Beware Wacky Spending Limits

March 2, 2004By Michael Leachman

We should all be thankful we live in Oregon, not Colorado.

The recession hit hard in Colorado, as it did in Oregon. Per-capita personal income grew much more slowly in Colorado than any other state from 2000 to 2002. Since the recession began, only one other state (Massachusetts) has lost more jobs relative to overall payroll than Colorado.

Colorado's economic problems are bad, but what's worse is Colorado's inability to invest in its own future. Colorado continues to be hamstrung by a wacky constitutional provision passed in 1992 that limits state revenue growth to population plus inflation growth. As a result, Colorado's future looks even worse than its bleak present.

Three months ago, the presidents of Colorado public universities held a press conference to point out that if current funding patterns continue, the universities will be forced to either close or sell to the private sector within five years. The presidents project that state funding for higher education will collapse from $686 million today to $83 million in 2009. These extraordinary cuts will happen even though voters in Colorado never said they wanted to eviscerate state funding for higher education.

Colorado's fiscal woes stem from its adoption of the so-called Taxpayer Bill of Rights in 1992. The constitutional amendment, also known as TABOR, limits state government revenue growth to population growth plus inflation growth. In Oregon, an initiative petition has been submitted that would put a similar constitutional provision before Oregon voters, and anti-tax advocates have repeatedly called for Oregon to follow Colorado's lead.

A population plus inflation revenue limit may sound fiscally conservative, but it is highly irresponsible. The formula provides that if the state takes in less revenue than the population plus inflation limit would allow - as often happens during recessions - the revenue limit for future years gets ratcheted downward. In other words, the limit slashes funding for your kid's school during a recession, and then when the economy improves in a future budget cycle your school can only have a little bit back.

A population plus inflation limit is a mechanism for squeezing the life out of public institutions. If Oregon had adopted a TABOR-style population and inflation limit in 1979, General Fund revenues for 2007-09 would not have been allowed to exceed $7.2 billion, which is $5.4 billion - 42 percent - less than is actually projected. The difference is more than the total amount appropriated for K-12 education ($5.2 billion), and six times as much as the amount appropriated for higher education ($898 million) in the current budget cycle.

Imagine state services - money for state parks, schools, health care, senior citizen programs, courts, universities and prisons - cut nearly in half.

What if Oregon's student or inmate population grows faster than the overall population, or if expenses of some state programs - health care, for example - continue to rise faster than inflation, or if voters want the government to address some unexpected issue like terrorism or mad cow disease? Too bad. Putting a population plus inflation cap in the Constitution would prevent government from addressing any of these problems.

A responsible spending limit would assure that state government only grows as fast as the ability of Oregon residents to afford it. This is accomplished by capping spending growth at a percentage of the total personal income of Oregonians. Thankfully, that's exactly how Oregon's current spending limit, strengthened by the legislature in 2001 during the recent economic downturn, works.

Oregonians should reject efforts to take us down the Colorado path.

Michael Leachman is a policy analyst with the Oregon Center for Public Policy. He can be reached at [email protected]