Tax cap fever | TABOR II is based on a flawed formula that can only lead to fiscal chaos
For the third time since 2004, voters will confront a tax cap referendum on the fall ballot. Proponents of the so-called Taxpayer Bill of Rights are back, promising to somehow make state and local governments more efficient by strangling them to death.
Under TABOR II, the current spending limits adopted as part of LD 1 would be repealed and replaced by a spending limit that is a factor based on inflation and population growth. The spending limit would apply to the General Fund, Highway Fund and over 700 separate other “special revenue” and “internal service” accounts. The formula is flawed, in part, because it uses the consumer price index, which measures the cost of things consumers buy, like milk and eggs, instead of the things that government buys, like steel, asphalt and concrete, which are better measured by the producer price index. For example, in 2007, the CPI was 2.6% while the PPI was 10.1%.
TABOR II would also place revenue limits on state government: Any increase in revenue resulting in a net gain of at least 0.01% of General Fund revenue ($300,000 in the current budget) would require passage in the House and Senate, and then approval in a statewide vote. The cost of the statewide vote is approximately $1 million. Yes, a $300,000 expenditure could require a $1 million statewide vote.
For towns and counties, the current spending limits created by LD 1 are preserved, but are further capped by average real personal income growth plus forecasted inflation. Any municipal or county budget that exceeds the spending limit, even in those municipalities governed by town meetings, would need to go to referendum. Even a town meeting vote to exceed a spending limit would need to go through the additional expense of a referenda vote.
A popular refrain among the TABOR proponents is to let “the people” decide. The “people,” for their part, have decided — twice already. Apparently, however, TABOR proponents and their out-of-state backers haven’t liked the answer and are back for a third try. Their mantra overlooks the fact that “the people” elected a governor and a Legislature to run the state.
Flying on autopilot
One of the other problems with TABOR is that it puts a cap on spending, but it doesn’t set a floor. When government budgets are cut during a recession, state spending never goes back up, even when the economy recovers. This phenomenon is particularly harmful in the Highway Fund, which has gone from $664 million to $611 million since the last biennial budget. In fact, both the Highway Fund and General Fund budgets are lower now than they were in 2006, when voters rejected TABOR the first time. The Maine Department of Transportation has said that our transportation system is underfunded by $200 million per year over the next decade. Impacts on transportation infrastructure alone should be enough to make any motorist vote “no.”
Applying spending limits individually to over 700 different “special revenue” and “internal service” accounts will mean a great deal of statewide referendum voting just to keep state government functioning. Innovative utility projects like the proposal to lease Maine’s rights-of-ways for utility corridors would also be hampered. The revenue would be required to go into a special account that couldn’t be spent unless approved in an annual statewide referendum. Requiring an annual vote to make expenditures would preclude securitizing the revenue stream, thus preventing the state from making strategic investments in a variety of areas.
In Colorado, the only state in the country to have adopted TABOR, chaos ensued. Support for public schools fell, infrastructure crumbled and Colorado teacher pay slipped to among the lowest in the country. Ultimately, the business community stepped up and led the effort to suspend the law for five years. The private sector raised $7 million of the $10 million campaign to successfully repeal TABOR in Colorado. The construction industry was at the front of the fundraising pack with over $1.6 million in contributions.
Any dissatisfaction we have with the governor and Legislature is best handled when their names are on the ballot. Passage of TABOR, on the other hand, would let lawmakers off the hook and put the state on autopilot.
Because we all live here and love the state of Maine, our goal should be to make state government work better, to be more efficient and nimble, like our businesses. Our goal should be to create a culture of innovation, sound management and fiscal restraint within state government — not chaos.
John O’Dea is executive director of Associated General Contractors of Maine. He can be reached at editorial@mainebiz.biz.
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