by that time.
If any reduction in state aid exceeding $100,000 is approved or is pending in June,
1997, the staff will bring the matter of the disposition of the capital levy funds to the
City Council for a final decision, along with a staff recommendation on whether or not
the levy funds are needed to maintain vital community services.
Staff intends to update the entire five year capital improvements program, including
both available revenues and proposed expenditures, before the end of 1996.
3a•
4
POSSIBLE COMMUNITY PROJECTS
CURRENTLY UNFUNDED)
Project Est. Cost
1. Community Activity Center (including senior center) $1,600,000
2. Armstrong High School Gymnasium Addition $1,200,000*
3. Field House at New Wayzata High School $2,200,000*
4. Buy Tenth Playfield Site $1,000,000
5. East Medicine Lake Trail Project ???
6. Finish Ninth Playfield Construction $650,000
7. Preservation of Public Golf in Plymouth $5,000,000+
8. Build and Equip a Fourth Fire Station $2,000,000
9. Develop the Ess property $800,000
TOTALS $14,450,000+
Possible candidates for funding with existing tax increment funds.
33
W
S
96pkrvpd
City of Plymouth
1996 - 2000 Capital Improvements Program
Park Dedication Fund—Community Playfields and Trails
Beginning Estimated Projected Transfer to Projected End Interest Earnings Projected
Year Balance Revenues Expenditures Park Re 1. Fund Balance 5% on avg balance Final Balance
1996 1,393,611 472,500 (1,900,000) 0 33,889) 33,993 104
1997 104 400,000 (200,000) 27,000) 173,104 4,330 177,434
1998 177,434 400,000 (400,000) 28,000) 149,434 8,172 157,606
1999 157,606 350,000 (480,000) 29,000) 1,394) 3,905 2,511
2000 2,511 350,000 (200,000) 30,000) 122,511 3,126 125,637
96PKRVPD.XLS
RN
CITY OF PLYMOUTH
3400 PLYMOUTH BOULEVARD, PLYMOUTH, MN 55447
DATE: January 12, 1995
TO: Mayor and City Council
FROM: Dwight D. Johnson, City Manager
SUBJECT: Financial Planning for Future Capital Needs
BACKGROUND: At the January 3, 1995 study session, Council members requested
that staff explore future capital needs in relation to present and future available capital
funds. The immediate issue relates to alternative concepts for improving the City
Council Chambers. However, interest in accelerating our trail development was
expressed at our budget work sessions last August and the work of the Open Space
subcommittee also requires a long range view of our capital financing.
ASSUMP'T'IONS: The City's capital financing plans are quite diverse and
complicated. Many of the items noted below need further study. themselves.
However, staff believes that the following simplifying assumptions are reasonable
within the big picture context of this memorandum.
Capital Improvement Program. It is assumed that the approved CIP is fully funded
through 1998 from existing revenue sources.
Road Improvements. Road improvements not in the CIP, including signals, bridges
e' and other related projects, will be funded by available MSA and TIF funds, and
will not absorb funding from other sources.
Street Reconstruction. It is assumed that current funding sources for the street
reconstruction program are adequate for the next ten years; however, beyond 2005,
additional resources may be necessary. The projections beyond 2005 will require
further review.
Water and Sewer Improvements. Any water and sewer improvements will be
funded by the Utility Trunk Fund or other utility reserve funds.
Surface Water Management Projects, including future water quality projects, will
be funded from the Stormwater Utility Fund and/or a future surface water utility
fee.
as
s
It
Parks. The completion of the City's planned park system and much of the
currently planned trail system can eventually be funded through present and future
park dedication fees.
Reserves. It is assumed that it would be financially risky to spend all of the
undesignated funds in a short period of time. Staff believes that it would be wise to
reserve about $5 million of the Community Improvement Fund for unknown future
needs or opportunities as well as $1 million of the Project Administration Fund,
which helped fund our wetland studies in 1994 and will be funding our Northwest
Plymouth and Thoroughfare Guide Plan Studies in 1995.
Council Chambers. The scenario shown below does not provide for the larger
Council Chamber lobby expansion alternative.
AVAILABLE SOURCES OF FUNDS: The following chart shows the estimated
available balances from all undesignated City funds.
16,860,000 6,000,000 10,860,000
POSSIBLE FUTURE PROJECTS AND UNDESIGNATED BALANCES
i
With these assumptions in place, it is now possible to analyze future projects and
undesignated balances. This chart below shows only one of many possible scenarios
and much morework needs to be done on this long range planning effort. With the
exception of the Cable TV Fund, any of the funds could be used for any of the listed
projects. We have attempted to show by the arrangement of the chart how some funds
could reasonably be aligned with certain projects or groups of projects. We are not
sure if Cable TV funds could be used for unrelated purposes without further review of
our franchise agreement and other documents.
Project
Projected Proposed Available
1,000,000
Balance Reserve Balances
Community Improvement Fund 12,700,000 5,000,000 7,700,000
CIF)
3,000,000
Field House
Project Administration Fund 2,900,000 1,000,000 1,900,000
Permanent Improvement Revolving 750,000 750,000
Cable TV Reserve Fund 510.000 510.000
16,860,000 6,000,000 10,860,000
POSSIBLE FUTURE PROJECTS AND UNDESIGNATED BALANCES
i
With these assumptions in place, it is now possible to analyze future projects and
undesignated balances. This chart below shows only one of many possible scenarios
and much morework needs to be done on this long range planning effort. With the
exception of the Cable TV Fund, any of the funds could be used for any of the listed
projects. We have attempted to show by the arrangement of the chart how some funds
could reasonably be aligned with certain projects or groups of projects. We are not
sure if Cable TV funds could be used for unrelated purposes without further review of
our franchise agreement and other documents.
Project Cost Available Balances
Trail Construction (unfunded) 1,000,000 Bond Issue or CIF $7,700,000
Open Space acquisition 3P000,000
Swimming Pool 3,000,000
Ice Arena 3,000,000
Field House 1,750,000
Gym Spaces 1,000,000
Senior Center 1,500,000
Subtotal 14,250,000 7,700,000 with no bond issues
30
Fourth Fire Station
Council Chambers project
Replacement of existing
facilities and equipment
1,900,000 Project Administration Fund
1,900,000
510,000 Cable TV Funds $510,000
Permanent Improvement Revolving
750,000 Fund $750,000
Municipal Golf Course ? (Might repay its capital costs with fees)
Totals $17,4109000 $10,860,000 with no bond issues.
CONVEYMNTS: The projects shown are not a part of any approved plans. The staff
does not represent that all of the projects will necessarily be needed in the future, but
rather presents a list of projects that, have a reasonable possibility of being needed at
some future date. The cost estimates are only staff estimates based upon similar
projects in other cities.
This brief analysis seems to show that some bonding might be needed sooner or later if
the City decides that most of the projects will be needed at some point. Both the
project list and the assumptions in this memorandum should be discussed with the
Council in more detail at future 'study sessions. The chart is simply intended to give
the Council the best currently available perspective on the immediate financial issues at
hand relating to the Council Chambers renovation and the Open Space Committee
recommendations.
V
C
FUTPROJALS
POSSIBLE FUTURE PROJECTS AND UNDESIGNATED FUND BALANCE
Original Projection
Available Funding Source
Project Cost land Balances
Trail Construction 1,000,000 IBond or CIF, $7,700,000
Open Space Acquisition 3,000,000 Bond or CIF, $7,700,000
Swimming Pool 3,000,000 Bond or CIF, $7,700,000
Ice Arena 3,000,000 Bond or CIF, $7,700,000
Field House 1,750,000 Bond or CIF, $7,700,000
Gym Spaces 1,000,000 Bond or CIF, $7,700,000
Senior Center 1,500,000 Bond or CIF, $7,700,000
Subtotal 14,250,000 1$7,700,000 with no bond issues
Fourth Fire Station 1,900,000 Project Administration, $1,900,000
Council Chambers 510,000 CATV Fund, $510,000
Replace equip/facilities 750,000 PIR Fund, $750,000
Municipal Golf Course I Might repay capital with fees
Total 17,410,000 10,860,000 with no bond issues
v'r':;:i::isisi.'::}:::istiiiiiiiii::Y%is:ii?iiR%:::::i'v'::5'.vii::iii:•iiiiiiiii:8'•i:•iiiiiiiiii:?{•iihiiiii:
i.'•.0....'...<:.%ii:::.'•::+:ii:%iii:%:%:%:%ij::i:i:::::i::%ij:%iii:.'•:%iii::i:ti%!::i:ti}
ii:4:4i'.i:.:i:::::v::•.:::::::.: :::
y:::}%ii::i'ii::i::i::isiliii%:%i:%i::i::ii::i:%:%::%::%iiii.`isii::%:'%;isii::iiiii:i:%i:%:%ii:<:;i:::::::::::•
POSSIBLE FUTURE PROJECTS AND UNDESIGNATED FUND BALANCE
Option 3—$2,000,000 bond issue for open space and trails, plus $1,000,000 from CIF'
Funding Sources
Project Cost and Balances
Swimming Pool 3,000,000 Bond or CIF, $6,700,000
Ice Arena 3,000,000 Bond or CIF, $6,700,000
Field House 1,750,000 Bond or CIF, $6,700,000
Gym Spaces 1,000,000 Bond or CIF, $6,700,000
Senior Center 1,500,000 Bond or CIF, $6,700,000
Subtotal 10,250,000 1$6,700,000 with no bond issues
Fourth Fire Station 1,900,000 Project Administration, $1,900,000
Council Chambers 510,000 CATV Fund, $510,000
Replace equip/facilities 750,000 PIR Fund, $750,000
Municipal Golf Course Might repay capital with fees
Total 13,410,000 1$9,860,000 with no bond issues
Pape 1 31
Futproj2
AVAILABLE SOURCES OF FUNDS
Proiected Proposed Available
Fund Balance Reserve Balance
Community Improvement Fund 5,500,000 5,000,000 500,000
Project Administration Fund 2,230,000 1,000,000 1,230,000
Permanent Improvement 165,000 165,000
Land Sale 750,000 750,000
Total 8,645,000 6,000,000 2,645,000
POSSIBLE FUTURE PROJECTS AND UNDESIGNATED FUND BALANCE Aug -96
Project Cost Possible Funding Sources
Community/Senior Activity Ctr 1,600,000 Bond, CIF, Surplus, CIP Fund
Armstrong Gym Addition 1,200,000 Bond, CIF, Surplus, CIP Fund
Fourth Fire Station 2,000,000 Bond, CIF, Surplus, CIP Fund
Field House _ 2,200,000 1 Bond, CIF, Surplus, CIP Fund
Complete Ninth Playfield 650,000 Bond, CIF, Surplus, CIP Fund
Purchase Tenth Playfield 1,000,000 Bond, CIF, Surplus, CIP Fund
Preserve Public Golf Course 5,000,000 Bond, CIF, Surplus, CEP Fund
Replace equip/facilities 750,000 PIR Fund, $750,000
Develop Ess Property 800,000 Bond, CIF, Surplus, CEP Fund
East Medicine Lake Trail Bond, CIF, Surplus, CEP Fund
Subtotal 15,200,000
CAPITAL PROJECTS COMPLETED OR UNDERWAY, 1994 - 1996
Funding Sources
Project Cost and Balances
Open Space Acquisition 2,235,000 Bond and CIF
Trail Construction 1,000,000 Bond and CIF
Swimming Pool 1,500,000 CIF and Other City Funds
Ice Arena 4,800,000 CIF and Other City Funds
Rec Facilities Site Improvements 1,100,000 CIF and Other City Funds
Council Chambers 668,000 CATV Reserve, Project Administration
Total 11,303,000
Page 1 31
Community Improvement Fund Projections
1995-2005
Cash Balances Special Interest
Beginning of Maturing Assessment Earnings Ending
Year Balance Bond Funds Collections 0.06 Expenditures Balances
1995 9,759,969 75,146 866,213 641,804 1,543,000 9,800,132
1996 9,800,132 122,796 241,548 439,235 5,100,000 5,503,711
1997 5,503,711 0 205,473 333,818 0 6,043,002
1998 6,043,002 0 191,928 365,939 0 6,600,870
Q1999 6,600,870 0 148,107 398,644 0 7,147,621
2000 7,147,621 0 92,256 430,472 0 7,670,349
2001 7,670,349 0 34,245 460,820 0 8,165,414
2002 8,165,414 438,344 21,916 490,308 0 9,115,982
2003 9,115,982 0 53,320 547,892 0 9,717,194
2004 9,717,194 0 47,061 583,855 0 10,348,110
2005 10,348,110 0 43,673 621,651 0 11,013,434
ALTERNATIVE BUDGET SCENARIO
Shown below is an alternative budget that reduces the tax levy to the level of the 1993
taxes on the average home. It also reduces the Community Improvement Fund levy
from $400,000 to $271,653.
1. Add special election -Increase General Fund levy +$13,000
2. Reduce Council salary to 1996 level -Decrease General Fund levy -1,392
3. Reduce Community Impr. Fund -Decrease Com. Impr. Fund Levy -128.347
Total levy reduction -Reduces overall levy to 1993 avg. home tax level -$116739
Summary of Individual Levy Changes From Above Adjustments
Decrease Community Improvement Fund levy from $400,000 to $271,653*
Increase General Fund levy by $11,608
Decrease overall City levies by $116,739
Taxes will be deposited into this Fund after the Legislature has adjourned without
negative HACA impact.
yl
DATE: August 21, 1996
TO: Mayor and City Council
City Manager, City Attorney, Department Directors
FROM: Kathy Lueckert
SUBJECT: Information from Charter Commission on Supermajority Votes
The Charter Commission asked that I pass along to you the information on supermajority
vote requirements that the Commission has accumulated. The Charter Commission will
hold a public hearing on this issue on Monday, September 9 at 7 PM in the Council
Chambers. The meeting will be cablecast.
AN INFORMATION REPORT
TAX AN® EX/®ENDITURE LIMITS
O/V LOCAL .GOVERNMENTS
Center for Urban Policy
and the Environment
Indiana University
Advisory Commission
on Intergovernmental Relations
March 1995 M-194
INTRODUCTION
States have imposed a variety of statutory
and constitutional limitations on local fiscal
autonomy. These limitations, which exist in 46
states, have:
Resulted in more use of fees and mis-
cellaneous revenues and less use of
broad-based tax sources;
Shifted power and responsibility to
the state through increased reliance
on state revenue sources and state
assumption of service responsibili-
ties; and
Shifted responsibility for local gov-
ernment functions through the cre-
ation of special districts. I
The limitations have been designed osten-
sibly to (1) control and reduce property taxes,
2) control the growth of government and pub-
lic spending, and (3) improve fiscal account-
ability.2
This report presents the results of an
extensive study of local tax and expenditure
limitations (TELs) imposed by states. The
study emphasizes design, amount of allowable
growth, affected local governments, circum-
vention mechanisms, length of implementa-
tion, and significant alterations.
TAX AND EXPENDITURE LIMITATIONS IN
CONTEXT
Many explanations have been offered for
the most recent wave of tax and expenditure
limitations—the so-called "tax revolt." Most of
these explanations suggest that government
had become too large to suit the voters, and
that the intended effect was a scaling back of
government. However, support for limitations
occurs relatively independently of the public's
desire for government services. In fact, many
surveys in states with TELs suggest that citi-
zens were satisfied with the level of public ser-
vices and often desired more, but simply
wanted to avoid paying for them.3
The local property tax was the initial tax
limitation target. This tax is highly visible and
has historically raised the ire of taxpayers.4 The
earliest efforts to limit property taxes took
place in the 1880s—a period associated with
the emergence of local home rule—and they
have continued, augmented by limitations on
state and local general revenues and expendi-
tures.
Tax and expenditure limitations impose
potentially formidable budgetary constraints.
However, with continued demands for public
services, these constraints will often cause dis-
tortions in the structure of state and local rev-
enue and expenditure systems and in the
distribution of relative levels of responsibility
for providing government services.
Currently, states impose one or more limi-
tations on the ability of local governments to
raise revenue and spend money (see Box on
next page). The most common categories of
limits are those on:
Overall property tax rates;
Specific property tax rates;
Property tax levies;
General revenue or expenditure
increases;
TYPES OF LIMITS
Overall Property Tax Rate Limit
Sets a ceiling that cannot be exceeded without a popular vote.
Applies to the aggregate tax rate of all local governments.
Is potentially binding if coupled with a limit on assessment increases; otherwise, it
can be easily circumvented by altering assessment practices.
Specific Property Tax Rate Limit
Is the most common form of TEL.
Sets a ceiling that cannot be exceeded without a popular vote.
Applies to specific types of local jurisdictions (e.g., school districts or counties) or
narrowly defined service areas.
Is potentially binding if coupled with a limit on assessment increases; otherwise it
can be circumvented by altering assessment practices or through interfund transfers
for specific services.
Property Tax Levy Limit
Constrains total revenue that can be raised from the property tax, independent of
the rate.
Is often enacted as an allowable annual percentage increase in the levy.
Is potentially binding because of the fixed nature of the revenue ceiling, but can be
limited through diversification of revenue sources (which is its underlying intent).
General Revenue or General Expenditure Increase
Caps total revenue that can be collected and attempts to constrain spending.
Is often indexed to the rate of inflation.
Is potentially binding because of the fixed nature of the revenue or expenditure
ceiling.
Assessment Increase
Controls ability of local governments to raise revenue by reassessment of property
or through natural or administrative escalation of property values.
Is potentially binding if coupled with an overall or specific property tax rate limit;
otherwise it is easily avoided through an increase in property tax rates.
Full Disclosure/Truth-in-Taxation
Requires public discussion and specific legislative vote before enactment of tax
rate or levy increases.
Is nonbinding because a formal vote (generally a simple majority) of the local leg-
islative body can increase the tax rate or levy.
Source: Phil G. Joyce and Daniel R. Mullins, "The Changing Fiscal Structure of the State and Local
Public Sector: The Impact of Tax and Expenditure Limitations," Public Administration Review 51
May/June 1991):240-253.
2
Assessment increases; and
Full disclosure (truth -in -taxation)
requirements.
While none of the limits are necessarily
binding with respect to the overall revenues or
expenditures of local governments, some are
more effective than others.5 Limits on annual
increases in property tax levies, annual revenue
total or for specific types of local govern-
ments), and expenditure increases are poten-
tially the most binding because they impose a
fixed ceiling. At the other extreme, full disclo-
sure is a minimal constraint that requires only a
public hearing and a simple majority vote by
the legislative body to override and raise a
property tax levy (even if there is no tax rate
increase).
Overall limits on the combined property
tax rate levied by all local jurisdictions (e.g.,
county, municipality, and school district) and
limits on the property tax rates of specific local
governments are potentially significant and
binding if they are combined with a limit on
assessment increases. Otherwise, rate limita-
tions may be circumvented by changing
assessment practices. Likewise, limits on
assessment increases are not binding without
rate limits.
There is considerable variation in the use
of limitations (see Table 1, page 5):
36 states have a combination of limits
Arizona, California, Colorado, and
New Mexico have the most restrictive
combinations).
12 states limit overall property tax
rates.
30 states limit specific local govern-
ments' tax rates (24 limit counties; 27
limit municipalities; and 23 limit
school districts).
27 states limit local tax levies (24
limit counties; 24 limit municipali-
ties; and 15 limit school districts).
3
6 states limit the growth in assess-
ments.
2 states limit general revenue growth
one limits counties, municipalities,
and school districts, and one limits
only schools).
8 states limit expenditure growth (4
limit only schools, and 4 limit coun-
ties and municipalities).
22 states (at least) have some form of
full disclosure requirement (4 have no
other limitations).
4 states (Connecticut, Maine, New
Hampshire, and Vermont) do not have
limits.
There are various mechanisms to suspend
limits, ranging from simple local legislative
votes to authorization by state tax commissions
and state legislatures to popular referendums.
Limits also are applied to varying tax bases.
Most of the limits exempt 16ng-term debt
service costs. The exemption may offer an
incentive to reclassify expenditures and shift
the revenue structure to include a higher
reliance on debt financing.
Focus OF THE REPORT
This report focuses on limits imposed on
counties, municipalities, and school districts.
Each type of jurisdiction is considered sepa-
rately because, with the general exception of
assessment limits and full disclosure provi-
sions, fiscal constraints are not applied uni-
formly. Limits on special districts and specific
functions were not considered. Limits on local
sales tax rates are not specifically included, but
they may be in overall revenue limits.
Previous examinations of TELs have
tended to neglect school districts.6 This
appears to be a significant omission, given that
school districts accounted for 37 percent of
total local expenditures in 1991.7 Limitations
on school districts, counties, and municipali-
ties are often enacted together.
Allowable Growth
The most significant structural feature of
revenue, expenditure, and assessment limita-
tions is the amount of allowable growth.
Growth may be restricted to a specific percent-
age increase. Nevada, for example, limits
county and municipal annual property tax rev-
enue increases to a flat 6 percent. The restric-
tiveness of percentage limits is determined by
general economic conditions. In periods of sig-
nificant price inflation, real revenue or expen-
diture growth may be seriously constrained.
Some limits tie allowable growth to changes in
inflation and/or population. In many cases,
growth is allowed to keep pace with inflation
to ensure sufficient resources to maintain pro-
vision of goods and services (e.g., Illinois).
Allowable growth associated with population
change is intended to accommodate additional
demands on government as a result of absolute
increases in population, but not those associat-
ed with real income increases or the effects of
changes in population characteristics.
With expenditure pressures generally
unabated and increasing, if growth provisions
are too stringent, governments may experience
increasing fiscal strain, regardless of the
absolute capacity of their potential resource
base. Yet if growth factors are relatively
relaxed, the limitation will have little effect.
Overriding Limits
Revenue and expenditure limitations
often are constructed so that only property
taxes are constrained, leaving other broad- and
narrow -based taxes as alternatives. In these
instances, local governments may turn to sup-
plemental revenue sources. In a fiscal environ-
E
11
ment that threatens to reduce government rev-
enue and spending, evading limits is a logical
strategy to sidestep (probable) reductions in
programs, service provision, salaries, etc.
Sometimes, such limitations are intended to
shift reliance to other types of revenues.
It also is common to include one or more
circumvention mechanisms, usually in the
form of voter overrides and exemptions. Voters
may authorize an "excessive" overall increase
or an increase for a specified purpose. Over-
rides typically require a simple majority,
although several states require a supermajority.
The most common limitation exemptions
include special levies (e.g., for roads, recre-
ation, mental health centers); debt service
typically general obligation bonds); court
judgments; and pension liabilities. Less fre-
quent are exemptions for home rule or charter
local governments, appeals to a state board,
and excessive increases decided by the vote of
a jurisdiction's governing body.
METHODOLOGY
The tables in this report present compara-
tive information on limitations in effect for
each state, including the original effective date
of the provision. Amendments that significant-
ly altered the limitation's structure have been
noted when appropriate dates could be deter-
mined. This information is essential for an
accurate assessment of a limit's impact, as the
effects are expected to grow over time.
A decade ago, Steven Gold called the
information available on tax and expenditure
limitations "piecemeal, scattered and of incon-
sistent quality."8 That information remains
inconsistent and often contradictory. The data
for this study were gathered through extensive
legal research (see Appendix A for legal cita-
tions), follow-up surveys of state and local
officials, and telephone conversations.
PROPERTY TAX RATE LIMITS: OVERALL AND SPECIFIC
GENERAL
Rate limits are the predominant form of
state restrictions on local property taxes. Local
governments in 33 states are affected by over-
all and/or specific tax rate limits.
HISTORICAL TREND
The specific rate limits in use in nine
states were enacted from the 1870s through the
1890s. Rate limits (in combination with debt
limits) originated as a reaction against the local
government practice of financing private enter-
prise, particularly railroad expansion, for pri-
vate benefit.9 Public demand for accountability
in government spending also has acted as a cat-
alyst for rate limits since the 1800s.
Between 1914 and 1939, seven states
adopted overall rate limits, and ten states
adopted a specific rate limit for at least one
type of local government. In 1932, negative
reaction to increasing tax levies in Michigan
led to a voter -initiated amendment to the state
Constitution that created the state's initial
limit.
The latest wave of limits started in the
1970s. Overall limits were enacted in Alabama
1972), California and Idaho (1978), and Ari-
zona (1980). Two statutory provisions
strengthened existing constitutional amend-
ments (Nevada and Washington). Although
the popularity of rate limitations waned in the
1980s, there has been an increase in activity in
the 1990s:
A 1991 voter initiative enacted Ore-
gon's overall property tax rate limit.
A 1992 constitutional amendment in
Colorado limits a district's tax rate to
that of the prior year, unless a majori-
ty of the electorate approves an
increase.
Minnesota repealed the specific rate
limit on municipalities effective fiscal
year 1992-93.
Effective 1993-94, Wisconsin's coun-
ties are limited to the FY 1992-93 tax
rate.
STRUCTURE
Overall Rate Limits
A rate limit's restrictiveness depends on
the maximum limit, definition of the taxable
base, voter overrides, exemptions, and whether
assessment increases also are limited.
Maximum authorized rates range from 0.5
percent (Class I property in Kentucky) to 3.64
percent (Nevada). A 1.0 percent aggregate
limit is imposed on all property classes in five
states, on Class III (residential) property in
Alabama, and on Class II (residential) property
in West Virginia.
The effects of the rate limit vary greatly
by state because real property valuations are
based on measures as diverse as acquisition
cost, market value, cash value (adjusting for
depreciation), and true cash value. Assessment
ratios also vary from 30 percent to 100 per-
cent.10 For example, a 1 percent rate is applied
to assessed value that is one-third of market
value in Ohio and full cash value in Arizona.
Oregon's limit is applied to real market value,
with a 100 percent assessment ratio. If property
values and rates were held equal between Ohio
and Oregon, Ohio's fractional base would
make its limit three times more restrictive.
Most states exclude debt service, but a
few states include it in rate limits. One exam-
ple is Nevada, which also has the highest
absolute rate of 3.64 percent with an allowable
increase of up to 5 percent if directed by law.
West Virginia includes county and municipal
debt service but not that of school districts.
In California, exclusions for debt service
on bonds issued after July 1, 1978, require a
two-thirds majority vote of the public. In
Washington, the limit may be exceeded to pay
debt service on bonds if approved by a three-
fifths majority vote of the electorate.
Voter -approved additional levies are a
common override mechanism (Arizona, New
Mexico, Ohio, Oklahoma, Washington, and
West Virginia). Oklahoma voters may approve
an emergency 5 mill limit for school districts, a
10 mill local support levy, and others. Exclu-
sions that allow special purpose levies outside
of the limit also are common. Arizona excludes
special districts from the limit, and Washington
excludes debt service, voter -approved increas-
es, payments on contracts, port and public util-
ity districts, conservation futures, emergency
medical service levy, and others.
Specific Rate Limits
Specific rate limits have features similar
to overall rate limits. Voter -approved increases
and special purpose levies are common fea-
tures, and almost all specific limits exclude
debt service. There also are some exceptions:
12
Nevada's 30 mill limitation on
municipalities includes debt service,
and there are no approved increases.
Texas excludes county debt service
for specified projects (e.g., dams and
roads). All municipal debt service is
included, with no special levies or
approved increases.
Kentucky counties and municipalities
must have a two-thirds majority pop-
ular vote to approve debt that exceeds
total revenue in a given year.
New York does not allow special pur-
pose levies for counties, municipali-
ties, or school districts, and includes
debt service on short-term debt for
non -capital purposes. New York is
unique in applying its rate limits
against the average full value of tax-
able real estate for the preceding five
years. This guards against an unusual-
ly large tax bill in the event of a dra-
matic increase in valuation.
Illinois and North Dakota determine a
local government's maximum rate by
population. Pennsylvania and West
Virginia set maximum rates by class
of property, and Missouri and Utah
use total assessed valuation.
School districts in Iowa, Montana,
and Nevada are subject to mandatory
rather than maximum rates. A school
district in Iowa that wants State
School Foundation Program funds
must levy 5.4 mills for its general
fund.
OVERALL PROPERTY TAX RATE LIMITS - SUMMARY PROFILE
Twelve states have overall property tax rate limitations, 9 of them in the West or South. No northeastern
states apply these overall limits. These limitations are relatively old, with 8 (66%) enacted prior to 1978. Eleven
states limit rates across multiple classifications of property (sometimes at different rates); one applies only to resi- dential property. Debt service is excluded from the limit in 9 states (75%), special purpose and excess levies are
allowed in 6 states (50%), and home rule jurisdictions are exempted in 2 states. Six states also have general over-
ride provisions through popular referenda (one state requires a supermajority).
Occurrence Classification Exclusions Override Provisions
Prior to 1978: 8 Multiple Classifications: 11 Debt Service: 9 Popular Referenda:
Simple Majority: 51978orAfter: 4 Residential Only: 1 Special Purpose & Supermajority: 1
Excess Levies: 6
Legislative:
Home Rule Exemption: 2 Additional Levies: I
Special Purpose Districts: 1 Temporary: 2
SPECIFIC PROPERTY TAX RATE LIMITS - SUMMARY PROFILE
Specific property tax rate limitations are imposed by 30 states, and 88% of them were adopted before 1978.
At least 9 states had some form of specific limitation before 1900, and 20 had them by 1950. In the Midwest, 83%
of states impose specific rate limitations, followed by 76% for the West, 56% for the South, and only 33% for the
Northeast. Over the last two decades, these limitations were applied most frequently to municipalities (29 states or91%). Counties were limited in 26 states and school districts in 24, while 21 states (66%) applied limitations to all
three simultaneously. Exclusions and override provisions are common. Full or partial debt service exclusions exist
in at least 22 states (69%). Special levies in excess of the rate limits are permitted in 19 states (e.g., salaries and
pensions, fire services, capital outlays, and highways). Home rule communities are exempt in three states. In some
states, rate limits apply only to general services, operations, or particular funds. General overrides are permitted by
popular referenda in 21 states, with a supermajority required in at least three.
Occurrence Scope Exclusions Override Provisions
Prior to 1978: 28 Units Applied to: Debt Service: 22 Popular Referenda:
Counties: 24 Simple Majority: 181978orafter: 4 Municipalities: 28 Special Levies/ Supermajority: 3
School: 24 Classifications : 19
Legislative: 1
States Limiting All: 21 Home Rule: 3
13
17 Colorado Constitution, Article X, § 20(3)(4).
18 ACIR, State Limitations on Local Taxes and
Expenditures.
19 Research along these lines includes Helen F.
Ladd and Julie Boatright Wilson, Proposition 2
1/2: Explaining the Vote (Cambridge: Harvard Uni-
versity, John F. Kennedy School of Government,
1981); "Why Voters Support Tax Limitations: Evi-
dence from Massachusetts' Proposition 2 1/2,"
National Tax Journal 35 (1982): 121-147; and
Who Supports Tax Limitations: Evidence from
Massachusetts Proposition 2 1/2," National Tax
Journal 36 (1983): 256-279; Paul Courant, Edward
Gramlich and Daniel Rubinfeld, "Why Voters Sup-
port Tax Limitations: The Michigan Case," Nation-
al Tax Journal 38 (1985): 1-20.
20 Robert M. Stein, Keith E. Hamm, and Patricia K.
Freeman, "An Analysis of Support for Tax Limita-
tion Referenda," Public Choice 40 (1983): 187-
194.
21 John E. Peterson, "Tax and Expenditure Limita-
tions: Projecting Their Impacts on Big City
Finances," in Kaufman and Rosen, eds., The Tax
Revolts: The Case of Proposition 13 (New York:
Harper, 1981).
22 Ladd, "An Economic Evaluation of State Limita-
tions on Local Taxing and Spending Power,"
National Tax Journal 31 (1978): 1-18.
23 Perry Shapiro and W. Douglas Morgan, "The
General Revenue Effects of the California Property
Tax Limitation Amendment," National Tax Journal
31 (1978): 119-128.
24 Dale Bails, "A Critique of the Effectiveness of
Tax -Expenditure Limitations," Public Choice 38
1982): 129-138.
25 Howard Chernick and Andrew Reschovsky,
The Distributional Impact of Proposition 13: A
Microsimulation Approach," National Tax Journal
35 (1982): 149-170.
26 Dennis DeTray et al., Fiscal Restraints and the
Burden of State and Local Taxes (Santa Monica,
California: RAND, 1981).
27 Roger Kemp, "California's Proposition 13: A
One -Year Assessment," State and Local Govern-
ment Review 14 (January 1982).
28 Danziger, "California's Proposition 13 and the
Fiscal Limitations Movement in the United States."
29 Carolyn Sherwood -Call, "Tax Revolt or Tax
Reform: The Effect of Local Government Limita-
tion Measures in California," Economic Notes (San
Francisco: Federal Reserve Bank, 1987).
30 Gary J. Reid, "How Cities in California Have
Responded to Fiscal Pressures since Proposition
13," Public Budgeting and Finance 8 (Spring
1988): 20-37.
31 David Merriman, "The Distributional Effects of
New Jersey's Tax and Expenditure Limitations,"
Land Economics 62 (1986): 354-361.
32 Sharon Bernstein Megdal, "Estimating a Public
School Expenditure Model under Binding Spend-
ing Limitations," Journal of Urban Economics 19
1986): 277-295.
33 Lawrence E. Susskind and Cynthia Horan,
Proposition 2 1/2: The Response to Tax Restric-
tions in Massachusetts," in Lawrence E. Susskind,
ed., Proposition 2 1/2 (Cambridge: Massachusetts
Institute of Technology, 1983).
34 Richard J. Cebula, "Tax -Expenditure Limitation
in the U.S.—Two Alternative Evaluations," Eco-
nomic Notes (1986): 140-151.
35 These include Daphne A. Kenyon and Karen
Benker, "Fiscal Discipline: Lessons from the State
Experience," National Tax Journal 37 (1984): 437-
446; and Marcia Howard, "State Tax and Expendi-
ture Limitations: There Is No Story," Public
Budgeting and Finance 9 (1989): 83-90.
36 Joyce and Mullins, "The Changing Fiscal Struc-
ture of the State and Local Public Sector."
Cil
NOTES
I James N. Danziger, "California's Proposition 13
and the Fiscal Limitations Movement in the United
States," Political Studies 28 (1980): 599-612; and
Philip G. Joyce and Daniel R. Mullins, "The
Changing Fiscal Structure of the State and Local
Public Sector: The Impact of Tax and Expenditure
Limitations," Public Administration Review 51
May/June 1991): 240-253.
2 Advisory Commission on Intergovernmental
Relations (ACIR), State Limitations on Local Taxes
and Expenditures (Washington, DC, 1977); and
James Danziger and Peter Smith Ring, "Fiscal
Limitations: A Selective Review of Recent
Research," Public Administration Review 43 (Janu-
ary/February 1982): 47-55.
3 H.E. Brazer, "On Tax Limitations," in Norman
Walzer and David Chicoine, eds., Financing State
and Local Government in the 1980s (Cambridge,
Massachusetts: Oelgeschlager, Gunn, and Hain,
1981).
4 In a survey conducted annually by the Advisory
Commission on Intergovernmental Relations, the
property tax consistently ranks among the worst, or
least fair, of major federal, state, and local taxes. It
holds this distinction jointly with the federal
income tax. During the 1970s, the property tax gen-
erally was considered worse than the income tax,
followed by a period from 1979 to 1988 when the
income tax held this distinction. The property tax
was worst again in 1989 and 1991 (see ACIR,
Changing Public Attitudes on Governments and
Taxes).
5 See Steven D. Gold and Martha Fabricius, How
States Limit City and County Property Taxes and
Spending (Denver: National Conference of State
Legislatures, 1989); ACIR, Significant Features of
Fiscal Federalism, 1992, Table 7; and Joyce and
Mullins, "The Changing Fiscal Structure of the
State and Local Public Sector."
6 Gold and Fabricius, How States Limit City and
County Property Taxes and Spending.
7 U.S. Department of Commerce, Bureau of the
Census, Government Finances: 1990-91 (Washing-
ton, DC, 1994), Table 29.
8 Steven D. Gold, "Results of Local Spending and
Revenue Limitations: A Survey," Perspectives on
Local Public Finance and Public Policy 1 (1983):
109-147.
9 ACIR, State Limitations on Local Taxes and
Expenditures; and Dennis R. Judd, The Politics of
American Cities: Private Power and Public Policy,
3rd ed. (Glenview, Illinois: Scott, Foresman and
Company, 1988).
10 National Property Tax Manual (Vertex Inc.,
1991).
11 Gold, "Results of Local Spending and Revenue
Limitations."
12 Gold and Fabricius, How States Limit City and
County Property Taxes and Spending.
13 Citizens Research Council of Michigan, "Truth
in Local Property Taxation and Assessment,"
Council Comments 929 (May 1982).
14 ACIR, State Limitations on Local Taxes and
Expenditures.
15 "Proceeds of taxes" include general tax rev-
enues, proceeds from investment of tax revenue,
revenues from user fees and charges that exceed
the cost of providing the service, and year-end
unappropriated fund balances originating from tax
sources. For local governments, proceeds also
include state subvention revenue. California Tax
Foundation, Up to the Limit: Article X711 B Seven
Years Later (Sacramento, 1987).
16 California Taxpayer Association, Growth within
Limits: Reshaping Article XIII B (Sacramento,
1988).
Z
I
u_-1_-D ABLES FOR "UNDERSTANDING YOUR PROPERTY TAXES" ENCLOSED
Fiscal Focus IN
Volume XXI October- November 1995 Number 5
CITY AND COUNTY SPENDING AND REVENUE TRENDS, 1989-1993
Outstate Cities and
Metro Counties Lead in
Spending Increase
An analysis of the latest available
1 -1 -financial data for Minnesota's
cities and counties from the State
Auditor's office shows that cities out-
side the seven county metropolitan
area led the way in per capita spend-
ing increases for operating expenses
from 1989 to 1993. Total operating
expenditures per capita (with no cap-
ital outlay expenses included) for the
718 non -metropolitan cities increased
on average from $277.48 in 1989 to
337.63 in 1993, or nearly 22%. The
137 cities in the seven county metro-
politan area increased about 13.5%
from $303.53 to $344.31. (The price
index of state and local government
purchases for the country as a whole
increased about 14.5% from 1989 to
1993.) In the same time period, the
seven counties in the metropolitan
area showed the largest percentage
increase in per capita operating
expenditures from $445.51 in 1989 to
510.95 in 1993, or almost 15%. The
71 non -metropolitan counties still
have the highest per capita spending,
though, with $660.29 in 1993 (see
Figures 1 and 2).
Update for
Truth -in -Taxation
This is the fifth year that the
Minnesota Taxpayers Association has
published comparative spending and
Per Capita Operating Expenditures 19890 1993
5400 Source: State Auditors Financial Data
S344 S338
300 S304
5277
5200
5100
17
so
7 Co. Metro Non -Metro
Figure 1. Per Capita Operating Expenditures for Minnesota
Cities by Metropolitan Status, 1989 and 1993.
revenue data for Minnesota cities and
counties as part of our effort to pre-
pare taxpayers for their Truth -in -
Taxation hearings in late fall. In the
past four years, we have published
them as part of our popular booklet
called "Understanding Your
Property Taxes". Since nearly 105,000
have been distributed over the past
four years, and because the text of the
booklet has not changed, we are pub-
lishing just the comparative spend-
ing data this fall through this
newsletter. Because the 1993 State
Auditor's financial data is the fifth
year of data we have analyzed for
this purpose, we thought a look back
to 1989 would add useful informa-
tion to the city and county compar-
isons this year. (A note about school
data: due to space limitations, we are
not including comparative school
district data. We recommend that
you contact the Minnesota Book
Store at (612) 297-3000 for a copy of
School District Profiles, 1993-94".
That publication has always been the
source of the school data we have
published in the past.)
Continued on next page
Composition of Revenue -
Tablel :....3
1993 Per Capita
Expenditure Tables .........4-6
ary by ReSion
An analysis of major revenue
sources for cities and counties shows
different patterns by red ons or the
state. Both non-metrovolitan and
metronoiitan cities showed increas-
es in the portion of their revenues on
average coming from property
taxes, but the metropolitan cities
relied much more heavily on prop-
ernr taxes in both vears than cities
outside the seven county metropoli-
tan area. The metropolitan cities also
showed a larger increase in the
property tax portion of their rev-
enues over four v_ ears. In 1989, met-
ropolitan cities on average raised
37.3°0 or their revenues from proper-
ty taxes, while non -metropolitan
cities raised onlv 21.8°0 from that
source. In 1993, that portion had
jumped to 41.70 for the seven coun-
ty area cities, but only 22% for the
other cities (see Table 1 for the 1993
revenue mix summary, and Tables -2
and 3 on pages 3 and 4 for major rev-
enue sources for 1989).
In a period of fiscal restraint, one
would expect that the portion of
cities' revenues coming from state
aids, their other major revenue
source, would show a decline, too.
Per Capita Operating Expenditures
S8Oo
Shoo
S400
5200
so
All cities did see a decline in the
share of their revenues prom state
aids. Metropolitan cities' revenue
from state aid drotiped• from 24.300
or total revenue in 1989 to oniv
1S.690 in 1993. The decline in the
non -metropolitan cities' portion of
revenues from state aids was not as
dramatic—from 43.40% in 1989 to
41% in 1993.
For counties, the seven count,.- metro
area was the only region showing a
decreased reliance on taxes as a
source of revenue. In 1989, 41.81% of
the seven metro counties' revenues
on average came from taxes, almost
all of which are property taxes.
Actual property tax collections are
not readily available from the state
auditor's financial data.) That per-
centage declined to 10.7% in 1993.
The nine other metropolitan coun-
ties showed an increased reliance on
taxes, up from 34.3% in 1989 to 37.1%
in 1993. The 71 non -metropolitan
counties' share of revenues from taxes
increased from an average of 26.190 to
30.4% in the same time period.
Two groups of counties actually saw
an increase in the portion of their rev-
enues from state aids. The seven met-
ropolitan counties' share of revenues
from state aids increased slightly from
1989 1993
c ,,. a• cr.e n,• a;. c. _. , Data
7 Co. Metro Other Metro Non -Metro
Figure 2, Per Capita Operating Expenditures for Minnesota
Counties by Metropolitan Status. 1989 and 1993.
Malcolm McDonald
President
Dan Salomone
Executive Director
Lvnn Reed
Research Associate
Charles Steitz
Director of Development
Linda Kilau
Executive Secretary
ine Minnesota Taxpayers Association is a non-
artisan non-profit corporation founded in 1926 to
advance economy and efficiency in government.
Jnless otherwise noted. original material in MTA
publications is not copyrighted and may be repro-
auced without obligation. Please credit the
Minnesota Taxpayers Association.
Fiscal Focus is published bi-monthly (February.
April, June, August, October. December) for S50
per year by the Minnesota Taxpayers Association,
35 East 7th Place, Suite 250, St Paul MN 55101.
1SSN # 1042-847X. UPS x519130. Second Class
Permit paid at St. Paul, MN 55101.
Ph. 1-800-322-8297;1-612-224-7477
Postmaster• send address changes to:
Fiscal Focus
c'o Minnesota Taxpayers Association
85 East 7th Place
Suite 250
St. Paul. MN 55101
in 1989 to 25.7°0 in 1993, while
the nine other metropolitan counties'
share from state aids increased from
31.790 to 33%. The non -metropolitan
counties' share of revenue from state
aids dropped from 43.490 to 40°0, but
was still significantly_ higher than ffie
other two groups.
Addi#ionai Copi-es of
Tnis Report Avaiiabia
11
t
If you would like additional conies
or this newsletter, they can be
pur-
chased at S1 per copy. Discounts for
bulk purchases are available. Truth -
in -Taxation notices will be mailed
out in the middle of November, and
budget hearings will be held in late
November and early December, so it
is important to place vour order in
time tor those hearings.
Lviin Reed
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Notes on Table 2 for City Data
Spending data shown vary for many reasons, most
notably due to differences in "workload factors";
that is, local conditions such as crime rates, pover-
ty levels, etc. A complete analysis of variations in
spending from one community to another must
take these factors into account.
Definition of Spending
Categories and State Aid:
General Government: Mayor and city council,
administration and finance (clerk/ treasurer,
deputy clerk, etc.) and other general government
city hall, elections, assessing, audit, legal, etc.)
Health and Public Safety: Police and ambulance;
fire department; other protection; various sanita-
tion expenditures (weed and pest control, street
cleaning, recycling, etc.)
Street Maintenance: and Repair: Street _'mainte-
nance. and -storm sewers; : snow : and ice removal;
street engineering; and street lighting
Culture and.Recreation: Libraries; parks and recre-
ation
Housing and Economic Development: Housing
and Redevelopment Authority (except those
reporting separately); Port Authority; housing, and
urban redevelopment; economic development
Miscellaneous: Interest and fiscal charges; unallo-
cated pension contribution; unallocated insurance
and judgments, transit, and other expenditures not
listed separately.
Six Category Total: The sum of the above six cate-
gories.
State Aid: Local Government Aid, Homestead and
Agricultural Aid (HACA), Manufactured Home
HACA, Taconite Homestead Credit, Taconite Aids,
Economic Recovery Fund Grants, State Street Aid,
Other State Grants and Aids (e.g., police and fire
aids)
Expenditure and
Revenue Exclusions
Garbage collection was not listed separately nor
included in the totals because most cities have an
enterprise fund with separate accounting for this
service.
Airports were not listed separately nor included in
the totals because so few cities have them. Capital
outlay expenditures are excluded because of the
sporadic nature of these expenditures over time
and across cities. The amount reported as income
from police and fire contracts was subtracted from
the Health and Public Safety category and the Six
Category Total to adjust for such services provided
for other communities which would artificallv
inflate costs for provider cities. Revenues from
bonds, other debt, transfers from enterprise and
government funds, and investment income are
excluded from the Total Per Capita Revenue field in
Table 1.
Notes on Table 3 for County Data
Definition of Spending
Categories and State Aid:
General Government: Treasurer, county attorney,
recorder, veterans service officer, planning and
zoning, building and plant, commissioners, court,
auditor, county administration or other executive.
Health and Public Safety: Sheriff, court services
probation, jail), emergency services, coroner,
health, sanitation
Highways: Administration, operation and mainte-
nance of highways
Public Welfare: Minnesota Supplemental
Assistance, AFDC, Gen. Assistance, Work
Readiness, food stamps, child support, Medical
Assistance, Indo-Chinese Refugee Program, fuel
assistance, other social services, and administration
of these programs
Culture, Rec., Environment: Historical society;
library, parks, Minnesota Extension, Agriculture
Society, soil and water
Miscellaneous: Economic development, interest
and fiscal charges, and all other NEC
Total Current Expenditures: The sum of the above
State Aid: HACA, mobile home HACA, attached
machinery aid, wetlands credit, disparity reduction
credit and aid, native prairie credit, taconite hmstd.
credit and relief aid, ag preserves credit, small busi-
ness credit, highway aid, and other
UNREDSTArES Statement of OS.r Mhtp, Management, mCimUiationPOSrALSERVKE" Mrs.vd A USG ]a65)
we..wrwae r.,we Ger nem.nwa Ce [aa Y. rw S.V es H.n
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mnrro......... ...r.•... u«eu..en. a t..c s...... r..r.
NSSSOIn:.III.YE13 wSSOC:A:1Ce 15 4.. fa.ancE rl.aa. Suis. 1350
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Suite 250
Saint Paul, MN 55101
SUPERMAJORITY TAX LMTATIONS AT THE STATE LE... - Microsoft InterndhFSploa&d
SUPERMAJORITY TAX LIMITATIONS:
AT THE STATE LEVEL
States around the country have been forced to reform their budgeting and tax policies due to
their deficit spending. Many states have been successful in trimming their deficits without
raising taxes. The method used by the most successful states has been supermajority tax
limitation laws and spending limitation laws. One third of all Americans live in a state
withe supermajority constitutional tax limitations. In most of the states supermajority
requirements, the idea of requiring a greater than fifty percent vote of the legislature to
increase taxes grew out of the tax revolt movement and the initiative process. These
states offer a successful model for the Federal Government's budget and tax reform efforts.
The following states have supermajority tax limitation requirements:
State equirement ear Enacted Applies To
Arizona 2/3 elected 1992 All taxes
Arkansas 1 3/4 elected 1934 All taxes since 1934 except sales tax.
California 2/3 elected 1 1978 Property taxes
Colorado 3/4 elected 1 1992 All taxes
Delaware 3/5 elected 1980 1 Revenue increases
Florida 3/5 elected 1 1971 F Changes in the corporate income tax rate
Louisiana 2/3 elected 1953 All taxes
Mississippi 3/5 elected All taxes
Oklahoma 3/4 elected 1992 All taxes
South Dakota 2/3 elected 1 1978 IFor increasing tax base and existing tax rates
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SUPERMAJORITY: Supermajority Legislation Intr... - Microsoft Internet Explorer Page 1 of 4
Supermajority Legislation Introduced
at the State Level in 1995 and 1996
ATR Home
States with supermajority measures
Florida GeorgiaI Hawaii I Illinois ( Idaho I Indiana I Mar and I Massachusetts
Minnesota Michigan I New Mexico I New York I North Carolina I Ohio I Rhode Island
South Carolina I West Virginia I Wisconsin
Over 30 bills introduced in state legislatures
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State Requirement
lorida Constitutional amendment requiring two-thirds of both houses of the
egislature to raise taxes.i
Constitutional amendment requiring approval of two-thirds of both houses of
Georgia the legislature for increasing any tax, fee, assessment or charge imposed by the
state.ii
Proposed amendment to the state constitution to require approval of
Hawaiitwo-thirds of both houses of the legislature to increase taxes or to repeal a tax
exemption or credit.iii
Requires three-fifths approval of both houses of the legislature for theFIfinoisimpositionofnewtaxes, license fees or an increase of the effective rate of
axation.iv
daho permajority of both houses of the legislature for any bill intended totuneraterevenueforthestateoranypoliticalsubdivision.v_
Indiana JApproval by the voters of new taxes or increases in existing taxes.vi
aryland upermajority for any increase in income or sales taxes or any broadening ofIheincomeorsalestaxbase.vii
assachusetts Constitutional amendment restricting an increase in taxes without
supermajority approval.viii
Two-thirds supermajority of both houses of the legislature, or approval by a
nnesota majority of voters actually voting on the question, to create new taxes or
increase the rate of existing taxes.ix
chigan Supermajority in each legislative chamber to approve an increase in income,
sales, use, and single business taxes.x
ew Mexico Three-fifths vote of the members of each house of the legislature present for
new taxes or fees or increases in the rate or base of existing taxes or fees.xi
ew York rTh_e_reare seven bills pending that require a two -third supermajority approval
both houses of the legislature to increase taxes.xii
North equires a 2/3 vote of each house of the legislature to levy or increase
Carolina axes.xiii
Ohio cres in State taxes must be approved by a supermajority of each house ofrheGeneralneralAssembly.xiv
ode Island Supermajority required to increase sales, use or income tax.xv
South thirds supermajority required for property tax increasesxvi and
Carolina retrooactivetaxes.xvii
est Virginia equires a 2/3 vote for all bills imposing a tax or license fee, or increasing thegeffectiverateoftax.xviii
isconsm 2/3 supermajority in both houses of the legislature to create, expand, or raise
axes.xix
i Passed Florida Senate. If approved by the Florida House it then will go on the November
1996 ballot for voter approval.
ii H.R. 105, S.R. 61, S.R. 78 (1995).
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ii This amendment is found in H.B. 2459 sponsored by Representative Ward. As of early 1995
it is in the House Finance Committee. There are two other provisions requiring supermajority
approval in the Hawaii legislature. H.B. 1403 and H.B. 1448, both sponsored by
Representative Yonamine.
iv H.C.A. 14 (1995). H.C.A. 18, another bill, provides a constitutional amendment requiring
that passage of any revenue bills that result in an increase in the revenue received by the state
may become law only after approval of 3/5 of each house of the legislature.
v This measure passed the lower Idaho house but was rejected by the Idaho Senate by a vote
of 21-14.
vi 1996 IN H.J.R. 5. Sponsored by representative Turner.
vii The Maryland requirement can be found in H.B. 677 and S.B. 689.
viii H.B. 2482 (1995).
ix 1995 MN H.B. 2548. Sponsored by Representative Van Dellen. The bill also requires the
yj vote of two-thirds of the members of a local government's assembly or local voters by a
majority of those voting for the adoption of a new tax, an increase in the tax rate or an
extension of the application of a tax by a local unit of government.
x H.J.R. 10, S.J.R. 16 (1995).
xi 1996 N.M S.J.M. 12. Sponsored by Senator Scott. The determination of whether a bill
levies a new tax, increases the rate or base of an existing tax or creates or raises a fee shall be
made to resolve reasonable doubt in favor of requiring the three-fifths vote. Taxpayers are
expressly given standing to bring an action to enforce the provisions of S.J.R. 12. After
adoption by both houses of the New Mexico legislature the amendment must be approved by
the people at the next general election.
xii A.B. 2197 creates a constitutional amendment requiring approval by a 2/3 vote of the
Senate and Assembly voting separately to increase or decrease any tax rate, impose a new tax,
extend a new tax, extend or delete existing taxes. A.B. 6575, A.B. 8589, A.B. 2861 and S.B.
1432 create constitutional amendments to require a vote of 2/3 of all members elected to each
branch of the legislature to impose, continue or revive a tax. S.B. 5597 and S.B. 5615 require
a 2/3 vote of the legislature for any bills that increase taxes by fifty million dollars.
xiii H.B. 38 (1995). Sponsored by Representative Morgan.
xiv H.J.R. No.9. Passed first House on June 27, 1995. The Ohio Taxpayer Protection
Committee is launching a petition drive to place the issue of supermajority tax limitation on
the state ballot in the event that H.J.R. No.9 does not pass the Senate.
xv 95-5144. Introduced by Senator DeBatt.
xvi 1995 S.C. S.B. 299 (1995).
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xvii S.B. 157 (1995). Governor David Beasley has called for a law to limit the ability of local
governments to impose taxes and fees by requiring a two-thirds vote of local councils. John
Heilprin, Senate Debates Taxes, Post and Courier, February 29, 1996, at B 1.
xviii WV H.J.R. 5 (1996). Sponsored by Representative Overington.
xix To be enacted the Wisconsin measure must be adopted by two successive legislatures and
ratified by the voters.
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SUPERMAJORITY REQUIREMENTS IN THE U.S. CONSTI... - Microsoft InterneP1 plbnfi2
SUPERMAJORITY REQUIREMENTS
IN THE U.S. CONSTITUTION
From the early days of the Republic to the present, supermajority voting requirements have
been part of the U.S. Constitution. Supermajority requirements are found in the following
sections of the Constitution:
Article Applies To:
icle 1, section 3,
Conviction in impeachment trialsclause6
Article 1, section 5,
xpulsion of a Member of Congress
clause 2
Article I, section 7,
Override a presidential vetoclause2
Article II, section 1,
clause 3 Quorumof two-thirds of the states to elect the President
Article II, section 2,
Consent to a treatyclause2
Article V roposing constitutional amendments
rticle VII State ratification of the original Constitution
endment XII Quorum of two-thirds of the states to elect the President and the
Vice President.
Amendment XIV To remove disability of those who have engaged in insurrection
endment XXV
residential disabilitysection4
The Framers' decision not to impose additional constitutional supermajority requirements does
not mean that they opposed extending the concept. It simply means that at the time of
ratification they did not see a need for other supermajority requirements. However, they did
recognize that circumstances change and that the Constitution would need to be flexible to
change with the passage of time. Consequently, they provided a mechanism to amend the
Constitution—an amendment mechanism that itself requires two supermajority voting
requirements: Congressional adoption of the proposed amendment by a 2/3 supermajority and
then approval by three-fourths of the states for ratification.
Finally, a supermajority requirement for increasing the U.S. tax burden is not unprecedented.
The 16th Amendment to the Constitution, which provides for the income tax, had to be
approved by a vote of two-thirds of Congress and three-fourths of the states. It is only logical
that we should extend this protection to increases of the tax burden that are far in excess of
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the small burden first imposed in 1913.airness Restoration Act" introduced by Texas
Congressman and House Majority Leader Dick Armey. Most people call it "the flat tax" for
short.
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Why A Supermajority Would Protect Taxpayers -... - Microsoft Internet Explorer Pagel of 3
WHY A SUPERMAJORITY WOULD PROTECT TAXPAYERS
Daniel J. Mitchell
McKenna Senior Fellow in Political Economy
The Heritage Foundation
FYI No. 93
March 29, 1996
Table 1: How Supermajority States Compare in Gross State Product and Per Capita Tax
Revenue
On April 15th, the House of Representatives will vote on a Constitutional Amendment
requiring a two-thirds supermajority for Congress to raise taxes. In favor of the amendment
are those who believe that lawmakers will be more fiscally responsible and the economy will
grow faster if it becomes more difficult for Congress to raise taxes. On the other side are
those who believe restricting tax increases would interfere with the majority's ability to
determine economic policy.
To be fair, opponents are correct. The proposed amendment would restrict the rights of
the majority. But that is precisely the point. Just as the First Amendment is supposed to
prohibit the majority from passing laws to infringe upon the rights of free speech and the
Second Amendment is supposed to prohibit the majority from passing laws to infringe on the
right to keep and bear arms, the supermajority amendment is designed to place limits on the
power of the majority to take money from the minority. More specifically, taxpayers are
presumed to have a right to their earnings and that only tax increases with very broad support
as measured by the ability to attract a two-thirds supermajority -- are permissible.
There is little doubt that a supermajority will make it harder for politicians to take more
money from taxpayers. That is why lawmakers who believe taxes should be higher oppose it.
Had a supermajority been in place, some major tax increases from recent years would not have
become law. Consider:
The record tax increase pushed through Congress in 1993 by President Clinton was
approved by 51-50 in the Senate and 218-216 in the House. Since a single vote -switch
in either body would have killed the legislation, a supermajority requirement easily
would have saved the economy from the largest tax increase in American history.
The large tax increase signed into law in 1990 by President Bush was approved by
54-45 in the Senate and 228-200 in the House. Had a supermajority been required, this
ill-fated measure would have fallen 12 votes short in the Senate and 58 votes shy in the
House.
Other major tax increases in recent years, including the tax hikes of 1982, 1984, and
1987, also would have been blocked by a supermajority provision.
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Needless to say, these tax increases might never even have come up for a vote had
supermajority approval been required. Or at the very least, supporters of the tax increases
would have had to reduce the size of the hikes and probably make much-needed reforms to
spending programs to attract the needed votes. This helps explain why the lawmakers who
oppose this in Congress are those who traditionally favor raising taxes -- they fear the
supermajority would restrict them.
A supermajority requirement would not, of course, block all tax increases. The 1983
Social Security bailout legislation, for instance, imposed a huge tax increase on workers and
allowed incumbents at the time to avoid taking needed steps to fix a fundamentally broken
system. That legislation did receive more than two-thirds support in both chambers of
Congress. Likewise, it is clear that Congress would be able to increase spending, whether
financed by taxes or debt, if there was a genuine national emergency. A supermajority
requirement during World War II, for instance, would not have impeded the conduct of fiscal
policy.
Nonetheless, some critics say that such a requirement would be disruptive, or even
disastrous, if it were imposed on Congress. But seven states worked under such a limit for at
least 15 years and there is no indication that it has caused any problem. Significantly, not a
single state has repealed the provision. Moreover, the seven states which have lived for quite
some time under some form of supermajority -- Arkansas, California, Delaware, Florida,
Louisiana, Mississippi, and South Dakota -- have been joined recently by Arizona, Oklahoma,
and Colorado. Nevada and Ohio may soon join the list.
Ultimately, the debate over the supermajority boils down to a fight about the size of
government and the effect of taxes on economic performance. Proponents of smaller
government want to use the balanced budget amendment and the supermajority together to
slowly shrink the size and power of the federal government. Further, they want to put a brake
on higher taxes, which undermine the goals of fiscal responsibility and economic performance.
For instance:
Higher taxes typically are followed by bigger deficits. Tax increases in 1982, 1983,
1984, 1987, 1990, and 1993 have not balanced the budget. Indeed, current CBO
projections show the deficit climbing to more than $300 billion within ten years if
current policies are left in place.
Higher taxes are associated with higher spending. A 1991 study by the Joint
Economic Committee showed that every dollar of higher taxes is associated with more
than $1.59 of new spending. l Tax increases are virtually guaranteed to trigger new
spending if there is a balanced budget requirement since any new revenues simply allow
politicians to satisfy the balanced budget requirement at a higher level of spending.
Higher taxes hurt the economy. Lower taxes in the 1920s, 1960s, and 1980s helped
trigger economic booms. Higher taxes in the 1930s, 1970s, and 1990s, by contrast, are
associated with very mediocre economic performances. The evidence linking taxes and
economic performance is powerful. Numerous studies show that nations with low taxes
grow faster than countries with high taxes and also that countries can improve their
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performance by reducing taxes on productive economic behavior.2 Similar studies show
taxes have the same effect in and among states.3
Higher taxes do not collect the promised revenues. Fewer jobs means fewer
taxpayers. Lower profits means lower tax collections. Falling incomes mean falling tax
revenues. Understanding these simple relationships helps explain why individual income
tax revenues have fallen as a percent of GDP since Ronald Reagan left office even
though Americans have suffered through two major tax increases.
A supermajority rule is a necessary component of any strategy to shrink the size and
power of the federal government, and to limit the power of Congress to tax. High taxes hurt
the economy. Not only are five supermajority states below the national average in growth of
taxes, but also five are above the national average in overall economic growth (see Table 1).
This may be why more and more states have adopted the rule. There is every reason to believe
it would have a positive effect on fiscal policy in Washington. Requiring supermajority votes
to raise taxes ensures that politicians cannot continue to spend other people's money and
evade fiscal responsibility by imposing a higher tax bill on the nation.
A wide range of economic studies demonstrates that states will be better off if they keep
their tax burdens low. Curbing taxes limits the growth of government and boosts economic
performance. By making it harder to raise taxes, supermajority rule would have a desirable
effect on the nation's fiscal policy and overall economic performance. To be sure, a
supermajority does not guarantee sound economic policy. The record tax increase approved in
California several years ago, for instance, happened in spite of a two-thirds supermajority
requirement. And many states without supermajorities, such as Tennessee and Nevada, have
scored well in most categories of economic performance (this may be due to these states not
having an income tax). When all factors are examined, however, there is no escaping the
logical relationship between supermajorities and superior state performance. America would
be well served if this lesson were applied to the federal budget.
Endnotes:
Richard Vedder, Lowell Gallaway, and Christopher Frenze, "Taxes and Deficits: New
Evidence," Joint Economic Committee Staff Report, October 31, 1991.
2. For an extensive list of studies, see Daniel J. Mitchell, "Jobs, Growth, Freedom, and
Fairness: Why America Needs a Flat Tax," Heritage Foundation Backgrounder No.
103 5, May 25, 1995.
3. For a comprehensive analysis of state evidence, see Richard K. Vedder, "State and
Local Taxation and Economic Growth: Lessons for Federal Tax Reform," Joint
Economic Committee Staff Report, December 1995.
8/8/96 4:29:28 PM
MIIYIYESOTA
TA
IAIOIY
Dan Salomone
Executive Director
August 2, 1996
Sandy Patterson
10600 Old County Road 15
Plymouth, Minnesota 55411
Dear Ms. Patterson:
Enclosed are the articles I mentioned to you on the phone today. Ours is fairly short,
while the Cato Institute's is rather lengthy. The Cato study talks more about super -
majorities starting on page 27, and also has an extensive reference list for further study.
The only thing I would add is based on conversations with the Director of our sister
organization in Arizona. In that state, fiscal conservatives dominated both houses of the
Legislature for quite awhile. In order to try to ensure spending limitations, though, they
enacted a super -majority requirement. The unintended consequence was to give the
spending" minority a new power, since the super -majority requirement necessitated the
votes of a few fiscal liberals in order to achieve it.
This anecdote, and the other cautions mentioned in the study are the main reservations.
Properly designed, they can work, though.
If you have any questions, please feel free to call.
Sincerely,
C p
Lynn E. Reed
Research Director
Enclosures: 2
85 East Seventh Place, Suite 250, St. Paul, MN 55101-2173, Fax (612) 224-1209, (800) 322 -TARS, Telephone 224-7477
How Effective are Tax and Expenditure
Limitations?
Beginning with the tax revolt of the based on the performance of limitations in pertinent question, though, is: a solution
late 1970s, exemplified by California's states which have already adopted such for what problem? Voters and legislators
1979 Proposition 13, Tax and Expenditure measures as well as on whether to adopt a who have worked to pass TELs have done
Limitations (TELs) forged into the fundamentally different approach to so for diverse reasons which can be
mainstream discussion on improving making tax and expenditure decisions grouped into three categories:
control over, and forcing increased from our current system.
efficiency upon, government. The subject 1. to reduce the tax burden on society.
of implementing a limitation in Minnesota Why TELs? At the state level, this involves both
was included in the Governor's March 4th Conceived out of a frustration with state and local government tax collec-
presentation of the new budget estimates, growth in taxes and government in tions.
and the MTA believed that some exp ora- general, tax and expenditure limitations 2. to temper the continual growth of
tion of the topic was appropriate. Minne-
were thought to be a feasible solution. A government budgets by forcing
sotans' choice on this matter should be adoption of creative new approaches to
Table 1-1: State Tax and Expenditure Limits
Year of Limit Percent of Total Funds
State Enactment Type Limitation Base Covered by Limit
Alaskan y; * 1962q ;: r S y ; population 8 lnflahon 710
California 1979 C;E Population & Inflation 43%
Massadwsetts 1986 S;R Wages & Salaries 880/0
aJgges &Salananesl v_<
Arizona 1978 C;E Personal Income 75%
Idaho 1980 S;E Personal Income 400
r-swav- Lbursrarta,,,-
Michigan 1978 C;R Personal Income 75%
Montana 1981
y
S;E -Personal - 71%
Personalincome 29°G
South Carolina 1980 S;E Personal Income 56%
Texas 1978 C;E Personal Income _ 55%
Washi n 1979 S;R Personallncome 52%
40%0, tFlawa 1. ; a SQL.
Previous Year's Expenditures
12'SReal,Growlh .... ~. `.
Rhode Island 1977 S;E 6% Growth Rate
S,E* y` , er'Ca pita- I n corri
Legend: S = Statutory; C = Constitutional; E = Expenditure; R = Revenue
Note: ' New Jersey's expired in 1983 ' Delaware's is actually simply a balanced budget amendment
Rhode Island's is only advisory . Utah's was only advisory until 1991
New Mexico's was recinded in 1989 ' Nevada's applies to proposed expenditures
Oklahoma's used an undear revenue measure
Source: 1992 edition of "Significant Features of Fiscal Federalism", A.C.I.R.
spending public money efficiently.
3. to reduce the scope of activities in
which government participates (focus-
sing on public sector spending) in
order to slow and to reverse the
amount of income or wealth directed
into the public sector.
How do State TELs work?
While no two tax and expenditure
limitations are exactly alike, most have
either expenditures or revenues tied in
TEL continued on page 4
INSIDE ...
Pg. 2: Executive Director's Comments
Saluting 30-40 Years Membership
Pg. 3: Why are we paying more taxes,
but enjoying it less?
Pg. 8: TELs Introduced in Legislature
Page 2 Minnesota Taxpayers Association April 1993
Executive Director's Comments:
At the beginning of the current
legislative session, when we thought we
had a $769 million deficit for the next
budget biennium, the Governor and
legislative leaders were saying the budget
problem could be fixed without a state tax
increase. However, now DFL leaders in
both the House and Senate are calling for
a state income tax increase on upper-
income taxpayers --even though the deficit
projection has decreased to $163 million
and actual tax collections continue to
exceed projections. Only tax politics can
explain this sudden interest in tax in-
creases when the need for them has
dramatically lessened.
This propensity to raise taxes in
politically easy ways such as on high
income folks, to fund politically popular
programs such as K-12 education, while
wasteful spending programs go un-
reformed and tough choices are avoided,
has caused increased interest in something
foreign to Minnesota --tax and spending
limitation legislation. Such legislation
would limit state spending growth to the
rate of growth in personal income or
prices.
Watching what has happened in
California since Proposition 13 and in
other states that have tried to use formulas
to control spending, I'm frankly not
optimistic that our fiscal salvation will be
found in mathematical formulas. We
need reasoned policy debates between
knowledgeable taxpayers and their elected
officials. A limitation law can be viewed
as a tourniquet to stop the bleeding. What
it doesn't do is take the patient to the
hospital for corrective surgery. Tourni-
quets have their place, but they're no
substitute for the trip to the hospital. A
review of states' experience with limita-
tion law is found in this issue.
On another topic, several issues ago
we discussed the notion of "reinventing
government," pointing out that it is
necessary to find ways to make govern-
ment more efficient. For example, the
cost of reducing the real or perceived
Saluting 30 to 40 Years of Membership
Thank you for your continued, long-term support!
A. Hedenberg & Co., Inc. Juba's Super Valu Samuelson Drug Store
Agnes M. Anderson Justus Lumber Co. Scherer Brothers Lumber Co.
Alvin E. Benike, Inc. Kraus -Anderson, Inc. Schwan's Sales Enterprises Inc.
American Iron & Supply Co. Land O'Lakes, Inc. Security State Bank of Sebeka
Anchor Paper Company Lloyd K. Johnson Sellner Manufacturing CompanyAndersonCadillac, Inc. Lutheran Brotherhood Sheldon S. Larson
Arthur E. Anderson Mason Bros Grocery Co. Southwest State Bank
Bachman's, Inc. McLaughlin Gormley King Co. State Bank of Blomkest
Bardon Higgins Merrill Lynch Pierce State Bank of Park Rapids
Behrens Supply Company Fenner & Smith Thermo King Corporation
Bokers, Inc. Metal -Matic, Inc. Trumm Drug, Inc.
Bowlby, Anfinson, Crandall et al Miles Bowler Twin City Steel Treating Co. Bowman Corporation Minnegasco, Division of Arkla, Inc. Twin City Wire - MFI
Buffalo National Bank Minnwest Bank Ortonville Unisys Corporation
Ceridian Corporation Naylor Electric Construction Co. Usem Furniture
Christensen Lumber & Mill Works North Star Concrete Vista Telephone & Midwest
CiAzen National Bank Ochs Brick & Tile Co. Region
Duluth Missabe & Iron Range Ry. Co. Old Dutch Foods, Inc. Watson Investments, Inc.
F & D Supply Co. Olivia Canning Company Weidner Plumbing & Heating
First National Bank of Walker Oneida Realty Company Wenger Corporation
First State Federal Savings & Loan Oppenheimer Woff& Donnelly Wheelock Whitney
Hal Leonard Publishing Corporation Osmundson Bros. Ziegler, Inc.
Home Federal Savings & Loan Assn Peoples Coop Power Association
Humphrey Manlift Company, Inc. Professional Instruments Co.
IBM Corporation Quality Wine & Spirits Co.
Interstate Power Company Quinlivati Law Firm
J. H. Lynner Company Remmele Engineering, Inc.
J. C. Penney Company, Inc. Richfield Bank & Trust Co.
Jack Frost, Gold'n Plump Inc. Rosemount Inc.
Jones Metal Products, Inc. SBM Company
probability of being physically assaulted
might be reduced by reinventing how
police services are delivered, i.e., using
more efficient policing methods.
In this issue, we explore another area
of that black box that stands between the
outlay of tax dollars and acceptable
outcomes, namely the more controversial
area of values, personal responsibility,
and social fabric. Once thought to be
politically "too hot to handle," these
topics are now being discussed as key
factors in explaining the level of govern-
ment spending and, consequently, taxes.
If we want good value for our tax dollars,
we can no longer limit policy discussions
to the mechanics of spending programs.
We have to examine the very premises of
policy - their underlying assumptions
about current and induced human behav-
ior. On that point, we present an anno-
tated summary of what both leading
liberals and conservatives have been
saying lately.
Dan Salomone
Minnesota
Taxpayers
Association
Fiscal Focus
Hal Lofgreen Lea Gallegos
President Research Assistant
Dan Salomone Gavin Rowe
Executive Director Research Assistant
Lynn Reed Linda Kilau
Research Associate Secretary
Charles Steitz
Development Director
The Minnesota Taxpayers Association is a non-partisan, non-profit
corporation founded in 1926 to advance economy and efficiency in
government.
Unless otherwise rioted, original material in MTA publications is
not copyrighted and may be reproduced without obligation. Please
credit the Minnesota Taxpayers Association
Fiscal Focus is published bi-monthly (February, April, June,
August, October, December) for $50.00 per year by the Minnesota
Taxpayers Association, 480 Cedar Street, Suite 375, St. Paul,
Minnesota 55101_ ISSN #1042-847X, USPS #519130, Second
Class Permit paid at St. Paul, Minnesota 55101. Postmaster: Send
address changes to: - Fiscal Focus, c/o Minnesota Taxpayers
Association, 480 Cedar Street, Suite 375, St. Paul, Minnesota
55101
April 1993 Minnesota Taxpayers Association Page 3
Why Are We Paying More Taxes, but Enjoying It Less?
An October, 1992, Tax Foundation
Special Report indicates that after several
years of real income gains, the typical
two -earner American family has seen its
income eroded four years in a row by
taxes and inflation. From a peak in after-
tax income of $33,983 in 1988, a two -
earner family with two dependent children
saw its income drop to $32,539 after
subtracting all federal, state, and local
taxes and adjusting for inflation (see
Table 2-1 below). Moreover, the
chances for improvement any time soon
don't look very likely. In discussing the
outlook for the family's purchasing
power, the article says:
Persistent federal deficit
spending means more pressure to
increase federal tax revenues,
and the sharp tax increases
recently enacted in numerous
states will continue to tap the
family's disposable income over
the next several years. These tax
increase pressures, along with
the upswing in inflation and
slower income growth, do not
bode well for the American
family's purchasing power in the
coming years. " (Tax Foundation
Special Report, October, 1992)
Even as federal, state, and local tax
burdens rise faster than incomes, there
seems to be a concurrent loss of confi-
dence among taxpayers that they will see
any tangible benefit from the public
expenditure of their tax dollars. Results
of a recent Gallup poll for CNN and USA
Today were reported in the "Asides"
section of the Wall Street Journal several
weeks ago. That poll showed that only
20% favored higher taxes and more
services, and 41 % wanted lower taxes and
were willing to accept fewer services. A
Fabrizio/McLaughlin poll showed that
fully 71 % of Americans want to reduce
the deficit by cutting spending.
This loss of confidence might be
explained by what William Bennett,
former Education Secretary for Ronald
Reagan, recently called "cultural indica-
tors" (Wall Street Journal, March 15,
1993).
As Table 2-2 shows (on p. 7), in the
last three decades (1960 to 1990) Ameri-
cans have experienced a fivefold increase
in the percentage of children born outside
of marriage, a more than doubling of the
divorce rate, a nearly 8% drop in SAT
scores, a tripling in the percentage of
children on welfare, nearly a quadrupling
in the teen suicide rate, and a staggering
560% increase in the rate of violent
crime. And all of this "cultural deteriora-
tion" has occurred at the same time that
federal, state, and local spending together
has increased from 26.6% of the Gross
National Product (GNP) to 34.9% of GNP
1991 edition of significant Features of
Fiscal Federalism Vol 2, Revenues and
Expenditures, from the Advisory Com-
mission on Intergovernmental Relations,
October, 1991).
The obvious question then comes:
Why haven't the growing billions of
dollars in federal, state, and local spend-
ing improved our lot, or at least made us
feel as if it has been improved?
The answer is beginning to come into
focus as both conservatives and liberals
take a sober, post-election look at the real
impact of the breakdown of families and
family values in this country. With the
election safely past, commentators,
academics, and former and current
administration officials are now openly
discussing the implications of family
breakdowns, of putting "rights" over
responsibilities", and "self -actualization"
over moral purpose. David Blankenhorn,
a Democrat who runs the Institute for
American Values, was recently quoted in
the Wall Street Journal as saying:
Taxes continued on page 6
Table 2-1: Two-Eamer Median Family Income Before and After Taxes and Inflation
1980-1992
Federal Taxes
Two -earner Direct Taxes State & After-tax Income
median Income Social Indirect Local Total Effective Current Constant 1992 Real IncomeYearfamilyincomea) Tax(b) Security Taxes(c) Taxes(d) Taxes Rate Dollars Dollars(e) Gain or (Loss) 1980 $29,669 $4,849 $1,819 $3,076 2,547 12,291 41.4% 17,378 29,6311981 $32,283 $5,610 $2,147 $3,466 2,763 13,986 43.3% 18,297 28,280 S1.351) 1922 $33,492 $5,219 $2,244 $3,457 3,985 14,905 44.5% 19,587 28,518 S2381983 $35,440 $4,991 $2,374 $3,802 3,187 14,354 40.5% 21,087 29,746 S1,2281984 $38,267 $5,497 $2,679 $4,028 3,435 15,639 40.9% 22,628 30,599 S8531985 $40,213 $5,785 $2,835 $4,380 3,632 16,632 41.4% 23,581 30,791 S1921986 $42,326 $6,123 $3,026 $4,434 3,891 17,474 41.3% 24,852 31,859 S1,C681987 $44,981 $5,655 $3,216 S4,833 4,149 17,853 39.7% 27,128 33,552 51,6931988 $47,445 $5,828 $3,563 $5,148 4,293 18,832 39.7% 28,613 33,983 54311989 $49,058 $6,178 53,684 $5,264 4,462 19,588 39.9% 29,470 33,391 5592) 1990 $50,898 $6,562 $3,894 $5,311 4,646 20,413 40.1% 30,485 32.771 S620) 1991 $52,579 $6,383 $4,022 $5,552 4,871 20,828 39.6% 31,751 32,753 S18) 1992 (f) $53,984 $6,201 $4,130 55,832 5,282 21,445 39.7% 32,539 S32,539 5214)
a) Median family income for household with two earners, employed full-time, year round.
b) Married couple filing joint return, two dependent children.
c) Estimated average indirect federal taxes. Includes excise taxes, employer's share of Social Security taxes, allocated corporate taxes, and miscellaneous levies.
d) Estimated national average of total state and local taxes.
e) Adjusted by Consumer Price Index (CPI -XI), estimated 3.16% inflation in 1992.
0 Estimates based on first and second quarter 1992 statistics.
Sources: Tax Foundation; U.S. Department of Commerce, Bureau of the Census and Bureau of Economic Analysis; U.S. Department of Labor, Bureau of LaborStatistics; U.S. Treasury Department, Internal Revenue Service. Tar Foundation Special Report by Paul G. Merski, October, 1992. 470L'Enfant Plaza, STV, Suite, 7400, Washington, DC 20024, (202)863-5454.
I Page 4 Minnesota Taxpayers Association April 1993
Tel from page 1
some way to either growth in personal
income, growth in the inflation rate (CPI),
growth in population, a flat rate of growth
in government spending, or a combination
of the four. As examples, consider two
states:
Colorado limits its growth
in expenditures to seven
percent of the preceding
year's budget.
Hawaii limits its increases
in general fund expendi-
tures to the estimated rate
of growth of the state's
economy where personal
income is used as the
measure.
Table 1-1 (on page 1) shows
how each state's limit is
constructed. In general, the
most common method of
limiting expenditures or
revenues is tying them to the
change in personal income.
is legally restricted, under what conditions
would the state be able to exceed the
limitation to meet emergency needs? All
TEL states have included clauses for
defining such crisis circumstances in order
to allow the state to respond, but what
exactly qualifies as an emergency?
Obviously, a devastating natural disaster
Finally, during economic boom
times, most states with TELs have a
mechanism for saving or refunding excess
funds. Presumably, part of the purpose of
TELs is to restrain spending during
economically strong years so the state will
not overspend and need to fund programs
they won't be able to support in weaker
years. For the most part, the funds are
Figure 1-1: State & Local Tax Rev. as % of Personal Income
13 - U. S. v. TEL States
Tax Revolt
81z.s
0 120
I
0
CL _
a
I
10.5
v- U.S. Tax Average TEL state rax Avg.
Source: Various editions of "Governmental Finances "; Bureau of the Census
Note: Alaska has been removed from the TEL average because of the
distorting effects which its tax structure would have on the average.
One would expect that in
order for a TEL to be effective, it would
need to cover most expenditure programs.
However, no existing limit covers the
entire spectrum of spending options. In
deference to the states that have adopted
TELs, it is probably not realistic, either
politically or practically, to cover all
expenditures under these limits. Most
states restrict their TELs to General Fund
expenditures which usually account for
roughly half of the total state budget (in
Minnesota, the General Fund accounts for
roughly 77% of the entire state budget
which would put this state in the company
of Arizona and Michigan if a TEL used
this measure). Funds such as debt service
accounts, federal assistance, dedicated
funds, self-supporting enterprises, pension
funds, and local assistance have special-
ized spending demands that do not lend
themselves to formula -imposed limits.
Lastly, no state currently includes "tax
expenditures", essentially expenditures
made through the tax codes rather than
through specific appropriations, under the
TEL umbrella.
Perhaps the most important consider-
ation in writing a TEL is how to respond
in the event of an emergency. If spending
would constitute a crisis. Yet, does
chronic unemployment qualify, and, if so,
how long does the situation have to persist
and at what level? Further, demand for
several programs runs counter -cyclical to
revenue collections which means that, just
as the economy stumbles and revenue
growth slows, certain programs (income
maintenance efforts and unemployment
for example) will need more money.
Such demands place additional stress on
budgets, and some of these instances
could properly be seen as crises.
The stringency of a TEL in defining
an emergency varies a great deal from
state to state and is usually a function of
whether the limitations were written into
the states' constitutions so that legislators
could not easily change their provisions or
whether they were left in statutory law.
As one might suspect, it would not take a
great deal of political imagination to
generate a "crisis" and thereby override
the limit. A good example of such a
recurring process exists in Tennessee
where "emergency" circumstances are
used almost annually to legitimize
exceeding the TEL -imposed expenditure
limit.
either deposited in "rainy day
funds", used to match federal
programs, made available for
appropriations in the following
year, or returned to the taxpayer
as refunds or credits. Some
states, though, have no provi-
sions for excess revenue.
How effective are
TELs?
An important question to
answer initially is whether TELs
have effectively reduced the tax
burden on society, induced
greater efficiency in govern-
ment, or diminished the size of
government. In addressing
whether TELs would actually encourage
greater efficiency in government, Dr.
Dale Bails of the Public Interest Institute
at Iowa Wesleyan College has written,
No statistical proof exists that TELs
induce greater efficiency in government.
In contrast, the same paradigms are likely
to continue but in reduced scope if
necessary."
Have the states which passed tax and
expenditure limitations managed to reduce
the burden of state and local taxes?
Figure 1-1, which shows state and local
tax revenue as a percentage of personal
income from 1975 through 1989, makes
an important observation apparent:
State and local government in TEL
states received a lower percentage of
personal income in tax revenue both
before and after the tax revolt than is
the U.S. average. In essence, TEL
states were low tax states before their
limits were enacted.
While TEL states have been effective in
keeping the level of state and local taxes
low relative to income, the actual effect of
the limits on this process are not clear
considering the pre-tax revolt relationship
I Aprii 1993 Minnesota Taxpayers Association Page 5
to the U.S. average.
Are the TEL states more effective in
diminishing the size of government?
Figure 1-2 (on page 5), which shows the
cumulative growth in state direct general
expenditures for both TEL and non -TEL
states from 1973 to 1987, shows two
important trends:
The slope of the TEL
states' curve is reduced
after the tax revolt. This
means that the rate of
growth in state expenditures
slowed relative to that
before the revolt. Yet, the
degree to which this trend
can be attributed to the
limits versus other factors
including economic trends
and a variety of federal
policies is not clear.
However, the most notice-
able aspect of the graph is
the divergence between the
two curves which occurs in
the midst of the revolt.
Aft 1980
1986, the Advisory Commission on
Intergovernmental Relations asked the
states whether their limitations had
affected their budgeting process. Three
states answered that the limits did have an
effect on spending decisions: Rhode
Island, Colorado, and Hawaii. Since
Rhode Island's TEL is advisory only, this
article will analyze Colorado and Hawaii.
must be made public. The law has no
provisions for the treatment of surpluses.
Analysis:
The effect of limitations on reducing
taxes as a percentage of personal income
is mixed, (see Table 1-2 on page 6.)
While Colorado's tax burden has dropped
25% faster than the U.S.
Figure 1-2: cumulative Direct General Expen. Growth
TEL States vs. Non Tel States
260 Tax Revolt
24o
3
6 200
180
160I
140 f
120
10o
Year
TEL state Growth 0 Non -TEL state Gr.
Source: Various editions of "State Government Finances", U. S. Department of
Commerce.
Note: 1972 = 100
er , growth m state
government expenditures in states
which have adopted TELs has
outpaced growth in states without
limits.
The data suggest that the growth in
state government direct general expendi-
tures in states with limits has not slowed
relative to non -TEL states as a conse-
quence of limitation enactment. How can
relatively greater spending in TEL states
be reconciled with maintaining a relatively
light tax burden? It is very possible that
an offsetting increase in non -tax revenues
user fees, etc.) is currently underway in
states which have adopted limitations.
Such an increase would not be shown in
Figure 1-1.
Where TELs have been
successful:
Although TELs do not seem to have
been very effective in most states for a
variety of reasons, the perception exists
that limitations could work effectively to
restrain budget growth in Minnesota,
perhaps with some adjustment to the
models already functional elsewhere. In a
survey of the states with limitations in
Descriptions:
Colorado: The Colorado statutory
TEL was enacted in 1977 and applies to
expenditures. The act restricts expendi-
tures to a 7 % yearly growth of general
fund expenditures which comprises
roughly 40% of the total budget. As the
limit is statutory, it can be amended and
overridden at any time by a majority vote
of the legislature. In the event of a
surplus, funds are used for tax relief,
capital construction, highway expendi-
tures, or water projects.
Hawaii: The Hawaii TEL was
created within the state's constitution in
1978 and again is a limitation on expendi-
tures. The growth in appropriations is
limited to a rate of growth of the state's
economy as measured by the change in
personal income. The rate of growth
applies to general fund appropriations
which comprise roughly 57% of the
budget. The limit can be overridden with
a two-thirds approval of each house, but
the total amount by which the limit is
exceeded, the specific amounts of each
appropriation which go beyond the limit,
and the reasons for exceeding the limit
average, both Hawaii in
particular and TEL states in
general have failed to reduce
taxes as a percentage of income
at a rate equivalent to the nation
as a whole. A second interest-
ing .difference between TEL
states and non -TEL states is
reflected in the U.S. average,
and that is that TEL states
including Colorado and Hawaii
experienced virtually no change
during the Tax Revolt itself but
a significant decrease after the
Revolt. In contrast, non -TEL
states experienced a much
greater drop in the tax burden
during the Tax Revolt (the U.S.
average drops equally in both
periods: non -TEL states account for the
decrease during the Revolt and TEL states
for the reduction Post -Revolt).
Similarly, no clear pattern emerges
from the table which would indicate that
expenditures were affected by the limits in
the long run. The table does highlight
two observations. First, both Colorado
twice the national rate) and Hawaii (just
over five times the national rate) reduced
the level of expenditures in terms of
income more quickly than the nation as a
whole, and non -TEL states in particular.
Yet, expenditures in TEL states in
general, and in Hawaii in particular,
remain higher than the U.S. average.
Further, if the Post -Tax Revolt number is
investigated in detail, Colorado, Hawaii,
and TEL states in general have seen direct
general expenditures surge upward more
quickly, after a dip in the mid-1980s, than
non -TEL states toward the end of the
decade.
Why TELs have not
worked:
If only three states of 23 which
TEL continued on next page
Page 6 Minnesota Taxpayers Association April 1993
TEL from page 5
passed TELs responded that the limits
had affected the budget process, then it is
tempting to conclude that many TELs
have fallen short of expectations. If the
fiscal data is considered, suspicions about
ineffectiveness multiply. Even though
Colorado and Hawaii have had mixed
results relative to the rest of the country,
Minnesota could draw from these states'
experiences in designing a better limita-
tion. In doing so, however, it would be
wise to remember that two- types of
problems appear to have hmpered past
limitations' effectiveness: the process of
writing the TELs has left their actual
enforcement powers weak and the effects
of passage through the legislative process
on the limitation have left them signifi-
cantly less effective.
In writing a TEL, the author must
confront a number of problems which the
framers of the U.S. Constitution solved
through the assumption of continuous
public contact with elected representatives
and through the notion of checks and
balances between coequal branches of an
elected government. An example of such
a difficulty involves the "escape clauses"
which inevitably must be included in any
limitation. How can a fair degree of
difficulty for overriding the limitation be
included so that it is neither too easy nor
too difficult to do so? The question has
not yet been answered effectively, and it
becomes more complex if one considers
that the number of seats held by any one
party in the legislature can shift radically
every two years. Hence, that level of
difficulty which is considered fair initially
may become either too easy or too
difficult after any biennial election.
Similarly, the process of gaining
passage through the legislature, the most
common method of TEL adoption as
opposed to an "initiative and referendum"
approach, usually has a deleterious effect
even on the perfect limitation. Often,
political capital is spent in the early stages
of the process on securing which yardstick
to use, CPI versus personal income, in
measuring the level of state and local
taxes or expenditures. By the time critical
issues are addressed, the legislatures have
drilled enough holes into the law that the
fiscal leaks render the law ineffective. In
contrast, Dr. Bails and other authorities on
TELs suggest taking the path of least
political resistance on the question of
which measurement to use in order to save
Political capital for the inevitable fight
with the legislature over how strict the
escape clause should be written.
Final Thoughts:
While gaining control over the rate of
increase in taxes and expenditures at the
state and local level is clearly a high
priority, a few questions remain in
considering the relative benefit of a TEL
as the answer. Is a TEL preferable to
concentrating on increasing informed
public involvement in the legislative
process? Can the limitation effectively
control the growth in the tax burden, the
approach to delivering government
services, or the overall size of govern-
ment? or would the politics of spending
and taxing simply adapt in the long run?
If the political will to adopt a sufficiently
strict TEL exists, then would the political
ll 1
Table 1-2: State and Local Taxes & State and Local Direct General Expenditures
As a Percentage of Personal Income (Two State Comparison to U.S.)
State and Local Taxes State and Local Direct General Expenditures
Pre -Tax Post -Tax Pre -Tax Post -Tax
Revolt Tax Revolt Revolt Revolt Tax Revolt Revolt
U.S.-Average 12.6'% 11.9% 11.4% 19.7% 19.1%0 18.4%
TEL State Average 12.3% 11.9% 11.3% 20.5% 20.0% 19.3%
Colorado 12.1% 11.7% 10.5% 20.4% 18.T/° 17.8%
Hawaii 14.3% 14.3% 13.4% 26.7% 23.0% 20.0%
Source: Various editions of "Governmental Finances"; Bureau of the Census
Notes: State and Local Direct General Expenditures includes funds received from the Federal Government
Pre -Tax Revolt: 1973-1977
Tax Revolt: 1978-1981
Post -Tax Revolt: 1982-1989
Taxes from page 3
the new consensus, if there is
one after shaking off the burden
of the 1992 debate, is that we
really do have a problem. It's
called family decline. It's not
the economy stupid. ' It's the
culture. " (Wall Street Journal,
April 9, 1993)
Blankenhorn's colleague, Barbara
Dafoe Whitehead, authored a lengthy
cover article for the magazine The
Atlantic entitled "Dan Quayle Was
Right," in which she painstakingly
documents the harm that family dissolu-
tion is having on children and our commu-
nities.
According to the Wall Street Journal,
that article has drawn as much response as
any in the magazine's 30 -year history. In
that piece, she makes an important
connection for those of us who care about
taxes and government efficiency:
Family disruption would be a se-
rious problem even if it affected
only individual children and fami-
lies. But its impact is far broader.
Indeed, it is not an exaggeration to
characterize it as a central cause of
many of our most vexing social
wt to contro spending
through the present system of
interactive republican democ-
racy already exist?
Special thanks to Dr. Dale
Bails of the Public Interest
Institute at Iowa Wesleyan
College
Gavin B. Rowe
Mark Schreiner
problems... poverty, crime, andde-
clining school performance. "
Dan Quayle Was Right", 77te
Atlantic, April 1993)
Even one with such a liberal tradition
as Senator Patrick Moynihan of New
York has been echoing this theme:
There has been a breakdown in
social order in the U.S. so wide-
spread that many Americans have
simply grown numb to it. The
disintegration of the family is at the
Taxes continued on next page
I April 1993 Minnesota Taxpayers Association Page 7
Taxes from page 6
heart of the problem, he [Sen.
Moynihan] believes. And there are
limits to whatgovernmentprograms
can do about it. " ("Capitol Jour-
nal "by Gerald F. Seib, Wall Street
Journal, April 17, 1993).
Sieb goes on to write that "William
Galston, an assistant to President Clinton,
and William Bennett, a conservative
veteran of the Reagan and Bush adminis-
trations, have recently reached strikingly
similar conclusions about the decline in
the U.S. social order." And according to
Mr. Seib, there seems to be a rough
consensus developing about the nature of
the problem.
So what do these ideas and statistics
have to do with our growing tax burdens?
The answer is obvious. While we have
been focusing on our search for govern-
ment waste and inefficiency and the
appropriate design of tax policy, signifi-
cant societal changes have been taking
place that have altered the rate at which
government can transform public funds
tax dollars) into acceptable social
outcomes.
Consider education as an example.
Because of the breakdown of families and
related social phenomena, a desired
educational outcome that may have once
cost taxpayers $2,000 per student, may
now require the outlay of $4,000 per
student --not because government is less
efficient, not solely because of inflation,
but because of cost factors and conditions
that did not exist years ago. As our
culture deteriorates (sense of community,
shared values, family structure, and the
like), it takes a greater and greater
expenditure of tax dollars to achieve
acceptable outcomes. This may not be
obvious to most taxpayers and may
explain why there is a growing frustration
with government's apparent impotence.
How do we respond? Do we just shut
off government money entirely, as many
frustrated conservatives seem to want to
do, or do we continue to raise taxes in
order to pour ever more billions into
attempted "solutions" as many liberals
seem to call for?
Glenn C. Loury, a professor of
economics at Boston University, recently
pointed out these polar positions have
something in common. He says that both
assume that economic factors are the
exclusive causes behind the behavioral
problems. He thinks that both extremes
smack of a mechanistic determinism,
wherein the mysteries of human motiva-
tion are susceptible to calculated interven-
tion." (Wall Street Journal, February 25,
1993)
He goes on to offer his opinion of
what is missing in these discussions:
Ultimately, such sterile debates
over policy fail to engage the fun-
damental questions ofpersonalmo-
rality, ofcharacter and values. We
do not give public voice to the
judgments that it is wrong to abuse
drugs, to be sexually promiscuous,
to be indolent and without disci-
pline, to be disrespectful of legiti-
mate authority, to be unreliable,
untruthful, unfaithful. "
By not giving "public voice" to these
historically obvious and common sense
concerns, we have unwittingly contributed
to the numbing of the American con-
science. Senator Moynihan's conclusion
is that we have grown so numb as a
people that we have stopped recognizing
deviant behavior" as such, instead
choosing to redefine our standards.
In the light of the nearly certain
increases in taxes that will be coming
throughout the rest of the 1990's and the
simultaneous weakening of confidence by
the taxpayers that these moneys will be
well spent, it is time to give a public voice
to concerns about values and the role they
play in both the improvement and deterio-
ration of the civilization these taxes are
meant to protect.
We should reexamine all government
programs to make sure there are no
perverse incentives. The "Capital
Journal" article mentioned above indicates
that, in this regard, "some agreement is
emerging on policies to help." Welfare
programs can be redesigned to eliminate
marriage and work penalties; the tax
exemption on children can be raised to
provide more support for families; the
earned income credit can be increased to
provide more to working families. These
kinds of changes would combine the
economic and personal values components
toward more favorable outcomes of
government spending.
It is not a time for business as usual.
The Tax Foundation's report is not
surprising news --we know that resources
will be stretched thin in the 1990's and
Taxes continued on next page
Table 2-2: Federal, State, and Local Government Spending
as a Percent of Gross National Product and
Selected "Cultural Indicators"
Total
Gov't. of
Spending Births of Teen Violent
as % that are Divorces per SAT Children Suicides Crime Rate
Year of GNP Illegitimate 1.000 pop. Scores on Welfare per 100.000 per 100.000
1960 26.6 5.3 2.2 975 3.5 3.6 16.1
1965 26.9 2.5 969 4.5 4.0 20.0
1970 31.3 10.7 3.5 948 8.5 5.9 36.4
1975 34.1 4.8 910 11.8 7.6 48.8
1980 32.6 18.4 5.2 890 11.5 8.5 59.7
1985 34.9 22.0 5.0 906 11.2 10.0 53.3
1990 34.9 26.2 4.7 900 11.9 11.3 73.2
Sources: Significant Features of Fiscal Federalism Vol 2 ACIR, 1991; 3115193 Wall Street Journal, "Quantifying America's Decline", by William J. Bennett; and Statistical Abstract of the U.S. - 1992 U.S. Census Bureau.
Page 8 , Minnesota Taxpayers Association April 1993
TELs Introduced in Legislature
Senate: House:
Introduced by Senator Gene Merriam Introduced by Representative H. Todd Van
DFL, Coon Rapids, 296-4154), SF 804 appears Dellen (IR, Plymouth, 296-5511), HF 1616
to be an attempt to implement a statutory would enact a constitutional limitation
limitation affecting state and local fiscal affecting state spending directly and local
practices. It requires that the Governor include budgets indirectly (through the bill's language
a "Long -Term Financial Plan" for the upcoming addressing local mandates and through control
two bienniums with the budget information of state aid to local jurisdictions). The measure
which is presented to the legislature at the which would require public approval contains
beginning of each major budget session. The the following specific provisions:
Plan must include the following features:
Specific needs, -in feiinsof apercentage of
personal income in Minnesota, of state and
local government
Expenditure needs by "broad program area"
The appropriate mix of income tax, sales tax,
property tax, and other revenue sources to
fund those spending needs
Biennial budgets are to be "structurally"
balanced: projected revenues should at least
equal projected spending commitments
If probable revenue receipts will be unable
to match spending commitments, Department
Commissioners are given the authority to act in
a variety of capacities to solve the problem after
approval by the Governor and consultation with
the Legislative Advisory Commission.
All state expenditures except federal "pass
through" funds are limited to growing at a
rate that does not exceed the rate of growth
of personal income in Minnesota
The limit may be exceeded only if approved
by a 2/3 majority of each legislative chamber
after a recommendation to do so by the
Governor
The legislature may not pass laws requiring
additional spending commitments from local
governments without providing for some state
sharing of the cost
Membership Dues Reminder
Please send in your 1993
membership dues.
MUNNESM
TA"
CdAoN
480 Cedar Street, Suite 375
Saint Paul MN 55 10 1
612)224-7477
800)322-8297
Taxes from page 7
beyond, if for no other reason than to
eliminate the massive federal deficit. Add
to that the problems in education equity
and outcomes, health care access, and
crime, and it is clear we can't continue to
fund programs which mistakenly assume
all human conditions respond to the
application of government funds --that one
need only establish the right government
program", properly funded and staffed.
Mr. Loury notes that "The advocacy
of a conception of virtuous living has
vanished from American public dis-
course..". Government is uniquely
qualified to perform some vital societal
functions, so that there will always be
legitimate needs for government pro-
grams. However, in addition to designing
these programs carefully with appropriate
incentives in mind, we also need to make
it acceptable to promote moral behavior
and moral purpose in the public policy
debates about these programs. We can no
longer afford to assume that money alone,
either denied or lavished, is going to solve
society's most perplexing problems.
Lynn Reed
Dan Salomon
Second Class
Postage
PAID
St. Paul, NIN
Foli CYNc. 213 July 25, 1994 Routing
TAMING LEVIATHAN:
ARE TAX AND SPENDING LIMITS THE ANSWER?
by Dean Stansel
Executive Summary
After a decade of dormancy, the tax revolt is back. Fed
up with rapidly rising state budgets, Americans are increas-
ingly taking matters into their own hands, voting into law
limits on the ability of state lawmakers to tax and spend.
In the past two years, five states approved such populist
measures. This year voters in as many as six states will
have the opportunity to vote on some type of tax limitation
initiative.
The opposition to tax and expenditure limitations (TELs)
is enormous. Opponents charge that restraining the growth of
taxes and spending is impossible without doing things like
taking cops off the beat and firefighters out of the fire-
house. Other critics make precisely the opposite complaint
about TELs, charging that TELs are ineffective and do not
limit the growth of taxes and spending as promised.
This study demonstrates that properly designed TELs can
and do limit the growth of state taxes and spending. For
example, the growth rate of per capita state spending in TEL
states fell from 0.8 percentage points above the U.S. average
in the five years preceding TEL enactment to 2.9 percentage
points below the U.S. average in the five years after TEL
enactment.
Unfortunately, many. TELs are designed in a way that
minimizes their effectiveness. This study examines that
issue and provides a detailed description of how an effective
TEL should be designed.
If the citizens of a state wish to limit the growth of
Leviathan, they should not abandon TELs; instead, they should
ensure that the TELs are properly constructed.
Dean Stansel is a fiscal policy analyst at the Cato Insti-
tute.
rte--- .
t
Page 2
Introduction
The grassroots tax revolt, which began in the stagfla-
tionary years of the late 1970s,.is brewing again. Though
the misery index is not what it was in the days of Proposi-
tion 13, there is a rising sentiment among voters that state
government has grown too large. That sentiment is grounded
in reality: since 1980 total state spending has climbed by
60 percent (after adjusting for inflation).'
The movement for tax and expenditure limitations (TELs)
is growing in much the same way the term -limits movement is.
In 1991 two states --Connecticut and North Carolina --enacted
TELs for the first time, and two other states --Colorado and
Louisiana --modified their TELs. Since then five states have
enacted measures to restrain the growth of taxes and spend-
ing.'
In March 1992 Oklahomans passed a constitutional
amendment requiring all tax increases to pass both
houses of the state legislature with a three-fourths
majority or be approved by a majority of the voters.
In November 1992 voters in Colorado passed Amendment
1, the Taxpayer Bill of Rights. That measure requires
that any increase in taxes --state or local --be approved
by the voters. It also limits spending growth to that
necessary to keep pace with population growth and
inflation.
Also in November 1992 voters in Connecticut passed a
constitutional amendment limiting spending growth to
the rate of growth of personal income or inflation,
whichever is greater.
In 1992 an overwhelming 72 percent of Arizona voters
approved a constitutional amendment requiring a two-
thirds majority in the legislature for any increase in
taxes or fees.
Finally, voters in Washington State approved a con-
stitutional amendment in November 1993 that limits
state spending growth to the rate of population growth
plus inflation and requires voter approval of any tax
increases that would exceed that limit.
All told, 23 states now have TELs. In addition, this
year on election day in November, voters in as many as six
states will have the chance to vote on some type of tax
Page 3
limitation initiative .3 (Table A.1 in the appendix summa-
rizes each of the prospective ballot initiatives.)
Although many critics have claimed that TELs are not an
effective means of restraining the growth of taxes and
spending, this study presents new evidence refuting those
contentions. It finds that TELs, when designed properly,
can be and have been an effective tool for restraining the
growth of both taxes and spending.
The five-year growth rate of per capita state spend-
ing in TEL states fell from 0.8•percentage points above
the U.S. average in the five years before TEL enactment
to 2.9 percentage points below the U.S. average in the
five years after enactment.
e Per capita spending in TEL states fell from 6.4
percent above the U.S. average in the year of TEL
enactment to only 1.7 percent above the U.S. average in
1992.
If the level of per capita spending in TEL states had
not declined, the state spending burden per family of
four in those states would have been, on average, $450
more in 1992 than it was.
Similar declines in the growth and level of spending in
TEL states were found when those states were compared with
non -TEL -states, and an examination of state taxes and state
and local spending shows the same pattern of change. In
sum, TELs appear to have imposed restraint on the growth of
state budgets and taxes.
Why TELs Are Needed
The expansion of government over the past several
decades has been enormous. Since 1950 the real growth of
government spending at all levels has outpaced population
growth by a margin of almost eight to one. As a result, the
per capita burden of government exploded upward by 254
percent, even after adjusting for inflation.°
Though real government spending at all levels surged by
480 percent from 1950 to 1990, real state government spend-
ing rose even faster, by 534 percent.5 Over the last two
decades that burden has been growing even larger.6 As
Figure 1 shows, from 1970 to 1980, real state spending grew
more than two and a half times faster than population. More
recently, from 1980 to 1990, real state spending grew over
Page 4
Figure 1
State Spending Growth vs. Population Growth
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1970-80 1980-90
four times faster than the number of those it serves. Since
1980 many state budgets have nearly doubled in size, even
after adjusting for inflation. State taxes have climbed at
a similar pace.
Growing evidence indicates that voters do not want
government to be as large as it has become. Exit polls on
election day in November 1992 indicated that, given a choice
between lower taxes and more government services, 55 percent
of voters preferred to keep taxes down, even if that meant
fewer government services, while only 36 percent said the
opposite. One year later in a similar poll in New Jersey,
an even higher 60 percent of voters said they would prefer
lower taxes and fewer services, compared to just 33 percent
who said the opposite.7 It is in part such hostility to
government that is driving the tax revolt. Not trusting
politicians to restrain budget growth and rising tax bur-
dens, Americans are increasingly taking matters into their
own hands, voting into law strict limits on the ability of
their state governments to tax and spend.
History of the Tax Revolt
In June 1978 voters in.California, fed up with skyrock-
eting property taxes, overwhelmingly passed Proposition 13.
t
Page 5
Hatched by anti -tax crusader Howard Jarvis, Proposition 13
rolled back local property taxes to 1 percent of assessed
valuation, limited assessment increases to the lower of 2
percent or the annual inflation rate, required two-thirds
voter approval for new local taxes, and required two-thirds
approval of the legislature to raise existing or impose new
taxes.
The passage of Proposition 13 led to a push for numer-
ous similar measures in other states. Between 1978 and
1980, 43 states adopted new limitations on local property
taxes or new property tax relief plans. Emboldened by their
success, the tax revolters took aim at state taxes as well.
Between 1978 and 1982, 15 states reduced their general
income tax rates, 10 indexed their personal income tax
systems, 7 eliminated their gift taxes, and 6 repealed their
inheritance taxes.&
In addition, explicit limits on spending were imposed.
In 1976 New Jersey passed the first state TEL, and by 1982
TELs had been enacted in 20 states.9 Though TEL enactment
slowed along with the fervor of the tax revolt during the
prosperous 1980s --only two additional states enacted TELs
from 1983 to 1990 --voter frustration is now reversing that
trend.
What Other Studies Have Found
Many studies have contended that TELs do not effective-
ly restrain the growth of government. For instance, Daphne
Kenyon and Karen Benker examined the change in expenditures
relative to personal income for TEL versus non -TEL states
over the period 1978-83. They found that in some years TEL
states saw slower spending growth than non -TEL states, while
in other years TEL states saw faster spending growth than
non -TEL states. Though Kenyon and Benker say that there is
some evidence that TELs may have moderated spending in some
states, they conclude that "for most states, TELs have not
been a constraint on growth in taxing or spending.j10
Marcia Howard examined both state tax collections and
state general fund expenditures as a share of personal
income over the period 1980-87. She found that, while state
taxes grew faster than personal income in TEL states, taxes
outpaced income growth by slightly more in non -TEL states.
Further, Howard found that state general fund expenditures
as a share of personal income actually fell in TEL states,
from 5.5 percent in 1979 to 5.41 percent in 1987, lower than
spending in non -TEL states. She nevertheless concluded
Page 6
that, because the differences were small, there was an
absence of strong evidence that tax and expenditure limita-
tions have been successful."
Dale Bails examined the change in five components of
per capita state spending and revenue over the period 1981-
85, the "post -tax revolt years." He found that each of the
measures grew more slowly in TEL states than in non -TEL
states. For instance, per capita total general revenues
rose 30 percent in TEL states compared to 36 percent in
non -TEL states. However, Bails also found that the average
annual growth of spending or revenue (the one to which the
TEL applies) from the year of enactment to 1985 was lower
than such growth over the period 1970 to the year of enact-
ment in only one-third of the TEL states. Bails thus con-
cluded that states' TELs "resulted in virtually no success
in limiting growth in their budgets. ,
12
James Cox and David Lowery examined the change in state
spending and revenue relative to personal income in three
TEL states, Michigan, South Carolina, and Tennessee. Each
of those states was paired with a non -TEL state in its
region. The authors found that TELs did not have a statis-
tically discernible effect on the growth of government. Cox
and Lowery concluded that "by and large, the behavior of the
cap states has been similar to that of noncap states. ,
13
Each of those studies identifies specific factors that
limit the effectiveness of TELs, many of which are related
to the faulty design of individual TELs. Since TELs are
often designed by politicians --the very people whose behav-
ior TELs are intended to restrain --it should come as no
surprise that they frequently are worded in a way that makes
their restraints as weak and easily circumvented as possi-
ble.
Despite their recognition that faulty design is often
the root of the problem, most studies that find TELs to be
ineffective do not recommend strengthening them by eliminat-
ing their flaws. Instead, the studies conclude that TELs
should be abandoned.
In contrast, there have been several studies that have
found TELs to be effective. Stephen Moore examined a vari-
ety of fiscal discipline mechanisms and found that average
state spending as a share of income in TEL states fell from
4 percent higher than the average for non -TEL states in 1979
to 10 percent lower than the average for non -TEL states by
141987.
Page 7
Barry Poulson found that the impact of TELs on state
spending during their first four years of existence was
negative for all [TEL] states and significant for seven of
those states. . . The implication is that for these seven
states the absence of the TEL would have resulted in signif-
icantly greater increases in government expenditures in the
short run. 1115
So while there is some dispute as to whether TELs are
effective at restraining the growth of government, even the
staunchest TEL advocates will admit that TELs have not
worked as well as proponents would have liked. There is
broad agreement, however, on the importance of the design of
TELs to their effectiveness.
Methodology
This study focuses primarily on the performance of TELs
as a whole, with a few minor exceptions noted below. In
later sections, the performance of well-designed and poorly
designed TELs is compared.
To measure the effectiveness of TELs in restraining
government growth, this study examines how the growth rates
and levels of taxes and spending in states with TELs changed
after the TELs were enacted. 16 To adjust for the effect of
population changes, per capita figures were used.
Of the 23 states with TELs, 21 had enacted them by
1986. While no state enacted a TEL for the first time
between 1986 and 1990, two states, Connecticut and North
Carolina, have done so since 1990. Those two states are
excluded because there is not yet sufficient data to ade-
quately examine the effect of their TELs. In addition,
Rhode Island and Nevada are excluded because their TELs are
nonbinding, applying only to the governor's recommended
budget. Finally, Alaska is also excluded because of pecu-
liarities in its budgetary structure that make comparisons
with other states problematic.17 Unless otherwise noted,
TEL -state average" herein refers to the 18 states with
binding TELs that were enacted by 1986.18 Table 1 lists
those states and the years of initial TEL enactment.
Table A.2 gives the growth rate of spending in each of
the 18 TEL states over the five years immediately preceding
and the five years immediately following enactment of the
TEL. The number of percentage points by which each TEL
state's spending growth rate differs from the U.S. average
growth rate over those periods is then calculated.19
Page 8
Table 1
States with Binding TELs
State
Year of
Adoption
Arizona 1978
California 1979
Colorado 1977
Delaware 1980
Hawaii 1978
Idaho 1980
Louisiana 1979
Massachusetts 1986
Michigan 1978
Missouri 1980
Montana 1981
Oklahoma 1985
Oregon 1979
South Carolina 1980
Tennessee 1978
Texas 1978
Utah 1979
Washington 1979
A TEL -state average is then found for the percentage
points by which the five-year growth rates differ from the
U.S. average. That average summarizes how the growth rate
of spending in TEL states changed relative to the growth
rate of the U.S. average after enactment of a TEL.
The same methodology is used to compare TEL -state
spending growth to the non -TEL -state average and to calcu-
late and compare per capita state taxes and per capita state
and local spending. 20 The results of those calculations for
TEL states as a group are summarized below, and a complete
list can be found in Tables A.3 -A.6 in the appendix.21
State Spending
Most TELs are limits on spending. So the most direct
way to evaluate the effectiveness of TELs is by examining
their impact on state expenditures. If a TEL is effective,
it should lower the growth rate of state spending. The
average growth rate of per capita state spending in TEL
Page 9
states changed, relative to the U.S. average, in the follow-
ing respects after TEL enactment.
The five-year growth rate of per capita state spend-
ing in TEL states fell from 0.8 percentage points above
the U.S. average before TEL enactment to 2.9 percentage
points below the U.S. average after TEL enactment
Figure 2).
The growth rate of per capita state spending in TEL
states from the year of enactment through 1992, as
opposed to just five years after enactment, fell even
lower, to 12.1 percentage points below the U.S. aver-
age.
The five-year real growth rate of per capita state
spending in TEL states fell from 7.1 percent before TEL
enactment to 1.8 percent after TEL enactment.
If the real growth rate of per capita state spending
in TEL states had not slowed, the state spending burden
per family of four would have been, on average, $400
higher in those states five years after TEL enactment
and $450 higher in 1992 than it was with the lower rate
of spending growth.
Figure 2
Growth Rate of per Capita State Spending Relative to U.S. Average for the Five Years
Immediately Preceding and the Five Years Immediately Following TEL Enactment
3 -
Five-year increase in spending before Five-year increase in spending after
TEL enactment TEL enactment
Page 10
Figure 3
Per Capita State Spending Relative to U.S. Average, Year of TEL Enactment and 1992
7%-
6%-
Q
3%-
2%-
C_
2% -
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1%-
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Year of enactment 1992
In addition to the growth rate's falling (relative to
the U.S. average), the average level of per capita
state spending in TEL states fell from 6.4 percent
above the U.S. average in the year of enactment to 1.7
percent above the U.S. average in 1992 (Figure 3).
State Taxes
Though most TELs apply to spending --of the 18 TELs
examined here, only 5 apply directly to taxes or revenue --an
effective TEL should slow the growth of state taxes as well.
The average growth rate of per capita state taxes in TEL
states changed in the following ways after TEL enactment.
The five-year growth rate of per capita state taxes
in TEL states fell from 5.5 percentage points above the
non -TEL -state average before TEL enactment to 12.5
percentage points below the non -TEL -state average after
TEL enactment (Figure 4).
The growth rate of per capita state taxes in TEL
states from the year of enactment through 1992, as
opposed to just five years after enactment, fell even
lower, to 13.2 percentage points below the non -TEL -
state average.
Figure 4
Growth Rate of per Capita State Taxes Relative to the Non -TFL -State Average for the Five
Years Immediately Preceding and the Five Years Immediately Following TEL Enactment
10
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Page it
Five-year increase in taxes before Five-year increase in taxes after
TEL enactment TEL enactment
The five-year real growth rate of per capita state
taxes in TEL states was 11.9 percent before TEL enact-
ment. State taxes then fell by 2.8 percent over the
five years after TEL enactment.
If real per capita tax growth in TEL states had not.
been reversed --that is, if real per capita taxes had
risen 11.9 percent instead of declining 2.8 percent
over the five years following TEL enactment --a family
of four in one of the TEL states would have had to
face, on average, a state tax burden that was $650
higher five years after TEL enactment than they faced
with the lower growth rate of taxes.
As Figure 5 shows, as a result of -the slower growth of
state taxes, the level of taxes in TEL states fell in rela-
tion to taxes in the rest of the country after TEL enact-
ment. Average per capita state taxes in TEL states fell
from 8.8 percent above the non -TEL -state average in the year
that TELs were enacted to 0.2 percent below it five years
later.
So in each case in which the growth rates of spending
and taxes in TEL states were compared to the U.S. and the
Page 12
Figure S
Per Capita State Taxes Relative to the Non -TEL -State Average, Year or TEL Enactment
and Five Years Later
10%
F- 6%
cO
z
3
4%
L
O
U
0 29c
L
toU
MA
Ei 090
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UtjC.
2%
Year of enactment Five years after enactment
non -TEL -state averages, TELs appeared to have been effective
in slowing the growth of state government --although probably
not as effective as their supporters had wished.
State and Local Spendincf
Many TEL critics claim that the real impact of TELs is
not in restraining the overall tax and spending burden but
in shifting it to local governments. That would presumably
defeat the purpose of the TEL. While some TELs include a
provision prohibiting the state government from shifting
costs to local governments without providing the funding to
cover those costs, most do not. Thus, some cost shifting is
to be expected.
Incidentally, if the only impact of TELs were to shift
government responsibility --for both financing and decision-
making --to the local level, TELs might still be worthwhile.
Since local politicians are closer to the people, they are
more accountable and less likely to be able to get away with
excessive spending. Also, moving spending to the local
level more closely links the costs of public services to the
beneficiaries. In fact, many studies have found that decen-
777- :% - -- .- --- ..-- r--.•,•-
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U_
0.2%
Year of enactment Five years after enactment
non -TEL -state averages, TELs appeared to have been effective
in slowing the growth of state government --although probably
not as effective as their supporters had wished.
State and Local Spendincf
Many TEL critics claim that the real impact of TELs is
not in restraining the overall tax and spending burden but
in shifting it to local governments. That would presumably
defeat the purpose of the TEL. While some TELs include a
provision prohibiting the state government from shifting
costs to local governments without providing the funding to
cover those costs, most do not. Thus, some cost shifting is
to be expected.
Incidentally, if the only impact of TELs were to shift
government responsibility --for both financing and decision-
making --to the local level, TELs might still be worthwhile.
Since local politicians are closer to the people, they are
more accountable and less likely to be able to get away with
excessive spending. Also, moving spending to the local
level more closely links the costs of public services to the
beneficiaries. In fact, many studies have found that decen-
777- :% - -- .- --- ..-- r--.•,•-
Page 13
tralized governments provide public services more efficient-
ly than do centralized governments.zz
Nevertheless, if the purpose of TELs is to limit the
burden of government, then cost shifting may mean that those
measures are less successful than their proponents intended.
For example, if costs are fully shifted to local governments
i.e., local spending growth rises as much as state spending
growth falls), then the total state and local tax burden in
TEL states will not have fallen. And if that were the case,
though state spending growth would have fallen, it would be
misleading to conclude that the burden of government had
been reduced.
One way to check for such cost shifting is to substi-
tute per capita state and local spending for per capita
state spending and perform the same tests that were used
earlier. If a decline in state spending growth leads to a
proportional rise in local spending growth, then combined
state and local spending growth should not decline. Indeed,
both the growth and the level of state and local spending in
TEL states did decline, relative to those of the rest of the
nation, though not as dramatically as state -level spending.
The five-year growth rate of per capita state and
local spending in TEL states fell from 2.3 percentage
points above the U.S. average before TEL enactment to
1.2 percentage points below the U.S. average after TEL
enactment (Figure 6).
The growth rate of per capita state and local spend-
ing in TEL states from the year of enactment through
1991, as opposed to just five years after enactment,
fell even lower, to 10.2 percentage points below the
U.S. average . 13
The five-year real growth rate of per capita state
and local spending in TEL states fell from 6.1 percent
before TEL enactment to 2.4 percent after TEL enact-
ment.
Figure 7 shows that, like the growth rate, the level of
state and local spending in TEL states fell (relative to the
rest of the nation) after TEL enactment. Average per capita
state and local spending in TEL states fell from 0.1 percent
below the U.S. average in the year that TELs were enacted to
4.4 percent below it in 1991. Thus, in addition to the
burden of state government's falling after TEL enactment,
the overall burden of state and local government fell.
Page 14
Figure 6
Growth Rate of per Capita State and Local Spending Relative to U.S. Average for the Five
Years Immediately Preceding and the Five Years Immediately Following TEL Enactment
7
Five-year increase in spending before Five-year increase in spending after
TEL enactment TEL enactment
Figure 7
Per Capita State and Local Spending Relative to L.S. Average, Year of Enactment and 1991
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0.1%
Year of enactment 1991
Page 15
The data suggest that, as expected, some cost shifting
to local governments has, indeed, occurred. However, the
data also show that in addition to restraining the growth of
state government, as indicated earlier, TELs have been
effective at restraining the growth of the overall burden of
state and local government.
TELs: Why Some Succeed and Others Fail
Some TELs are more effective than others in restraining
the growth rate of taxes and spending. In fact, some of the
TELs included in this analysis were conclusively ineffec-
tive --most notably, those of Louisiana, Montana, and South
Carolina (see Table A.2). The reasons some TELs succeed and
others fail can be found in their design.
There are several criteria on which TELs maK vary thatcanplayaroleintheirultimateeffectiveness.; (Table 2
examines each of the 18 binding TELs included in this study
on five of those factors.) The major issues in determining
the effectiveness of TELs are discussed in the following
subsections.
Did the TEL Originate with the Voters or
in the Legislature?
Where a TEL originates and who approves it differ from
state to state. Whether a TEL originates with the voters or
in the legislature can make a significant difference in its
ultimate effectiveness. TELs that originate in the legisla-
ture, since they are written by politicians --the very people
whose behavior they are intended to restrain --tend to be
more vague, less restrictive, and more easily circumvented.
In contrast, those originating with the voters usually have
more teeth. Of the 18 TELs examined, 11 originated with the
legislature and only 5 with the voters. The other two were
initiated by constitutional convention. (See Table 2 for a
state -by -state listing of who originated and who approved
the 18 TELs examined herein.)
It should be noted here, however, that in 24 states
citizens have no means by which to put an initiative or
referendum on the ballot.Zs Such measures must be initiated
by the legislature. Thus in those states, TELs that origi-
nate with the voters are not an option, although through a
legislative referendum voters can at least have the oppor-
tunity to vote on a legislature -originated TEL. (Of some
hope for those in noninitiative and referendum states is
Page 16
Table 2
Description of Binding State Tax and Expenditure Limitations
Constitutional/
State Year Statutory Initiated by Approved by Limit Applies to
Arizona' 1978 Constitutional Legislature Voters Appropriations of state tax revenues
California 1979 Constitutional Voters Voters Appropriations of state to revenues
Colorado* 1977 Statutory Legislature Legislature State general fund appropriations
Delaware 1980 Constitutional Legislature Legislature Stam general fund appropriations
Hawaii 1978 Constitutional Constitutional Voters Sum general fund appropriations
convention
Idaho 1980 Statutory Legislature Legislature State general fund appropriations
Louisiana- 1979 Statutory Legislature legislature State tax revenue
Massachusetts 1986 Statutory Voters Voters State revenue
Michigan 1978 Constitutional Voters Voters State revenue
Missouri 1980 Constitutional Voters Voters State revenue
Montana 1981 Statutory legislature leglslanre State appropriations
Oklahoma` 1985 Constitutional Legislature Voters State appropriations
Oregon 1979 Statutory legislature Legislature State general fund appropriations
South Carolina 1980 Constitutional Legislature Legislature State appropriations
Tennessee 1978 Constitutional Constitutional
convention
Voters Appropriations of state tax revenues
Texas 1978 Constitutional Legislature Voters Appropriations of state tax revenues
Utah 1979 Statutory Legislature Legislature State appropriations
Washington- 1979 Statutory Voters Voters State tax revenue
Source: Advisory Commission on Intergovernmental Relations, Significant features of Fiscal Lederalism, 1993, vol. 1, pp. 14.19 (and other years);
Kenyon and Benker, p. 437.
These states have passed new measures or altered existing ones since 1990.
Page 17
Limit Is Provisions for Waiver
Shall not exceed 7 percent of state personal income 2/3 approval of the legislature on specific additional
appropriations
Yearly growth shall not exceed the percentage msrease in population and utllauon Declaration of an emergency by a 2/3 vote and compensating
reductions in spending over 3 following years
Yearly growth shall not exceed 7 percent Statute may be wrenda•d by a majority vote of the legislature
Shall not exceed 98 percent of estimated general fund revenue and prior year's unencumbered funds Declaration of an emergency and 3/5 vote of the legislature
Yearly growth shall not exceed the avenge annual growth rate of state personal income over the 2/3 approval of the legislature on specific additional
preceding 3 calendar years appropriations
Shall not exceed 5.33 percent of state personal income 713 approval of the legislature on specific additional
appropriations
Shall not exceed FY1978.79 state revenue as a share of 1977 state personal income, multiplied by state Statute may be amended by a majority vote of the
personal income in the prior calendar year legislature: certain tax sources (i.e., severance tax
revenue) are excluded from computation
Yearly growth shall not exceed the average annual growth of wages and salaries over the previous 3 years Statute may be amended by a majority vote of the legislature
Shall not exceed FY1978-79 state revenue as a share of 1977 state personal income, multiplied by the Declaration of an emergency by governor and 213 vote of
greater of state personal income in the prior calendar year or avenge state personal income over the the legislature
previous 3 calendar years
Shall not exceed FY 198481 state revenue as a share of 1979 state personal income, multiplied by the Declaration of an emergency by governor and 2/3 vote of
greater of state personal income in the prior calendar year or avenge state personal income over the the legislature -
previous 3 calendar years
Biennial growth shall not exceed the percentage difference in the avenge state personal income over Declaration of an emergency by governor and 2/3 approval
the 3 calendar years immediately preceding the next biennium and the average state personal income of the legislature on specific additional expenditures
over the 3 calendar years immediately preceding the current biennium
Yearly growth shall not exceed 12 perwni (adjusted for inflation) or state appropriations shall not one
exceed 95 percent of certified revenue
Biennial growth shall not exceed the growth rate of state personal income over the preceding Statute may be amended by a majority vote of the legislature
2 calendar years
Yearly growth shall not exceed the avenge annual growth rate of state personal income over the Declaration of an emergency and a 2/3 vote of the legislature;
preceding 3 calendar years, or state appropriations shall not exceed 9.5 percent of state personal every 5 years the legislature may review the composition of
income, whichever is greater the limit
Yearly growth shall not exceed the projected growth rate of state personal income for the calendar Iajority vote of the legislature on a specific additional
year in which the fiscal year begins amount
Biennial growth shall not exceed the growth rate of state personal income Declaration of an emergency and a majority vote of the
legislature on a specific additional amount
Yearly growth may not exceed 85 percent of the increase in state personal income Dec!wuion of an emergency and a 2/3 vote of the
legislature; legislature must also hold a public hearing
Yearly growth shall not exceed the avenge annual growth rate of state personal income over the Declaration of an emergency by a 2/3 vote in the legislature
preceding 3 calendar years and 2/3 approval of the legislature on specific additional
appropriations
Page 18
that, in the three states where TELs were initiated by the
legislature but approved by the voters, spending growth did
fall somewhat relative to the U.S. average.) Although
severely handicapped, tax activists in noninitiative states
can pressure their legislators to come up with a sound,
well-designed TEL, in addition to pressing for a constitu-
tional change granting citizens the right to put initiatives
26andreferendumsontheballot.
Finally, who approves the TEL is also important. Of
the 18 TELs examined, 8 were approved by the legislature and
10 by the voters. Thus, while 3 of the 11 legislature -
originated TELs were sent to the voters for approval, 8
never faced voter scrutiny, since they both originated in
and were approved by the legislature. Only five TELs were
both initiated and approved by the voters.
The same methodology used in the earlier sections
reveals that in the five states where TELs were initiated
and approved by the voters, spending growth slowed, relative
to the U.S. average, while in the eight states where they
were both initiated and approved by the legislature, spend-
ing growth actually rose, relative to the U.S. average.
The remaining five TELs were not initiated and approved by
the same people but by some combination of groups including
the voters, the legislature, and constitutional conven-
tions.)
The five-year growth rate of per capita state spending
in voter -initiated and voter -approved TEL states fell from
6.5 percentage points above the U.S. average before TEL
enactment to 2.2 percentage points above the U.S. average
after TEL enactment, a fall of 4.3 percentage points. In
contrast, the five-year growth rate of spending in states
where TELs were both initiated and approved by the legisla-
ture rose from 2.1 percentage points below the U.S. average
before TEL enactment to 0.5 percentage points below the U.S.
average after TEL enactment, an increase of 1.6 percentage
points. These findings support Poulson's theory that TELs
initiated by the legislature "could actually erode the
budget constraint resulting in an increase in the growth of
state government. ,
27
The ideal TEL would originate with and be approved by
the voters, where possible, rather than the legislature.
Page 19
Is the TEL Constitutional or Statutory?
In addition to origin and approval, whether a TEL is
statutory or constitutional is important. Constitutional
TELs are difficult to change. On the other hand, statutory
TELs leave open the possibility that the legislature will
change the definition of the item limited --often by exclud-
ing certain areas of spending or revenue --or weaken the
restrictiveness of the limit itself whenever legislators see
fit. Thus, constitutional TELs are thought to be more
effective than statutory TELs. Of the 18 TELs examined
herein, 10 are constitutional and 8 are statutory. (See
Table 2 for a state -by -state list.)
Again, the same methodology gives results that indicate
that spending growth in the 10 constitutional -TEL states
fell, relative to the U.S. average, more so than in the 8
statutory -TEL states.
The five-year growth rate of per capita state spending
in constitutional -TEL states fell from 0.8 percentage points
below the U.S. average before TEL enactment to 5.6 percent-
age points below the U.S. average after TEL enactment, a
fall of 4.8 percentage points. In contrast, the five-year
growth rate of spending in statutory -TEL states fell from
2.9 percentage points above the U.S. average before TEL
enactment to 0.6 percentage points above the U.S. average
after TEL enactment, a fall of only 2.3 percentage points.
The ideal TEL would be constitutional rather than
statutory.
How Much of the Budget Is Being Limited?
Even the most stringent TELs do not pertain to the
entire budget. Most apply solely to the general fund.
Since, on average, about 44 percent of state -appropriated
funds are outside the general fund, a substantial portion of
the budget is left uncapped.23 In fact, in some states the
uncapped portion of the budget can be as large as 71 per-
cent.9 Often exempted are expenditures of special funds
such as those earmarked for highways, education, and capital
construction. Among the frequently exempted revenue items
are federal aid, insurance trust funds, user fees, and
earmarked funds.
Six of the 18 TELs examined here apply to state tax
revenue. 30 Thus, those TELs do nothing to restrict the
growth of nontax revenue --charges, user fees, and the like.
Page 20
Predictably, from 1980 to 1991, charges and miscellaneous
general revenue rose as a share of total general revenue
from 13.8 percent to 17.7 percent.sl
The ideal TEL would apply a cap to 100 percent of the
budget rather than to only certain categories.
Does the TEL Cap Spending or Revenue?
Whether a TEL applies to spending or revenue can also
make a difference in its effectiveness. Of the 18 TELs
examined here, 9 apply to spending (4 to appropriations and
5 to general -fund appropriations), and 9 apply to revenue in
one way or another (3 to revenue, 2 to tax revenue, and 4 to
appropriations of tax revenue).
Each fiscal year, states must estimate their revenues
for the coming year, in part on the basis of forecasts of
how the state's economy will perform. Those economic fore-
casts, and hence the revenue estimates, are often quite
inaccurate. Further, politicians can manipulate the econom-
ic forecasts in an effort to get around their TELs' restric-
tions. Therefore, the use of revenue estimates as the base
for a TEL is not ideal.
Those pitfalls can largely be avoided, however, by
applying the TEL to spending, since the spending numbers for
the coming fiscal year are far more certain.
The ideal TEL would cap spending rather than revenue or
taxes.
What Is the Limit?
Another important factor is the definition -of the limit
itself. Most TELs-including 14 of the 18 TELs examined
here --restrict state spending growth to the growth in state
personal income. A few, however, use other limits such as
population growth, inflation, or a fixed rate of growth.
See Table 2 for more details.)
Many argue that, of the wide variety of limits in use,
those that restrict the growth of government to the rate of
growth of personal income are the most appropriate since
they prohibit the government from growing faster than the
private economy. The fact that an overwhelming majority of
TELs are so structured highlights the degree to which this
argument has been accepted.
Page 21
However, the evidence suggests that linking spending to
population growth plus inflation is much more restrictive.
To illustrate the different effects of those two types of
limits --personal income linked versus population linked --
Figure 8 shows the record of the 1980s. Throughout most of
the 1980s the economy was booming, thus personal income rose
at abnormally high rates, 30 percent in real terms from 1980
to 1990. In those prosperous times, government revenues
were pouring in, allowing spending to skyrocket as well.
Real state spending shot up by 42 percent from 1980 to 1990.
Meanwhile, the U.S. population grew at only a modest rate of
10 percent. 32
Thus, a TEL limiting spending growth to the growth rate
of personal income would have resulted in a slower rate of
state spending growth over the last decade than occurred (30
percent compared to 42 percent). However, a TEL limiting
the growth of state spending to the growth rate of popula-
tion plus inflation would have provided a far stricter limit
on real state spending growth, holding it to only 10 percent
from 1980 to 1990, less than one-fourth the 42 percent rate
at which it actually grew and one-third the rate at which a
personal income -linked TEL would have allowed spending to
Figure 8
Growth in Population, Real Personal Income, and Real State Spending, 1980-90
45%
4090
3590
30%
3
25%
U
20%
3Ca
15%
109a
5%
nq,
Population Real personal income Real state spending
Page 22
grow. Thus, TELs limiting spending growth to the growth
rate of population plus inflation are far preferable if the
goal is to tame spending.
In fact, one of the reasons many studies have found
TELs ineffective is that so many TELs are linked to personal
income growth --which is hardly a restrictive limit. Since
most TELs were in place by 1982, the evidence on spending
growth since TEL enactment comes largely from the period of
the 1980s when rapid growth of income accommodated the surge
in spending.
For example, South Carolina has a personal income -
linked TEL. The five-year growth rate of spending in South
Carolina rose from 18.7 percentage points below the U.S.
average before TEL enactment to 3.0 percentage points above
the U.S. average after TEL enactment. By contrast, the
five-year growth rate of spending in California, which has a
population- and inflation -linked TEL, fell from 9.4 percent-
age points above the U.S. average before TEL enactment to
5.9 percentage points below the U.S. average after TEL
enactment.
The ideal TEL would limit the growth of spending to the
growth rate of the population plus inflation rather than to
the growth of personal income.
Can the TEL's Restrictions Be Circumvented?
How easily politicians can get around the limits of a
TEL is an important factor in determining how successful
that TEL will be at restraining the growth of government.
At the very least, the TEL should be binding. In two cases
the limit applies only to the governor's recommended budget
and thus has.virtually no teeth.- (Nevada and Rhode Island
have such nonbinding TELs, so as mentioned earlier, they
were not included as TEL states in this study.)
Of the other TELs, only Oklahoma's does not provide
some mechanism by which the legislature can waive the re-
strictions of the TEL. Nine of the 18 TELs examined here
first require the declaration of an "emergency." However,
no state has specified what constitutes an emergency.
33 Of
the 18, 6 require only a majority vote to waive their TELs;
1 requires three-fifths approval; 9 require two-thirds ap-
proval; 1 requires two-thirds approval plus compensating
reductions over the following three years; and 1 has no
waiver provisions. (See Table 2 for more details.)
Page 23
The ideal TEL would require voter approval for its
provisions to be circumvented.
Does the TEL Allow Cost Shifting to Local Governments?
Since the goal of a TEL is to restrict the growth of
government, if state governments adhere to their TELs by
shifting costs to local governments, the overall size of
government will not have been restrained. In an effort to
foil such attempts to ignore the true intent of TELs, 5 of
the 18 TEL states examined here have adopted TELs that
prohibit state governments from imposing unfunded mandates
on local governments.34
Since localized government is preferable to centralized
government, a prohibition of unfunded mandates, which by
itself could prohibit such decentralization, may not be
desirable. To address that, four of the five TELs that
prohibit unfunded mandates do allow for transfer of respon-
sibility --for both program financing and decisionmaking--to
local governments. In those cases, the state spending limit
is then adjusted downward.
Since most TELs do not apply to local governments, such
decentralization could, through a disproportionate expansion
in local government spending, lead to an increase in the
overall level of state and local government spending. To
prevent such expansion, TELs should apply to local govern-
ments as well.
Colorado's Taxpayer Bill of Rights, passed in 1992, is
a recent example of a TEL that applies to both state and
local governments. Several of the prospective 1994 ballot
measures do so as well.
The ideal TEL would apply to both state and local
governments. And it would allow for transfer of responsi-
bility to local governments and provide for the appropriate
adjustments in each jurisdiction's limit.
Does the TEL Require Additional
Action to Be Implemented?
The manner in which a TEL is to be implemented is also
of considerable importance. If the legislature must take
additional action to make the TEL operative, it can create a
major roadblock in the path toward fiscal restraint. Unfor-
tunately, in several instances that has been the case.
Page 24
For example, in Connecticut, as part of the 1991 deal
to enact a new state income tax, Gov. Lowell Weicker agreed
to a statutory TEL limiting the growth in general budget
expenditures to the percentage increase in personal income
or inflation (whichever was higher). A similar measure was
passed as a constitutional amendment in 1992. However, the
measure required that the general assembly define "general
budget expenditures," "increase in personal income," and
increase in inflation." The legislature has thus far
refused to define those terms, and the state's attorney
general has ruled that until they do, the TEL is inopera-
tive. Therefore, because of poorly designed implementation
provisions, a TEL that voters approved by a four -to -one
margin remains impotent."
The ideal TEL would require no additional action by the
legislature for implementation.
How Is the TEL Enforced?
Finally, enforceability plays a major role in determin-
ing the effectiveness of fiscal discipline mechanisms. If a
TEL is not adhered to, it ceases to be useful. Thus, a TEL
should clearly articulate what is to take place should the
government violate the dictates of the TEL. Unfortunately,
that is rarely the case. As a result, several states have
simply ignored their TELs.
A case in point is Texas, where a constitutional TEL
was passed by an overwhelming 84 percent majority in 1978.
The TEL was adhered to in the first biennium to which it
applied, but it has been ignored ever since.36 While the
Texas constitution is fairly clear on the precise course to
be taken in the case of a violation of budgetary laws such
as this one, the specific wording of the TEL itself does not
mention enforcement mechanisms. In part as a result of
that, the Texas Public Policy Foundation reports that "the
Texas Reform Act is probably being violated at almost every
level of the budget process," leading the legislature's
biennial appropriations to exceed their limit by as much as
1.5 billion.37
To avoid that sort of enforceability problem, the text
of a TEL should clearly state that taxpayers have legal
standing to sue to enforce the TEL's provisions.
38 In addi-
tion, TELs should require injunctive relief to prevent the
illegal collection of taxes or appropriation of expenditures
while suit is pending. Missouri's Hancock II, an initiative
Page 25
seeking 1994 ballot status, is an example of a TEL that
contains such provisions.39
The ideal TEL should give taxpayers standing to sue to
enforce its provisions and require injunctive relief to
prohibit any illegal taxes or spending while such suits are
pending.
The Ideal TEL
The ideal TEL should have the following characteris-
tics.40
1. It should originate with and be approved by the
voters, where possible, rather than the legislature.
2. It should be constitutional rather than statutory.
3. It should apply a cap to 100 percent of the budget
rather than to only certain categories.
4. It should cap spending rather than revenue or taxes.
5. It should limit the growth of spending to the growth
rate of population plus inflation rather than to the
growth of personal income.
6. It should require voter approval for its provisions
to be circumvented.
7. It should apply to both state and local governments.
And it should allow for transfer of responsibility to
local governments and provide for the appropriate
adjustments in each jurisdiction's limit.
8. It should not require additional action by the
legislature for implementation.
9. It should give taxpayers standing to sue to enforce
its provisions and require injunctive relief to prohib-
it any illegal taxes or spending while suit is pending.
Do TELs Have a Useful Life Span?
It is often argued that TELs are less effective over
the long run than they are when first implemented. Part of
the reason for that is that many TELs are statutory and can
Page 26
be amended by the legislature at any time. Thus, since TELs
are often weakened over time --through exclusions of addi-
tional areas of spending or revenue to which the limit
applies or through outright alterations of the limit it-
sel-f--it is expected that their effectiveness will decline
as well.
Examination of the 15 binding TELs in place by 1980
indicates that spending growth is indeed restrained more
over the first five years after TEL enactment than over the
second five years .41 The real growth rate of per capita
state spending inthe15 states with binding TELs in place
by 1980 was 3.5 percentage points below the U.S. average
from 1980 to 1985 (6.3 percent vs. 9.8 percent) but 0.4
percentage points above the U.S. average from 1985 to 1990
16.7 percent vs. 16.3 percent).
California --where a constitutional TEL was enacted in
1979 --is one example of a state whose TEL has substantially
lost effectiveness over time, as more and more spending has
been moved outside the purview of the limit. For example,
Proposition 98, passed in 1988, required that a large por-
tion of the state budget go to education, in effect crowding
out spending on other things such as streets, highways,
sewers, and police protection. The resulting demands for
more spending on those areas were then often met with spe-
cific earmarked local taxes, thus increasing the overall
burden of state and local government. Further, Proposition
99 increased the cigarette tax but excluded that revenue
from the general fund, designating it instead for grants to
health organizations, thus exempting it from the TEL's
cap .
41 As a result, despite the presence of a constitution-
al TEL, state spending in California continued to rise
dramatically throughout the 1980s.
The erosion of TEL effectiveness over time can be
linked in part to the culture of spending in state capitals,
in which politicians will do whatever it takes to avoid
having their spending powers restrained. However, it can
also be traced to poor design. A major loophole in every
existing TEL is the lack of a cap applying to the entire
budget.
For instance, California's TEL applied only to "appro-
priations of state tax revenue. Others apply only to
state general fund appropriations." As a result, govern-
ment can be and has been expanded in such states, despite
the presence of a TEL, by increasing nontax revenue (e.g.,
charges and user fees) and excluding certain categories of
spending from the general fund. That loophole is probably
Page 27
the single biggest contributor to the limited effectiveness
of TELs, especially over time.
Perhaps the most important factor in preventing the
erosion of the effectiveness of a TEL is making sure that
the language of the TEL clearly states that the cap applies
to 11100 percent of state expenditures." Inclusion of that
language and the other characteristics of the ideal TEL
outlined in the preceding section would go a long way toward
ensuring that TELs do indeed have a long useful life span.
Other Measures of Fiscal Restraint
Well-designed TELs can impose significant fiscal re-
straint on a state's budgetary process. However, other
useful measures exist as well. Two such measures are super -
majority requirements and voter approval requirements for
increasing existing taxes or imposing new taxes. Table 3 is
a list of the states that have at least one of those three
including TELs) measures of fiscal restraint.
Supermajority Requirements for
New or Increased Taxes
By requiring more than a simple majority (usually a
two-thirds majority) to raise existing taxes or impose new
ones, supermajority requirements force legislators to reach
a broader consensus on the necessity for higher taxes and
the wisdom of the spending those taxes will fund.43 A more
sound fiscal policy is the likely result. Nine states have
such requirements, two of which were enacted in 1992. In
1994 voters in two states --Montana and Nevada --may have the
opportunity to pull the lever in support of supermajority
requirements.`
Voter Approval Requirements for
New or Increased Taxes
Another fairly new fiscal discipline measure requires
voter approval to increase existing taxes or impose new
ones. In March 1992 Oklahoma kicked off this popular and
populist movement by passing a constitutional amendment that
requires voter approval of any tax hike that does not pass
each house of the legislature by at least a three-fourths
vote. Colorado went even further in November 1992 with
passage of the Taxpayer Bill of Rights, a constitutional
amendment that requires voter approval of any increase in
Page 28
Table 3
Fiscal Discipline Mechanisms in the States
State
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Hawaii
Idaho
Louisiana
Massachusetts
Michigan
Mississippi
Missouri
Montana
Nevada
North Carolina
North Dakota
Oklahoma
Oregon
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Washington'
Total in 1994
1994 ballot measures
Tax &
Expenditure
Limit
X
X
X
X
X
X
X
X
X
X
X
X,*
X
X
X
X
X
X
X
X
X
X
X
23
1
Super- Voter
majority Approval
Requirement Requirement
X
X
X
X
X
X
1/
X
X X
ri
9
2
X
3
5
Note: The following states have none of these three fiscal discipline
mechanisms currently in place or on the ballot in 1994: Alabama, Georgia,
Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota,
Nebraska, New Hampshire, New Jersey, New Mexico, New York, Ohio,
Pennsylvania, Vermont, Virginia, West Virginia, Wisconsin, Wyoming.
Measures seeking 1994 ballot status (source: Americans for Tax Reform).
7Washington State's Initiative 601, passed in 1993, requires voter
approval for tax increases that cause spending to exceed the spending
limit (population growth plus inflation) but not for all tax hikes.
Page 29
state or local taxes. In 1994 there may be as many as five
state ballot initiatives that would require voter approval
for new or increased taxes.as
Voter approval requirements (VARs) have the further
appeal of reconnecting the voters with their governments.
Politicians who wish to raise taxes now have to convince
only their fellow legislators of the wisdom of such a move.
With a VAR, however, would-be tax -hiking politicians would
have to take their case to -the people. They would be forced
to convincingly explain to their constituents why the money
is needed and where it will be spent. That is rarely easy.
Of course, VARs are not without their weaknesses. For
example, since most VARs merely restrict the growth of tax
rates, they would do nothing to prohibit the growth of
nontax revenue .4' As mentioned earlier, charges, fees, and
miscellaneous general revenues have been growing as a share
of total general revenue. Thus, the restrictions of most
VARs could be circumvented by continuing to increase those
types of revenues.
Still, measures that require voter approval for in-
creasing existing taxes or imposing new ones provide a
powerful method to restrain the growth of state government.
Further, VARs are very popular with voters. A recent na-
tional poll found that 66 percent of Americans favor requir-
ing tax increases to be approved by a majority vote of the
people.47 The popular appeal of VARs makes it probable that
they will follow the path of the term -limits movement. That
is, they will most likely pass by wide margins everywhere
they are on the ballot in 1994 and be adopted by many more
states in the years to come.
Conclusion
TELs, as we know them, are no silver bullet. Even
their staunchest supporters will admit that TELs have not
slowed the growth of taxes and spending as much as their
advocates would have liked. Some TELs, in fact, have been
clearly ineffective. However, the ineffective TELs tend to
be the ones that are plagued by specific elements of poor
design. For example, they are usually statutory rather than
constitutional and thus are designed by the very politicians
whose behavior they are intended to restrain. As a result,
the cap frequently excludes large areas of the budget, and
the TEL is often written in a manner that makes circumvent-
ing or even changing its limit quite easy.
Page 30
Nevertheless, as this study has shown, TELS--despite
their substantial flaws --can work. They can slow the rate
of growth of taxes and spending, relative to the rest of the
nation, and they can do so without shifting massive costs to
local governments. In addition, though all existing TELs
have notable flaws that limit their effectiveness, the
better designed TELs are much more effective than are those
that are designed poorly. Furthermore, TELs with the fea-
tures of the ideal TEL described herein would have an even
greater impact.
This fall voters in as many as six states will have the
opportunity to pass some type of tax limitation measure.
People opposed to TELs--career politicians, lobbyists, and
others --will go to great lengths to scare voters into think-
ing TELs are damaging. The evidence presented here suggests
just the opposite. By restraining the ability of politi-
cians to continue to allow taxes and spending to grow un-
checked, TELs can finally provide the beleaguered taxpayer
some much-needed relief from the crushing burden of state
taxes.
Appendix: Detailed Tables
The tables in this appendix provide more detailed
information on TELs. Tables A.3 through A.6 give the re-
sults of four different measures of changes in taxing and
spending.
Page 31
Table A.1
Tax Initiatives Seeking Ballot Status in 1994
State Initiative
Florida Voter approval requirement
Missouri Tax/expenditure limitation and
voter approval requirement
Montana Voter approval requirement
Supermajority requirement
Nevada * Supermajority requirement 11
North Dakota Voter approval requirement
Oregon Voter approval requirement i
Source: Americans for Tax Reform.
Note: Information is correct as of July 11. 1994.
State law in Nevada requires that all ballot measures be
approved in two consecutive general elections before
taking effect. This measure will be seeking its first
such approval.
On ballot.
Page 32
Table A.2
Per Capita State Government Spending and Five -Year Growth Rates Relative to U.S. Average, before and after
TEL Enactment
Colorado
U.S. avg.
Arizona
Hawaii
Michigan
Tennessee
Texas
U.S. avg.
California
Louisiana
Oregon
Utah
Washington
U.S. avg.
Delaware
Idaho
Missouri
South Carolina
U.S. avg.
Montana
U.S. a%g.
Oklahoma
U.S. avg.
Massachusetts
U.S. avg.
18 -state average
Per Capita Spending Five -Year Growth Rate
5 Yrs. Year 5 Yrs.
before of after
TEL TEL TEL
1972 1977 1982
S481 S748 S1,113
5476 S770 51,193
973 1978 1983
5500 5811 51,085
51,075 51,520 51,932
5571 5910 S 1.340
5386 5653 5867
5364 5620 5898
5517 5827 51,221
1974 1979 1984
5655 51,114 51,537
5594 5939 S1,504
5573 5996 51,388
5580 5974 51,350
5642 51,064 51,525
5569 5914 51.315
1975 1980 1985
5889 S 1.378 S2.011
5654 5971 S 1.250
5466 5736 S 1,082
5658 5898 51,315
5651 51.010 S1,449
1976 98/ 1986
5770 51.181 51.705
5718 51.12.3 S1.506
1980 1985 1990
5948 51.323 51,784
51,010 51,449 52,047
1981 986 1991
51,265 51,963 53,046
51,123 51,566 52,204
5 Yrs. % Points
Preceding above/bclow
Enactment U.S. Avg.
1972-77 1972-77
55.5% 6.3 % pts
61.8%
97.4.78 1973-78
62.2% 2.2 % pts
41.4% 18.6 %C pts
59.4% 0.6 %r pts
69.2% 9.2 %C pts
70.3% 10.4 %r pts
60.0%
1974.79 1974.79
70.1% 9.4 % pts
58.1% 2.6 %C pts
73.8% 13.2 %C pts
67.9% 7.3 %r pts
65.7% 5.1 % pts
60.6%
1975.80 1975-80
55.0% 0.1 % pts
48.5% 6.7 %C pts
57.9% 2.8 %r pts
36.5% 18.7 % pts
55.1%
1976.8/ 1976.81
53.4%r, 3.0 %r, pts
5 6. 4 `:r.
980.85 980-85
39.6% 3.9 % pts
43.5%
1981.86 981.86
55.2% 15.7 % pts
39.4%
0.8 % pts
5 Yrs. % Points
Following above/below
Enactment U.S. Avg.
1977-82 1977-82
48.8% 6.1 % pts
54.9%r
1978-83 1978-83
33.8% 13.9%pis
27.1% 20.5%pis
47.3% 0.4 %C pts
32.8% 14.9 % pts
44.8% 2.8 % pts
47.6%
1979-84 1979-84
38.0% 5.9 % pts
60.21?o 16.3 %C pts
39.4% 4.5 % pts
38.6% 5.3 %r pts
43.3% 0.5 % pts
43.9%
1980-85 1980-85
45.9% 2.5 %r pts
28.71?o 14.7 %C pts
47.0% 3.5 % pts
46.4% 3.0 %C pts
43.5%
1981-86 1981-86
44.4%r 4.9 %r pts
39.4%
1985-90 1985-90
34.8% 6.4 `%c pts
41.3%
1986.91 1986-91
55.2% 14.4 % pts
40.7%
Change in
Five -Year
Growth Rate
Relative to
U.S. Avg.
0.1 % piss
16.1 %pts
2.0 %C pts
0.2 %C piss
24.1 %C pts
13.2 % pts
15.3 c pts
18.8%CPis
17.7 %C pts
12.6 %pts
5.6 %r pts
2.6 % pts
8.1 % pts
0.8 %C pts
21.6 %r piss
8.0 %r piss
2.5 % pts
1.3 % pts
2.9 % pts -3.7 % pts
Note: Spending is per capita state "total general expenditure." The "%C points abovc/below" and the "change" numbers were calculated
using unrounded values for the various growth rates.
Page 33
Table A3
Growth Rates of Taxes and Spending for the Five Years Immediately
Preceding and the Five Years Immediately Following TEL Enactment
Preceding Following
Enactment Enactment Change
Real Five -Year Change
Per capita
state spending 7.190 1.890 -5.3 90 pts
Per capita
state taxes 11.9% -2.8% -14.6 % pts
Per capita state
and local spending 6.1% 2.490 -3.7 90 pts
Five -Year Change Relative
to Change in U.S. Average
Per capita
state spending +0.8 % pts -2.9 % pts -3.7 % pts
Per capita
state taxes +4.0 % pts -8.1 % pts -12.1 % pts
Per capita state
and local spending +2.3 9c pts 1.2 9c pts -3.5 % pts
Five -Year Change Relative
to Change in ,Non -TEL Average
Per capita
state spending -1.5 90 pts -4.6 96 pts -3.1 90 pts
Per capita
state taxes +5.5 90 pts -12.5 96 pts A 8.0 90 pts
Per capita state
and local spending -1.8 90 pts -3.5 % pts -1.7 90 pts
Note: All figures refer to the average for the 18 states with binding TELs
examined hcrcin. The "change" numbers were calculated using unrounded
values for the various growth rates and levels of taxes and spending.
Page 34
Table AA
Growth Rates of Taxes and Spending for the Five Years Immediately
Preceding and the Years Since TEL Enactment
Change Relative to
Change in Non -TEL Average
Per capita
state spending -1.5 % pts -13.9 9c pts -12.4 % pts
Per capita
state taxes +5.5 9c pts 13.2 9c pts -18.7 9c pts
Per capita state
and local spending -1.8 90 pts 11.3 9c pts -9.5 9c pts
Note: All figures refer to the average for the 18 states with binding TELs
examined herein. The "change" numbers were calculated using unrounded
values for the various growth rates and levels of taxes and spending.
Most recent state spending and tax figures are for 1992. State and local
spending figures for 1992 are not yet available, so 1991 numbers were
used.
5 Years
preceding Since
Enactment Enactment Change
Change Relative to
Change in U.S. Average
Per capita
state spending 0.8 % pts 12.1 % pts 12.9 % pts
Per capita
state taxes 4.0 9r. pts -7.8 % pts 1 1.8 9c pts
Per capita state
and local spending 2.3 % pts 10.2 % pts 12.5 9c pts
Change Relative to
Change in Non -TEL Average
Per capita
state spending -1.5 % pts -13.9 9c pts -12.4 % pts
Per capita
state taxes +5.5 9c pts 13.2 9c pts -18.7 9c pts
Per capita state
and local spending -1.8 90 pts 11.3 9c pts -9.5 9c pts
Note: All figures refer to the average for the 18 states with binding TELs
examined herein. The "change" numbers were calculated using unrounded
values for the various growth rates and levels of taxes and spending.
Most recent state spending and tax figures are for 1992. State and local
spending figures for 1992 are not yet available, so 1991 numbers were
used.
Page 35
Table A.5
Levels of Taxes and Spending in the Year of TEL Enactment and
Five Years Later
Note: All figures refer to the average for the 13 states with binding
TELs examined herein. The "change" numbers were calculated using
unrounded values for the various growth rates and levels of taxes and
spending.
Year of
Enactment
5 years
after
Enactment Change
Non -TEL Average
Percent aboveibelow
Per capita
U.S. average
4.79c +1.390
Per capita
Per capita
state spending 6.49c 4.29e 2.3 9c pts
Per capita
and local spending 3.290 +0.590
state taxes 3.99c 1.390 5.3 % pts
Per capita state
and local spending 0.190 1.0% 1.0 % pts
Note: All figures refer to the average for the 13 states with binding
TELs examined herein. The "change" numbers were calculated using
unrounded values for the various growth rates and levels of taxes and
spending.
Percent aboveibelow
Non -TEL Average
Per capita
state spending 4.79c +1.390 3.
14 %
pts
Per capita
state taxes 8.39c -0.2% 3.9 90 pts
Per capita state
and local spending 3.290 +0.590 2.6 90 pts
Note: All figures refer to the average for the 13 states with binding
TELs examined herein. The "change" numbers were calculated using
unrounded values for the various growth rates and levels of taxes and
spending.
Page 36
Table A.6
Levels of Taxes and Spending in the Year of TEL Enactment and
the Most Recent Year
Most
Year of Recent
Enactment Year* Change
Note: All figures refer to the average for the 18 states with binding
TELs examined herein. The "change" numbers were calculated using
unrounded values for the various growth rates and levels of taxes and
spending.
V
Most recent state spending and tax figures are for 1992. State and local
spending figures for 1992 are not vet available, so 1991 numbers were
used.
Percent above/below
U.S. Average
Per capita
state spending 6.490 +1.790 -4.7 90 pts
Per capita
state taxes 3.990 +0.790 -3.2 S. pLs
Per capita state
and local spending 0.190 -4.49c -4.3 90 pts
Note: All figures refer to the average for the 18 states with binding
TELs examined herein. The "change" numbers were calculated using
unrounded values for the various growth rates and levels of taxes and
spending.
V
Most recent state spending and tax figures are for 1992. State and local
spending figures for 1992 are not vet available, so 1991 numbers were
used.
Percent abovelbelow
Non -TEL Average
Per capita
state spending 4.79c -0.6% -5.3 % pts
Per capita
state taxes 8.84$ +10% -5.8 % pts
Per capita state
and local spending 3.29% -1.7% -4.8 % pts
Note: All figures refer to the average for the 18 states with binding
TELs examined herein. The "change" numbers were calculated using
unrounded values for the various growth rates and levels of taxes and
spending.
V
Most recent state spending and tax figures are for 1992. State and local
spending figures for 1992 are not vet available, so 1991 numbers were
used.
Page 37
Notes
1. U.S. Department of Commerce, Bureau of the Census, State
Government Finances, 1980 and 1992 editions.
2. Several of the measures --the ones that require either a
supermajority in the legislature or a majority of the voters
to approve new or increased taxes --are not, strictly speak-
ing, TELs. Herein, TELs refers to measures that limit the
growth of revenue or expenditures by a specific formula
usually involving the growth of personal income or popula-
tion) .
3. According to Americans for Tax Reform, information is
correct as of July 11, 1994. Those states in which signa-
tures are being gathered to put some form of tax limitation
measure on the 1994 ballot are Florida, Missouri, Montana,
Nevada, North Dakota, and Oregon. At this writing, the
Oregon and Nevada initiatives have already achieved ballot
status. (Note that three of those states --Missouri, Mon-
tana, and Oregon --already have TELs in place.)
4. U.S. Advisory Commission on Intergovernmental Relations,
Significant Features of Fiscal Federalism (Washington: ACIR,
1993), vol. 2, pp. 53-54; U.S. Department of Commerce,
Bureau of the Census, Historical Statistics of the United
States Colonial Times to 1970, part 2, pp. 1119-20, 1130;
and Office of Management and Budget, Economic Report of the
President, February 1994, p. 305.
5. U.S. Advisory Commission on Intergovernmental Relations,
vol. 2, p. 82.
6. For more details on the recent growth of state govern-
ment, see Stephen Moore, State Spending Splurge: The Real
Story behind the Fiscal Crisis in State Government," Cato
Institute Policy Analysis no. 152, May 23, 1991.
7. Paul Gigot, "Voters to Bill: Do You Want to Be Flor-
ioed?" Wall Street Journal, November 5, 1993, p. A8.
8. Terry Schwadron and Paul Richter, California and the
American Tax Revolt: Proposition 13 Five Years Later (Berke-
ley: University of California Press, 1984), p. 6.
9. Information on the existence of TELs in specific states
came from U.S. Advisory Commission on Intergovernmental
Relations, 1986, 1991, 1992, 1993, vol. 1.
Page 38
10. Daphne Kenyon and Karen Benker, "Fiscal Discipline:
Lessons from the State Experience," National Tax Journal 37,
no. 3 (September 1984): 438.
11. Marcia Howard, "State Tax and Expenditure Limitations:
There Is No Story," Public Budgeting and Finance, Summer
1989, p. 87.
12. Dale Bails, "The Effectiveness of Tax -Expenditure Limi-
tations: A Re-evaluation," American Journal of Economics and
Sociology 49, no. 2 (April 1990): 223.
13. James Cox and David Lowery, "The Impact of the Tax
Revolt Era: State Fiscal Caps," Social Science Quarterly 71,
no. 3 (September 1990): 507.
14. Stephen Moore, "What the States Can Teach Congress about
Balancing the Budget," Heritage Foundation Backgrounder no.
751, February 1990, p. 10.
15. Barry Poulson, "The Rules of the Game: Designing a State
Fiscal Constitution," in The Crisis in America's State
Budgets: A Blueprint for Budget Reform, ed. John Berthoud
and Samuel Brunelli (Washington: American Legislative Ex-
change Council, 1993), p. 133.
16. Information on TELs is from U.S. Advisory Commission on
Intergovernmental Relations, 1986, 1991, 1992, 1993, vol. 1.
The state tax and spending figures are from U.S. Department
of Commerce, Bureau of the Census, State Government Financ-
es, various editions. The state and local spending figures
are from U.S. Department of Commerce, Bureau of the Census,
Government Finances, various editions.
17. Alaska gets a disproportionate share of its revenue from
severance taxes, mostly on oil sold to non -Alaskans (22
percent of general revenue in 1992). The amount of revenue
from those taxes fluctuates highly; thus, in comparison with
other states, Alaska's overall levels of taxes and spending
fluctuate highly as well. For instance, from 1986 to 1991
per capita state taxes in Alaska went down (in nominal
terms) by 9 percent, while the U.S. average rose 30 percent.
Including those numbers would skew the TEL -state group
average significantly downward (thus making a stronger case
for the effectiveness of TELs). Figures from Alaska are
excluded from all "non -TEL -state" group averages as well.
18. Although New Jersey enacted a TEL in 1976, it was by law
temporary, expiring in 1983. Thus, New Jersey is not in-
cluded as a TEL state, nor is it included as a non -TEL state
Page 39
for any of the years during which its TEL was in effect
1976 to 1983).
19. Since this involves comparisons between growth rates
over the same period of analysis, nominal dollars are used.
20. "Non -TEL states" refers to the group of states (differ-
ent for each year of enactment) that did not have a binding
TEL in place for any.portion of the relevant period of
analysis. Note that non -TEL states thus include both Rhode
Island and Nevada (states with nonbinding TELs) but, as
mentioned earlier, not Alaska.
21. More detailed tables for all calculations for all states
similar to Table A.2), as opposed to just TEL -state average
figures (as in Tables A.3 -A.6), can be obtained from the
author.
22. A list of some.of those studies can be found in Sam
Staley, "Bigger Is Not Better: The Virtues of Decentralized
Local Government," Cato Institute Policy Analysis no. 166,
January 21, 1992. See also Stephen Moore and Dean Stansel,
The Myth of America's Underfunded Cities," Cato Institute
Policy Analysis no. 188, February 22, 1993.
23. The most recent year for which state and local spending
data are available is 1991.
24. For a 10 -point checklist for evaluating the potential
effectiveness of individual TELs, see Poulson, p. 10. For a
more detailed contemporary discussion of the expected diffi-
culties in implementing effective TELs due to their design,
see Naomi Caiden, "Problems in Implementing Government
Expenditure Limitations, appendix C in Aaron Wildaysky, How
to Limit Government Spending (Berkeley: University of Cali-
fornia Press, 1980), pp. 143-62.
25. Patrick McGuigan, "The Conservative Activist's Primer on
Direct Democracy," in Making Government Work: A Conserva-
tive Agenda for the States, ed. Tex Lezar (San Antonio:
Texas Public Policy Foundation, 1992), p. 402.
26. The National Referendum Movement, a newly formed group
in Memphis, Tennessee, headed by Barbara Vincent, is seeking
to obtain the right to initiative, referendum, and recall in
states that do not have it by working with grassroots organ-
izations in those states to petition the courts to put
initiative, referendum, and recall on the ballot.
Page 40
27. Poulson, p. 35. See also Barry Poulson and Jay Kaplan,
A Rent -Seeking Model of TELs," Public Choice 79 (1994):
117-34.
28. "Tax and Expenditure Limits," in The Source Book of
American State Legislation 1993-94, A Ouestion of Disci-
pline: A Guide to Fiscal Responsibility, ed. Samuel Brunelli
and John Berthoud (Washington: American Legislative Exchange
Council), p. 32.
29. Howard, pp. 87-88.
30. Note that four of those six apply specifically to "ap-
propriations of state tax revenue."
31. U.S. Advisory Commission on Intergovernmental Relations,
1993, vol. 2, p. 71.
32. U.S. Advisory Commission on Intergovernmental Relations,
1993, vol. 2, pp. 24, 53; and Office of Management and Bud-
get, p. 305.
33. Dale Bails, "A Critique on the Effectiveness of Tax -
Expenditure Limitations," Public Choice 38, no. 2 (1982):
129-38.
34. Those states are California, Michigan, Missouri, Tennes-
see, and Washington.
35. See Jeffrey Christensen, "Weicker's World," National
Review, January 24, 1994, p. 26; and Theodore Olson, "A
Tax -and -Spend Legislature Ignores the Voters," Wall Street
Journal, November 24, 1993, p. A17.
36. Michael Weiss, "The Texas Tax Relief Act after 12 Years:
Adoption, Implementation, and Enforcement," Texas Public
Policy Foundation, San Antonio, August 1991, p. 4.
37. Ibid., pp. 11, 5.
38. According to Weiss, "Currently, every state except New
Mexico permits (taxpayer suits)" (p. 18n. 73). For a fuller
discussion of the matter, see ibid., pp. 8-10.
39. Hancock II is an attempt to eliminate some of the loop-
holes of the original Hancock amendment, passed in 1980,
which gave taxpayers standing to sue but did not require
injunctive relief.
Page 41
40. For a sample tax and expenditure limitation act designed
by the American Legislative Exchange Council (ALEC), see
Tax and Expenditure Limits," pp. 37-40. ALEC's model TEL
does exclude certain areas of spending; nevertheless, it
generally shares the spirit of the recommendations made
herein. Furthermore, it spells out in detail what the text
of a TEL should look like, which could prove useful to
grassroots organizers seeking to put a TEL initiative on the
ballot in their state.
41. Those 15 states are Arizona, California, Colorado,
Delaware, Hawaii, Idaho, Louisiana, Michigan, Missouri,
Oregon, South Carolina, Tennessee, Texas, Utah, and Washing- ton.
42. Steven Hayward, "Conditions Are Building for Another Tax
Revolt," Los Angeles Daily News, October 24, 1993,
pp. 31-32.
43. Ironically, on the federal level Congress has adopted a
supermajority rule for cutting taxes but only a simple
majority rule for raising taxes. However, there is now a
proposal by Rep. Jim Saxton (R-N.J.) in Congress to require
a three-fifths vote to raise taxes.
44. Americans for Tax Reform.
45. Ibid. The five initiatives would be in Florida, Missou-
ri, Montana, North Dakota, and Oregon.
46. Some of the VARs seeking ballot status in 1994 would
specifically require voter approval for increased or new
taxes or fees."
47. Kevin Merida, "Americans Want a Direct Say in Political
Decision -Making, Pollsters Find," _Washington Post, April 20,
1994, p. A19.
OTHER STUDIES IN THE POLICY ANALYSIS SERIES
212. Ending Welfare As We Know It by Michael Tanner (July 7,
1994)
211. Why Health Care Costs Too Much by Stan Liebowitz (June 23,
1994)
210. Nickles -Stearns Is Not the Market Choice for Health Care
Reform by Tom Miller (June 13, 1994)
209. The Futility of U.S. Intervention in Regional Conflicts by
Barbara Conry (May 19, 1994)
208. Prison Blues: How America's Foolish Sentencing Policies
Endanger Public Safety by David B. Kopel (May 17, 1994)
207. 70 Years of Federal Government Health Care: A Timely Look
at the U.S. Department of Veterans Affairs by Robert E.
Bauman (April 27, 1994)
206. The Pentagon's Fraudulent Bottom -Up Review by David
Isenberg (April 21, 1994)
205. The Somali Crisis: Time for an African Solution by George
B. N. Ayittey (March 28, 1994)
204. Intrastate Trucking: Stronghold of the Regulators by
Cassandra Chrones Moore (February 16, 1994)
203. A Fiscal Policy Report Card on America's Governors: 1994 by
Stephen Moore and Dean Stansel (January 28, 1994)
202. Wasting Resources to Reduce Waste: Recycling in New Jersey
by Grant W. Schaumburg, Jr., and Katherine T. Doyle
January 26, 1994)
201. Washington's Dubious Crusade for Hemispheric Democracy by
Ian Vasquez (January 12, 1994)
200. Taken to the Cleaners: A Case Study of the Overregulation
of American Small Business by Jonathan H. Adler (December
22, 1993)
199. Staying Out of Potential Nuclear Crossfires by Ted Galen
Carpenter (November 24, 1993)
198. NAFTAIs Green Accords: Sound and Fury Signifying Little by
Jerry Taylor (November 17, 1993)
197. Laboratory Failure: States Are No Model for Health Care
Reform by Michael Tanner (September 23, 1993)
196. Paved with Good Intentions: The Mythical Infrastructure
Crisis by John A. Tatom (August 12, 1993)
195. The Cold War Navy in the Post -Cold War World by Christopher
A. Preble (August 2, 1993)
194. How to Balance the Budget by Reducing Spending by William
A. Niskanen and Stephen Moore (April 22, 1993)
193. The Economic Impact of Replacing Federal Income Taxes with
a Sales Tax by Laurence J. Kotlikoff (April 15, 1993)
192. The Futility of Raising Tax Rates by Bruce Bartlett (April
8, 1993)
191. Present at the Re-creation: The Need for a Rebirth of
American Foreign Policy by Jonathan G. Clarke (March 25,
1993)
190. National Service: Utopias Revisited by Doug Bandow (March
15, 1993)
189. Energy Conservation and Efficiency: The Case against
Coercion by Jerry Taylor (March 9, 1993)
188. The Myth of Americas Underfunded Cities by Stephen Moore
and Dean Stansel (February 22, 1993)
187. Caveat Emptor: The Head Start Scam by.John Hood (December
18, 1992)
186. How Governors Think Congress Should Reform the Budget:
Results of a Survey of U.S. Governors and Former Governors
by Stephen Moore (December 9, 1992)
185. The CIA as Economic Spy: The Misuse of U.S. Intelligence
after the Cold War by Stanley Kober (December 8, 1992)
184. Health Care Reform: The Good, the Bad, and the Ugly by
Michael Tanner (November 24, 1992)
183. Doing What We Can for Haiti by Ian Vdsquez (November 5,
1992)
182. Crime of the Century: The 1990 Budget Deal after Two Years
by Stephen Moore (October 15, 1992)
181. Equal Protection for Economic Liberty: Is the Court Ready?
by David Bernstein (October 5, 1992)
w
180. A Society of Suspects: The War on Drugs and Civil Liberties
by Steven Wisotsky (October 2, 1992)
179. American Forfeiture Law: Property Owners Meet the
Prosecutor by Terrance G. Reed (September 29, 1992)
178. Will the Gentlemen Please Yield? --A Defense of the
Constitutionality of State -Imposed Term Limitations by Neil
Gorsuch and Michael Guzman (September 24, 1992)
177. The "Green Peril": Creating the Islamic Fundamentalist
Threat by Leon T. Hadar (August 27, 1992)
176. The Burden of Government -Sponsored Enterprises: The Case of
the Federal Home Loan Mortgage Corporation by James F.
Gatti and Ronald W. Spahr (August 13, 1992)
175. Sustaining Development and Biodiversity: Productivity,
Efficiency, and Conservation by Indur M. Goklany and
Merritt W. Sprague (August 6, 1992)
174. The Permissible Uses of Forced Union Dues: From Hanson to
Beck by Charles W. Baird (June 30, 1992)
173. Crisis? What Crisis? George Bush's Never -Ending Domestic
Budget Build -Up by Stephen Moore (June 19, 1992)
172. America: What Went Right by Richard B. McKenzie (June 1,
1992)
171. Pentagon Myths and Global Realities: The 1993 Military
Budget by Jeffrey R. Gerlach (May 24, 1992)
170. Foreign Aid and India: Financing the Leviathan State
by Shyam J. Kamath (May 6, 1992)
169. The Myth of Predatory Pricing by Thomas J. DiLorenzo
February 28, 1992)
168. The Truth about Ozone and Urban Smog by K. H. Jones
February 19, 1992)
167. A Fiscal Policy Report Card on America's Governors
by Stephen Moore (January 30, 1992)
166. Bigger Is Not Better: The Virtues of Decentralized
Local Government by Sam Staley (January 21, 1992)
165. The District of Columbia: America's Worst Government? by
William A. Niskanen (November 18, 1991)