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SQ 726, Oklahoma's TABOR: Fails to Fix Fatal Flaws of Colorado's Law
by David Blatt, Director of Public Policy Community Action Project
Advocates for strict limits on government spending have long considered Colorado’s TABOR (Taxpayer’s Bill of Rights) the gold standard of tax and expenditure limits and the model that other states should emulate. However, TABOR’s strict and rigid spending limits forced deep reductions to Colorado’s basic services, including public schools, colleges, roads, and health care, and kept the state from emerging from its budget crisis. TABOR’s negative effects led Coloradoans, on November 1st, 2005, to approve a statewide measure to suspend TABOR for five years.
TABOR’s failure and suspension in the only state ever to adopt it has been a major setback and dilemma for its proponents. However, in Oklahoma, supporters of TABOR are trying to get it enacted by claiming to have a new and improved version. They are asserting that their TABOR proposal, SQ 726, is “not really TABOR.” The have come up with various euphemisms and slogans such as “TABOR 2.0”, SOS (Stop Over-Spending Initiative”) and the “Taxpayer Protection Act” to try to differentiate the Oklahoma plan from Colorado’s failure.
Yet a careful reading of the proposed ballot measure shows that SQ 726 is still TABOR. The three core—and defining—features of Colorado’s TABOR are in fact duplicated in the Oklahoma proposal. These core features are: 1) a constitutionally-entrenched spending formula; 2) spending determined by annual changes in population and inflation, and 3) override only by referendum. Together, these features create the strong likelihood that TABOR would have similar effects in Oklahoma as in Colorado in damaging vital programs and making it harder to implement sound budget policies. In addition, SQ 726 contains many other provisions, including the right to file lawsuits and the ability to bypass spending limits with fee increases, budget gimmicks and local tax increases, that have the potential to make TABOR in Oklahoma even more harmful than in Colorado.
Defining TABOR Proponents of strict tax and expenditure limits, including the Cato Institute, Americans for Prosperity Foundation, and the American Legislative Exchange Council, agree that an effective state spending limit must include three core components:
These core TABOR components, which are currently unique to Colorado, are all retained in SQ 726, the proposed constitutional amendment for Oklahoma (see Table 1). Therefore, despite minor differences designed to give the impression that SQ 726 has “fixed Colorado’s problems,” SQ 726 remains fundamentally akin to Colorado.
YOU CALL THIS FIXING THE PROBLEMS? As part of their campaign to distance the Oklahoma TABOR proposal from Colorado’s failed TABOR, proponents of State Question 726 claim to have made changes that “learn from Colorado's mistakes.”² They assert that these changes will allow Oklahoma’s spending levels to stay “artificially inflated to allow for future growth.”³ Yet these minor alterations do not change the core features of TABOR and thus would not prevent it from having the same devastating impact on Oklahoma as it did on Colorado.
SQ 726: Same Faulty Formula Proponents of SQ 726 claim that they have fixed one of TABOR’s problems by limiting state spending increases to the greater of the previous year’s actual spending, adjusted by the population-plus-inflation formula, or the previous year’s spending limit. This is in response to the notorious “ratchet” effect of Colorado’s TABOR, whereby the state spending limit actually decreases when revenues decline. Under SQ 726, in years of declining revenue collections, the spending limit would be held constant.
Yet this “fix” is largely irrelevant to the problems that TABOR is likely to cause in Oklahoma because it retains the core feature of Colorado’s TABOR — the faulty formula of inflation plus population. It is the core formula that will prevent the state from keeping pace with the cost of services and prevent it from meeting its obligations to serve people’s needs.
State government revenues and spending typically grow in line with state economic growth (see Figure 1). This allows for the budget to meet rising costs and new responsibilities while consuming a steady or slightly declining share of the state’s personal income. In contrast, limiting state budget growth to the artificial measure of population change plus inflation would shrink public services over time and severely limits the state’s ability to respond to residents’ needs.
Both elements of the “inflation plus population” formula hinder a state’s ability to provide a constant level of public services and prevent the state from meeting current and emerging needs. “Inflation” as commonly measured does not accurately reflect growth in the costs to government. The measure of inflation in State Question 726 is the “Consumer Price Index-All Urban Consumers (CPI-U),” which is calculated by the U.S. Bureau of Labor Statistics. The CPI-U measures change in the total cost of a “market basket” of goods and services purchased by a typical urban consumer. Since a typical urban consumer spends a majority of his or her income on housing, transportation, and food and beverages, those items are the primary drivers of the CPI-U. By contrast, Oklahoma state government spends revenue primarily on education, health care, transportation, and corrections. The items in the government “basket of goods” have seen significantly greater cost increases in the past decade, and those faster-growing costs are expected to continue. Limiting the growth in government spending to the rate of growth in general inflation will not push down the rate of growth in the cost of medical care or education.
The second part of the population-growth-plus-inflation formula is inherently flawed as well. The sub-populations that state governments serve tend to grow more rapidly than the overall population growth used in the formula. One example is senior citizens, who already account for a disproportionately large share of Oklahoma’s Medicaid costs. According to U.S. Census Bureau projections, Oklahoma’s total population is projected to increase by only 13 percent from 2000 to 2030, but Oklahoma’s population aged 65 and older is projected to increase by 66 percent from 2000 to 2030.4 While total population growth, and thus allowable state spending under a population-plus-inflation formula, is projected to grow slowly in Oklahoma in the coming decades due to a small increase in overall population, the cost of providing current health services to Oklahoma residents likely will rise rapidly because of an aging population.
SQ 726: Oklahoma Would Not Be Better Prepared to Weather A Budget Downturn Oklahoma TABOR supporters claim that State Question 726 offers a “more responsive plan”5 than Colorado’s TABOR because it requires a portion of state revenue to go to two new budget reserve funds—a constitutional emergency fund and a budget stabilization fund—and thus protect the state from a major crash if the economy takes a downward turn.
Yet in reality, just as in Colorado, TABOR would make any response to changed budget circumstances extremely difficult. The legislature would be constitutionally prohibited from spending above the TABOR limits even if revenues are at hand to fund such spending. If the state needs to spend revenues above the limit to recover from the economic downturn, a vote of the people is required. Obtaining voter approval can be a difficult, time-consuming and tremendously expensive process – in Colorado, it took four years, a protracted budget crisis, and a $10-million statewide referendum to enact its five-year TABOR suspension. Notably, under SQ 726, Oklahoma’s constitution would prohibit voters from ever suspending TABOR for longer than one year.
In addition, by doing away with the state’s existing Rainy Day Fund (RDF) and eliminating other safeguards in the current Constitution, Oklahoma’s TABOR would actually leave Oklahoma less prepared for budget downturns than it is currently:
¨ SQ 726 would abolish a key safeguard in the state Constitution that protects against revenue shortfalls. One of the most fiscally prudent provisions in Oklahoma’s Constitution requires the Legislature to appropriate only 95% of certified estimates for the upcoming fiscal year, leaving a 5% cushion in the case of revenue shortfalls. Under SQ 726, this safeguard is eliminated. The Legislature would have to dip into the Budget Stabilization Fund any time there was a shortfall resulting from revenues coming in below 100% of projections.
¨ Under SQ 726, impending budget shortfalls could no longer be averted or minimized. While SQ 726 would increase the size of Oklahoma’s allowable budget reserves (from 10% of General Revenue to 10% of the total state spending limit), it would no longer allow the Legislature to appropriate from its budget reserves for projected shortfalls in the next fiscal year. Currently, 3/8ths of the Rainy Day Fund can be used to fill the shortfall when next year’s projected revenues are below the current year base. Under SQ 726, the Budget Stabilization Fund could be used to make up for shortfalls in current year revenues only. The state could no longer respond to looming shortfalls by appropriating reserve funds. While reserve funds went unused, lawmakers could balance the budget only by cutting services and programs.
¨ Under SQ 726, the Legislature could no longer make ordinary supplemental appropriations to address unanticipated spending needs and emergencies, such as natural disasters or holes caused by federal funding cuts. Currently, the Legislature can make supplemental appropriations by a simple majority vote. Under SQ 726, any appropriations over the formula-determined spending limit would necessitate spending from the Constitutional Emergency Fund. This would require a ¾ vote of both chambers and would be constitutionally limited to “an extraordinary event or occurrence… to preserve the health, safety and general welfare of the people.” SQ 726 specifies that “any legal challenge to the legitimacy of a declared emergency… shall be a judicial question.”
Rather than do away with the state’s existing Rainy Day Fund in favor or a pair of new, complex, and cumbersome reserve funds, a far simpler and more effective way to help the state weather future budget downturns would be to simply raise the cap on the RDF from 10% to 15% of the General Revenue fund. This would increase the state’s reserve by an additional $245 million to help cushion the impact of a downturn and avert painful spending cuts or tax increases.
THE FINE PRINT Not only does State Question 726 retain the three core features of Colorado’s flawed TABOR, and provides no “fixes” to the problems of Colorado’s TABOR, it also has several worrisome provisions buried in the fine print. Some of these provisions are not even included in Colorado’s TABOR. The precise impact of these additional provisions is unknown but it is very likely that they would include frequent and costly lawsuits paid for by taxpayers, frequent special elections, legislative budget gimmicks, increases in taxpayer user fees, and an increased tax burden at the local level.
Lawsuits SQ 726 specifies that “any individual or class of individuals has standing to bring a suit to enforce the provision of this section.” This creates the strong threat of the annual state budget being held up in Court as competing groups of plaintiffs sue to determine the exact definition of “total state spending,” “discretionary user charges,” etc. The measure also allows successful plaintiffs to recover costs and attorney fees. The lawsuit language of SQ 726 is unprecedented in the Oklahoma constitution.
In addition, SQ 726 asserts that its language supersedes any and all other constitutional provisions, state statutes or local law. A constitutional amendment such as TABOR that demands supremacy over all other state and local laws (including the Oklahoma constitution itself) would undoubtedly be challenged in court extensively once enacted.
Increased User Fees and Charges User charges or fees, such as professional licenses, hunting permits, tuition, court filing fees or driver’s license fees, are excluded from the definition of “fiscal year spending” and thus not subject to the limits. This will create strong pressure on every state agency and the Legislature to raise fees continuously to evade spending limits.
More Budget Gimmicks The spending limits in SQ 726 apply only to “monies appropriated by the state”. There is nothing to prevent the Legislature from diverting tax revenues to non-appropriated funds to be used for specified purposes. This procedure was already done in 2004 with increased tobacco tax revenues, which flow directly into agency revolving funds and are not subject to legislative appropriation. Under SQ 726, it is likely that an increasing share of the state budget would escape any legislative control and accountability.
Tax Increases at the Local Level As state support dries up for schools, roads and bridges, public safety and other services, local governments (counties, municipalities and school districts) will face increased pressure to fill the void by increasing local taxes.
CONCLUSION Despite assertions that they have created the "right TABOR,"6 proponents of State Question 726 are pushing a constitutional amendment that contains all three core features of Colorado’s TABOR. If TABOR is enacted, the fiscal crisis experienced in Colorado is likely to be experienced in Oklahoma as well, as funding levels for basic services erode over time and the legislature is prevented from responding to changing circumstances in a timely and efficient manner. Oklahomans would be wise to pause before replacing deliberative, legislative budget processes with an inflexible and unrealistic constitutional spending formula.‡
1 Dean Stansel, Taming Leviathan: Are Tax and Spending Limits the Answer?, Cato Institute, Policy Analysis No. 213; Barry Poulson, The Next Generation of Tax and Expenditure Limits, American doe Prosperity Foundation, http://www.americansforprosperity.org/news/spend_0040512b.html
4 U.S. Census Bureau, State Interim Population Projections by Age and Sex: 2004-2030, Table 2. Available at http://www.census.gov/population/projections/PressTab4.xls
6 Ibid
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