HomeMy WebLinkAbout2010-03-08 - City Commission Workshop Meeting MinutesCITY OF TAMARAC
CITY COMMISSION WORKSHOP MEETING
MONDAY MARCH 8, 2010
CALL TO ORDER: Mayor Talabisco called the workshop meeting of the City Commission to
order at 9:30 a.m. on Monday, March 8, 2010, in Room 105, Tamarac City Hall, 7525 NW 88
Avenue, Tamarac, FL 33321.
PRESENT: Mayor Beth Talabisco, Vice -Mayor Harry Dressler, Commissioner Pamela
Bushnell, Commissioner Patricia Atkins -Grad, and Commissioner Diane Glasser.
ALSO PRESENT: City Manager Jeffrey L. Miller, City Attorney Samuel S. Goren, Deputy City
Manager Michael C. Cernech, and City Clerk Marion Swenson.
PLEDGE OF ALLEGIANCE: Mayor Flansbaum-Talabisco led the pledge of allegiance.
1. Item No. 6 (e) on the Consent Agenda. PALMS MEDICAL CAMPUS SITE PLAN
EXTENSION: (TR11766) Granting a time extension of one (1) year for final Site Plan approval
for the Palms Medical Campus project, requested by Virtual Design Group (Eric Mills,
Applicant), Designated Agent for the property owner Courtyard Properties (Joseph Vitolo)
(Case No. 2-SP-10) providing for conditions of approval. Community Development Director
Bramley gave a presentation.
2. Item No. 6 (f) on the Consent Agenda. MERRILL GARDENS II SITE PLAN
EXTENSION: (TR11767) Granting a time extension of one (1) year for final Site Plan approval
for the Merrill Gardens II project, requested by Craven Thompson and Associates, Inc.,
(Edward P. Ploski), Designated Agent for the property owner, Merrill Gardens, LLC. (Case No.
1-SP-10); providing for conditions of approval. Community Development Director Bramley
gave a presentation.
3. Item No. 6 (b) on the Consent Agenda. FY07/08 HOME PROGRAM EXTENSION:
(TR1 1771) Approving the first amendment to Interlocal Agreement between the City of
Tamarac and Broward County to provide for the City of Tamarac to be designated as a
subrecipient for the HOME Consortium and disbursement of HOME funds for fiscal year 2007-
2008; providing for an extension of the term of the agreement for an additional year.
Community Development Director Bramley gave a presentation on Items 6(b) and 6(c).
4. Item No. 6 (c) on the Consent Agenda. FY08/09 HOME PROGRAM EXTENSION:
(TR11772) Approving the first amendment to Interlocal Agreement between the City of
Tamarac and Broward County to provide for the City of Tamarac to be designated as a
subrecipient for the HOME Consortium and disbursement of HOME funds for fiscal year 2008-
2009; providing for an extension of the term of the agreement for an additional year.
5. Item No. 6 (h) on the Consent Agenda. BROWARD COUNTY MULTI -
JURISDICTIONAL LOCAL MITIGATION STRATEGY: (TR11774) Supporting and adopting
'the Broward County December 2009 Revised Multi -Jurisdictional Local Mitigation Strategy.
Fire Chief Burton gave a presentation. Vice -Mayor Dressler spoke of national emergencies.
Page 1 of 3 Workshop Meeting March 8, 2010
6. Item No. 6(i) on the Consent Agenda. GRANT APPLICATION TO RECREATION
TRAILS PROGRAM: (TR11777) Authorizing the appropriate City officials to submit an
application to the US Department of Transportation through the Florida Department of ,
Environmental Protection — Office of Greenways and Trails for Recreational Trails Program
grant funds for the Mainlands Park project in the amount of $250,000 providing for a 1-to-1
match of $250,000 in local funds in the event of approval of the application, providing for
acceptance of the award and execution of documents upon approval. Assistant City Manager
Phillips, Special Projects Coordinator Gresek, Public Works Director Strain and Parks &
Recreation Director Warner appeared. Special Projects Coordinator Gresek gave a
presentation and explained the difference between this project and Waters Edge Park grant
funding: maintenance and the time line. Director of Parks and Recreation Warner explained
the grant is just for the pathway. There was discussion regarding the matching funds.
Commissioner Atkins -Grad questioned some areas on the diagram and Public Works Director
Strain spoke of the exercise stations and covered picnic areas which are not included as part
of the grant. Director of Parks and Recreation Warner spoke of Life Trail Systems which
provide for exercise stations that work well for active seniors. Mayor Talabisco asked how
long the walking trail is and Public Works Director Strain said just short of two miles. Vice -
Mayor Dressler spoke of the inflation index.
Vice -Mayor Dressler left the room at 10:00 and returned at 10:03 a.m.
Commissioner Glasser expressed concern with the lack of benches and water stations. Public
Works Director Strain said while the grant funding is just for the trail the Mayor and City
Commission can add whatever amenities they see fit; we can look for additional grant funding
or budget the expenses. Commissioner Bushnell asked how people would get to the trail and '
questioned lighting. Public Works Director Strain said there is an entrance on the west side
and it is not anticipated to include illumination at this time. Director of Parks and Recreation
Warner said there will be a public meeting on the project on Monday, March 15th at 2:00 p.m.
at the Tamarac Community Center. Commissioner Bushnell questioned the impact on the
community the project may have and Director of Parks and Recreation Warner said there will
be signage and patrols through the area. Commissioner Glasser questioned parking facilities
and Special Projects Coordinator Gresek said none are planned for at this time. Assistant
City Manager Phillips spoke of CIP funds available for amenities and added a more definite
plan can be put together after hearing from the neighborhoods. Commissioner Atkins -Grad
said she is in favor of moving forward with the grant application. City Manager Miller added he
would report back to the Mayor and City Commission after the public meeting.
7. Item No. 6 (g) on the Consent Agenda. DAVIDSON FIXED INCOME MANAGEMENT -
INVESTMENT ADVISORY AGREEMENT EXTENSION: (TR11773)
Authorizing the appropriate City officials to extend the existing agreement between the City of
Tamarac and Davidson Fixed Income Management,(formerly Kirkpatrick Pettis Capital
Management), for Investment Advisory Services for a two-year period effective April 15,
2010, through April 14, 2012, with up to two (2) additional one year renewal options. Financial
Services Director Mason and Purchasing/Contracts Manager Glatz appeared. Financial
Services Director Mason gave a presentation and spoke of gong from nine basis points to six
basis points, which would save the City 1/3 of the cost of the services. '
Commissioner Atkins -Grad left the room at 10:25 a.m. and returned at 10:30 a.m.
Page 2 of 3 Workshop Meeting March 8, 2010
Vice -Mayor Dressler congratulated City Manager Miller for selecting Mark Mason as Financial
Services Director.
8. Item No. 6 (d) on the Consent Agenda. APPROVING THE PURCHASE AND
INSTALLATION OF GUARDRAILS: (TR11775) Authorizing the appropriate City Officials to
approve the purchase and installation of guardrail from Southeast Attenuators, Inc., at a cost
not to exceed $50,000.00, utilizing the City of Miami Gardens Bid Number 08-09-001;
approving funding from the appropriate capital improvement account; authorizing budget
amendments for proper accounting purposes. Public Works Director Strain and
Purchasing/Contracts Manager Glatz appeared. Public Works Director Strain gave a
presentation. Commissioner Atkins -Grad said constituents have been contacting her
regarding guard rails and she is happy to see they are being addressed. Commissioner
Glasser said she is happy to see this being addressed as it is important for Tamarac's image.
9. Discussion regarding opposition to TABOR. Vice Mayor Dressler and Financial
Services Director Mason appeared. Financial Services Director Mason gave a presentation on
TABOR (a copy of which is attached hereto and incorporated herein as part of these minutes.)
Vice -Mayor Dressler said Financial Services Director Mason did an outstanding job in the
presentation and touched on key elements, one of which is the legislature's intention to limit
any local government's ability to manage their own revenue and make decisions under home
rule. Mayor Talabisco asked for Financial Services Director Mason's analysis as to what this
means going forward. Financial Services Director Mason said the joint resolution has several
' conflicts between provisions; erodes home rule to being non-existent; will create stagnation
and, ultimately, erosion of services; and destroys representative form of government. If this is
approved, within several years cities will simply be turning their keys over to the state. Vice -
Mayor Dressler spoke in opposition to TABOR and said the Mayor and City Commission must
educate the public regarding the Bill. City Attorney Goren added the Bill is pending in
Tallahassee and requires the approval of the House and Senate. If it is approved it will then
appear on the November ballot. Hometown Democracy is currently on the ballot.
Commissioner Glasser asked if we know which of our legislators are for or against this
proposition, and said the Mayor and City Commission must contact our legislators to see
where they stand and find out who else to call. We must also encourage neighboring cities to
do the same. Mayor Talabisco asked City Manager Miller to follow up with Russ Klennet and
Ron Book. Commissioner Bushnell agreed it is the Mayor and City Commission's job to
educate people. City Attorney Goren spoke of Chapter 9, Bankruptcy Code, which was
amended in the 1970's, and applies to municipalities.
There being no further business to come before the Mayor and City Commission, Mayor
Talabisco adjourned the workshop meeting at 11:
ei,ar
Marion Swenson, CMC
City Clerk
Page 3 of 3 Workshop Meeting March 8, 2010
M
IM
c
0
c
0
U
l�0
T
0
CD.
0
L
0
0
NU)
0.
4-0
c
.0
I
m
§
f
a)
® ^
/
�
a) a)
7«
2/
@§
2
f2
�0
k3
ƒ
@
3 c
:
f
2
0
7
f%
E
°D
°
�/
2
ƒ0
�
§/
2
R 2
2
0).U)
k
f
(D
o
U)_0
�o
-E
/
2k
§
/)
b
2Q
J
£
c
=
c�
.o
£
�—
$
kE
/
2
—
0
®
-
R CL
¢
Cl)
/
§
$
./ @
E
$
/
� §
0
>
M 0
f
/
\
7
� f
%
%
§
C
2
(n"
E/
EL
§
2
em
£
§>
i r
O
2\o
§
m
/
2
�
\
�
k
�
:
3:a
7
0C
ƒ
\ƒ%E
f
2
>
�
/
o
t
0
@
>
._
o
E$
0
o
7\
m
f
m
o
§§£
e
2
e��
2§
E
m
E
E
0
2
of
of
§
=XE£C/QEwf\
« a),
.
. .
.
�
/
.
�
.
M
C
.6-a
73
^o
L
CO
}+
N
L
W
O
Cn
U)
�
U
L
C
U
cn
U
a)
O
U
m
o
1
C
U
C
U
i^1
40
O
},
W
L
C:
N
C:
ow
Co
a)
0)
.�
L
—'4
VJ
O
E
a)
1-0
tM O
� N
L N
0 cn
O O
U O N
� N
a) O
L O
EO
CD N
o
O N CV
C_ Cc II
a)' o
CL O
Ua) d'
CC3
Q
O
N
U) U O
Co
in N
co
co
II
O
c
CU
m
C
U
Q
co
N
0
O
L
O
� 3�
o �
II �
O >
O
L �
co
U �
rn U
C INC
O �
Lf M
C) II
ON a
L-
o a`)
N Q
IT
N
L L
O Q O
4-0 a) a
.-
U) •� p O
4--
0 (0 a---
U) (n C
to (5 C U) a)a)
O L O
L N U M 70
a O) L M
:3 >% M O
O -0 > _0 m 0)
N a)coU
s O V N O
!E N C O C L.
4-0
/� � � U -
C cn
(6 C (n �
a)
N -0 a) a)+r — U +, �., C
o Q C N O
�
Q E
L L�
p > cc a) C o
Q
$� C O C N n cn
O a)Z3 a)
La--�
O CU) C N
4-00 0 a. Q cu N .� Mv
8 F.
i
O
U)
N
O
O
L
co
L.
O
U
CO
J C:
co
>
� o
O
J CU
m
O
N
LL
L
O
r
r
O
N
O
T-
O
LL
(tf
cn
L
N
a
m
m
0
O
C
E
cn
U)
F-
O
L N .Q -N U
C Co
(o
70
�--+
: � >
O i N
U N
co a
U
�1 CD UO M
O > N +�
� L Co
(� U
(D U
U
CU O N U
.E >L > N s
Ja)L N +�
L O N E C
L
x ^^,,
> N O Q O U
ry 0: p U C
L Q N p +r
(o m p O N T O
C
E U U 7 L +�
tig
N a)n 1,5
O U�
o O _r Z >,L) Q >�o
L M U
a AL
O
AMP
70
0
O
Q
N
0
0
]
A
O
co
L.L
m
_Q
�U
U �
�L
�--+ Q
4-
(D O
L
E
L Q
a
L
4-0 N
4
C
o
C -0
U E
>
0 L
0
4-0
co
W
L
— 4�
(3)
� O O
N e-
>4
O >
O
O.O S]
cn E .0
Rx�� X= �
IFS O �- C(i
■ c O N
0 _
$� �0O
C-) A�ca
C/) :�
_ O
O
CL
O
� >CD
Nam_
® M�E
mi
(n
a)
L
O N
W ✓
W
-0
U 4—
E a)
;cn
N
N O
6}
L e a) (1)
a)
L
>
O\
O
a) -0"+-
fn
NO
+
N
�(Y)
_
o;�Ofo�ca�
N
c60
�CO�O
Cow-+N(a)
Q
a)
a--, M �
�CL
H'Om
a)
cn
0E
a)O
> � 4
0
N
a)cv
-r-0)CCOcO—
>
cu
0�00
L E
a)
w
..
N
O
%0 N.
(n > E M'C
0-
�_
•N
= O
a) CU
_
C
CU
-0
�0)mc)a)a)
N
� a)
a)
ma)O
�cn
0
E
COO
(n (D
�O
C
OCO
NM-OOU)a)a)
N��
�E�v�—OLOE
�
O O
a)X�L
rNO
M
t
-C Q) V�
e-
L aF
=s>
C)0
��
O
m
�ma)W
�:
a)�'�'ONaM
>>
. ( L co
y„J
E
N
Oa)
�F a)OL�
U
-00L)
CD �.
f°�v
m0a)
L
O
—4-
a) M-0
OCCO04--mc
(D OT--r
0
cn O a)
f6 0)—
�a)E�a�m�E
a)—
C—a)
_r a-
CD U)) O 0 v)r-
CDO
a-'E
m+ O='aa)UU
a)
*'
>:-0
a) o
mU
U) �
�.,� E-a
O.0
QC
N a)
ry
. � ���
CD QU)X
:3co 0 0-
00§
0 a)L _
>co N +�LN°
`- ca
}, 0 �O
L � � U �.c0O7
Qj to 0 Rf >* c N
C0
0 Q m > 0-0
0 X0 _0"V'i
0
> CN U
.--(ooU
(� -0� Q�LL
N
OL
� �Ea
X N L� z > (0
0 a)NC Lo
+,Cavi
CL C: 00)m U0V
O C = N >
-�' N — �
0 �co(n
2
8
U L
L
�� p �7C) > fn
>> -0 C C (D O
_� 1 0
L- 0 CQ -0 0 aj
,
'C co �— o O— O
U !E�C: � = O
L N U m O
O -0
70Co
(D L Q� LO � a) O O L.0 a--�
�� N �Q"� � QU
U U�Q �pV CT co CC/)
LU
7•NQ pON p� co
L ice--+ CQm a)
LO
0) 0- = E�L
CCtea) a) > .+N �-+ .
• —
m �� CO c cm - U
�=3, -0 4ma > OC- `^
^WN
L CO
V 42 L
- O � �
�C>O a)V^
�opvai),
,� >O OU �O i p w �� M
E Z42 0) L
PQ
(.=0o
M .o .U)
C6 c � U
E cn 4-j ".- w 0
lcn a) E a) 3
cn = 4-1
M. co U
•—
�.0 �� �
p
(n � 0 � x
U
as
W >ca (U �CL
o
U)U)
X � 4-0 �
cif L E m
X-0 +' NcnL Nm
cn ca
m �, o
U 00
O NN M°r°> on-
4-1 E � cE E z a)
N •-
W cn o
W
_
co
0LZ
W
C �
� U
_�
Off—
> O�
cu
O �+—
� C � C
mcn0
OO�—
Z
>0c
.c
() a) 0
cn>0
0
U)
a=c'
ATE
�•�i
>O
>
4
0)
a cM
a)a)L
aOL"O
-C 070
cu+, a)+r
a)
cco�UO
o
NCO
(U>N
O d a)
s 0 " "
+r 0
�a.,�
CO L >>a.,
U)
�0,
X — O
a) -0
co tea)
X
O Co L
cua)mE
+•'
U—�0cn
C MC) C —
0CDVO
(D0
0
cn
E
�0cm a)
L
N ) a)
C}
acUa'
EoE.c:
Co
a)U�>
a),�• m
) E O
C N
LJJ a)cy)
Qa)O�,}.
U
C
(n
c�
O
a)
U
�
•c
U
O
N
o`
c
uS
�
Uc6
_o
0)
()
C
°
�
°
•C
C;)
C
()E��
•V
c
N
a)U
>CU
a)a)
cu
cn
Q
N
E
N
O
CO
_O
L
O
�
�
N
�
C
N
O
U
(D
U)
O
(o
4T
I
I N
s
Lm
CL
CL
LM
4)
VW
4-0
.ff
_J
O
75
00
EN
L-
4-0
E
a)
a)
X
a)
0
U)
(n
0-
0
a
a)
E
o ai
cm>%
Q
a)
E
a)
X
0
0
M
l
*W
SMONS
3 MEMS
mi
N
C �
c[S !N
U C:
N O
L L
O
a"' LO
(D
^` L
VrJ (D �
O N
cn
E a--+ c6
U) (D c
J L >O
O O 0
N
c
O N
O� Q O
0
O ;,,
C �
_ cn
s v
U +r (A
3 GJ O
� L �
v-
4-J O 4-'
fz
4-J
N E
oo"
L >
O O
O
L
_ N
0)N�
v W
Q-04-J
a�
�� Ln
s
(„ o 4 },
�s
� � 3
E��
V }'
2-5 �
14-- N
o
ate-J N
i E
o'+_Ev
� O
� � v
E
O 61C:
O i M
0
o-0
�a-0
Q L a-J
ate- J O 4"J
03
�c��
o
a� 4--0
�sV�
O� �4-J
O
u
c a;
E o
N �
>
0) Ln
0
L
4-J >
O
� 01
0 u
0O
L
O
O v
+-4
v
�4-J
+.J
Q O
4-0
U U N -O
N i p Ea: E
M N
> U)C(n
~ '0 i O N a)a� �
(a 0 `� L Q 0 C Q
cn N CU a)O O `� O
Q� > _O L 4-0-0-0
0 -O � (�
i s 0 CU Ca O C O 0 0
C U (D U a) C N
L
O fn `~ C U 0)>NN O
� O N N C- L-Q O � O C� U+r
> a) L +� O N
i (n O N U O
Em UtE L w "O
C i Z�, O m M
U) C3)O O
�o
O > O X N p 0 L
> N N c ,U4-5
O co >' C �- O L
CL^. �"� O a)
L /L^
L O (n W
O > � U N4— O
L
C6
AOL
9.,
O
a) O C:
a)•O E
a)C W L-
>
U •X 0
N m
C E o
o � j
a)U.
� >
`n O o m
to a--' :+_a �
m a)C:
cn
o 0
E U
o U; o 4
a o a) a >,
.0 0 0 - o a)
--) a W U) 0
No Text
CENTER on BunaEr
AND POLICY PRIORITIES
820 First Street, NE, Suite 510, Washington, DC 20002
Tel: 202-408-1080 Fax: 202-408-1056 center@cbpp.org www.cbpp.org
January 13, 2005
THE FLAWED "POPULATION PLUS INFLATION" FORMULA
Why TABOR's Growth Formula Doesn't Work
By David H. Bradley, Nicholas Johnson, and Iris J. Lav
Limiting the growth of state revenue collections and state expenditures to a population -
growth -plus -inflation fotTnula is a central provision of a new generation of "tax and expenditure
limits" — or TELs — now being promoted by national anti -government groups. Under such
proposals, state constitutions would be amended to bar state and local expenditures from rising at
a percentage rate that exceeds the rate of growth of state population plus an inflation factor. A
population -growth -plus -inflation limit is central to Colorado's "Taxpayer Bill of Rights,"
arguably the strictest TEL in the country and the model for TELs currently under consideration
in several states.
Such formulaic limitations may sound reasonable, but are actually a recipe for sharply
reduced public services and an impaired ability to respond effectively to public needs, federal
mandates, and changing circumstances.
If a population -plus -inflation TEL had been in place in all states from 1990 to 2004,
aggregate state own -source expenditures in 2004 would have been $162.7 billion, or
21 percent, below its actual level.
Closing this gap in 2004 could have been achieved by cutting 78 percent of all state
K-12 education budgets; all state Medicaid and transportation spending; or 60 percent
of all other state spending.
There are a number of reasons that a population plus inflation limit leads to such a
dramatic scale -back in government services.
No existing measure of inflation correctly captures the growth in the cost of the kinds
of services purchased in the public sector, so the inflation adjustment generally is not
sufficient to allow the continuation of existing services. State governments spend
much of their money on education and health care, which typically have cost
increases greater than the general rate of inflation. Within the Consumer Price Index
(CPI) itself, medical care and education have been growing at twice the rate of the
overall CPI.
The subpopulations that state governments serve tend to grow more rapidly than the
overall population growth used in the formula. For example, while total population
grew by 15.4 percent from 1990 to 2002, total state prison population grew by 83
The "Ratchet Effect": Increasing the Severity of the Population -plus -Inflation Formula
Colorado's TABOR and many current TEL proposals in other states contain a feature that
causes public services to be cut even more than they would under a simple population -growth -plus -
inflation formula. This feature is known as the "ratchet effect." With the ratchet effect, the
population growth plus inflation adjustment is applied to the amount of actual expenditures or
revenue in the prior year (rather than to the amount of allowable expenditures or revenues). When
state budgets grow slowly or fall, as in the recent fiscal crisis, actual spending or revenues are likely
to be lower than the level permitted by the formula. If this lower level becomes the new base to
which the population growth and inflation adjustment is applied, then the level of public services is
permanently ratcheted down.
Consider a hypothetical state with $1 billion in revenues in 2001 and with population growth
plus inflation equaling 5 percent annually. With no ratchet effect, by 2005 allowable revenue would
be $1.22 billion (reflecting four years of 5 percent growth, compounded). But if actual revenue
collections declined in the first year by 5 percent, allowable revenue collections in years thereafter
would be calculated from that new, lower base. As a result, by 2005, even if the economy and tax
base fully recovered, allowable revenues could not exceed $1.1 billion — a very significant difference
of 10 percent.
The ratchet effect typically, is not explicit, but rather hidden within the wording of a TABOR
proposal. Any TABOR proposal must be carefully scrutinized to determine whether it contains a
ratchet effect.
percent, disabled children in schools grew by 35 percent, and the number of elderly
and disabled persons on Medicaid grew by 70 percent. Over the next 40 years, the
elderly population will grow at twice the rate of general population growth.
The rigidities of formula -based budgeting, such as a population -plus -inflation growth
factor, do not allow funding of new priorities that may be embraced by the public,
such as reduced class sizes or more stringent corrections policies. They do not allow
states to adapt to federal mandates that require states to spend more in areas such as
security and education, and they may have no provisions for emergency spending on
natural disasters or other unanticipated problems.
A TEL based on a population -plus -inflation growth factor, or any other artificial
formula, moves the budget process away from the careful weighing of competing
priorities and consideration of the value of new initiatives and toward a process
defined by sterile limits that require the shrinking of government services in most
years.
2
Population Growth Plus Inflation in Colorado
The population -growth -plus -inflation formula is a key reason why Colorado's TABOR
amendment — a 1992 constitutional provision — has caused severe problems for the provision of
public services in that state.
After 12 years of TABOR, Colorado has among the nation's poorest -funded — and poorest -
performing — public services. For example, Colorado ranks 47 s in K-12 education funding as a
share of state income. The ratio of teacher salaries to average private -sector earnings is lower in
Colorado than any other state. Child immunization rates are also lowest in the nation. More poor
children lack health insurance in Colorado than in all but five other states, and three-quarters of
Colorado pediatricians won't treat Medicaid patients because reimbursement rates are so low. High
school graduation rates, support for public colleges and universities, and access to prenatal can: all
have fallen since 1992.
Just since 2001, as a result of the formula (combined with the ratchet effect described in the
box on the previous page), Colorado policymakers have been forced to make $ I billion in spending
cuts. Unlike in other states, TABOR's limit will not allow those services to be restored; in fiscal year
2006 Colorado is scheduled to refund $459 million to taxpayers while being required to cut an
additional $263 million out of its budget.
Source: Nicholas Johnson and David Bradley, Public Services and TABOR in Colorado, Center on Budget and
Policy Priorities, January 2005.
The Population -Plus -Inflation Benchmark and the Cost of Government
Central to the strictest TELs, such as Colorado's TABOR amendment, and to the new
TEL proposals in other states, is a provision limiting the rate of growth of government spending
to the sum of the population growth rate and the inflation rate, as measured by the Consumer
Price Index -All Urban Consumers (CPI-U). Mathematically, this is equivalent to saying that
government spending per state resident, adjusted for inflation, cannot increase. In calling for the
adoption of strict tax and expenditure limits as a way to limit government, Barry Poulson of the
conservative Americans for Prosperity Foundation (AFPF) notes that to be effective a TEL
should "impose a stringent limit on the revenue that governments can keep and spend, such as
the sum of inflation and population growth."' The model TEL legislation from the American
Legislative Exchange Council, which urges lawmakers to enact conservative policies that reduce
the size of government, also uses a spending growth formula of change in population plus CPI-U.
A casual observer of state finances might believe that such a formula is quite reasonable.
After all, this formula not only allows the public sector to maintain its current level of
expenditures, but allows for some growth in nominal terms. Nevertheless, a one -size -fits -all
population -growth -plus -inflation formula is deeply flawed. Such a formula is likely to hinder the
ability of state governments to continue to provide services at their current levels. A state that
' Barry Poulson, "The Next Generation of Tax and Expenditure Limits," Americans for Prosperity Foundation, May
12, 2004.
truly limited growth in its budget to population growth plus inflation would need to cut back or
eliminate a range of services in most years.
There are several reasons why states cannot provide a constant level of public services
under a population -plus -inflation formula.
No existing measure of inflation — neither the Consumer Price Index nor the GDP
deflator nor any other measure — correctly captures the growth in the cost of the
kinds of services purchased in the public sector. State governments, for instance, are
major purchasers of health care, the costs of which are rising far faster than the
general rate of inflation.
In most states a rising share of the state population is utilizing public services. For
instance, the number of senior citizens in most states is rising faster than the general
population, putting new burdens on programs such as Medicaid 2
States often face the burden of providing new or expanded services for reasons
outside the control of lawmakers. These include court mandates to increase school
funding or other services, response to natural disasters or public health emergencies,
major economic shifts such as plant closings, or other reasons.
In an era of large federal deficits, states are increasingly expected to finance a
substantial share of new domestic priorities. Some of these expectations take the
form of formal mandates, such as the additional education expenditures required
under the No Child Left Behind law. Others may reflect what one analyst has called
"underfunded expectations," such as the expectation that states and local governments
will provide heightened levels of security as part of the war on terrorism.
New public priorities may require new funding from states above and beyond levels
of inflation. Recent state initiatives in areas such as K-12 class size reduction,
prescription drug coverage for seniors, college scholarships for students with high
levels of academic achievement, and other initiatives generally cannot be
accommodated under the population -growth -plus -inflation formula.
It is important to note that all state programs — not just those with cost pressures
exceeding the population -growth -plus -inflation level — are threatened by a rigid population -
growth -plus -inflation limit. This is because such limits typically cover nearly all areas of state
and local spending. So, if one spending area is forced to grow faster than the rate allowed under
the limit (for instance due to court order, federal mandate or popular demand), then another
spending area must grow at a slower pace — which is to say that in terms of the level of service
provided, that second spending area must actually shrink.
a More than two-thirds of Medicaid expenditures are for elderly and disabled beneficiaries (Kaiser Family
Foundation, "United States: Distribution of Medicaid Spending (Federal and State) by Enrollment Group, FFY
2000, available at www.statehealthfacts.ore ). Over 40 percent of Medicaid spending is on services for Medicare
beneficiaries — primarily elderly and disabled (Brian K. Bruen and John Holahan, Shifting the Cost of Dual
Eligibles, Kaiser Commission on Medicaid and the Uninsured, November 2003).
Local Governments and TABOR
Most current state TEL proposals would apply the population plus inflation formula to local
government budgets as well as to those of the state government. This causes two problems for local
governments.
Local governments, like state governments, face costs that tend to rise faster than
population plus inflation, for many of the same reasons: rising health care costs, changing
demographics, and changing and unanticipated needs.
A population -plus -inflation formula at the state level may increase the likelihood that
states will cut aid to local governments, or pass on mandates and responsibilities to
localities without adequate funding, in order to make room for other fast-growing budget
items.
For these reasons, organizations of local governments— which represent elected officials
across the political spectrum — have expressed particular concern about such proposals. For instance,
the National League of Cities has taken a strong stance against Colorado -style TABOR proposals and
the Wisconsin Alliance of Cities has been among the leading voices against a TEL proposal in that
state.
Realistic Budgeting for Public Services
Proponents of TABOR -type tax and expenditure limits sometimes contend that a growth
formula based on population plus inflation would be adequate to maintain public services at a
roughly constant level. But researchers long have recognized that the services provided in the
public sector, such as education, health care, and law enforcement, tend to rise in cost faster than
many other goods and services in the economy in general. This analysis was first put forward by
economist William Baumol, who pointed out that technology and productivity gains may make
goods cheaper to produce, but the services that government provides are different. Baumol said
public services typically rely heavily on well -trained professionals —teachers, police officers,
doctors and nurses, and so on — and technology gains do not make these services cheaper to
provides It may take far fewer workers to build an automobile than it did 30 years ago, but it
still takes one teacher to lead a classroom of children. (In fact, as education has become
increasingly important, the trend is toward more teachers per pupil, not fewer.) Doctors
generally still see patients one by one, and nursing care remains labor intensive despite
technology.
' William J. Baumol, 1967. "Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis." American
Economic Review 57(2), 415-426.
Table 1
Differences in the CPI and Actual State Expenditures
Relative Importance of Major CPI Components,
2003
Spending Categories as a Share of Total State
Own -Source Ex enditures, FY 2003
Housing
42.1
K-12 Education
26.1
Transportation
16.9
Medicaid
13.1
Food and Beverages
15.4
Higher Education
12.9
Medical Care
6.1
Transportation
7.4
Recreation
5.9
Corrections
4.9
Apparel
4.0
Public Assistance
1.5
Other
9.7
Other
34.0
Total
100
Total
100
Source: U.S. Bureau of Labor Statistics, httv://www.bls.gov/coi/eyiri2003.pdf; NASBO 2003 State Expenditure
Report. "Other" state spending includes the State Children's Health Insurance Program.
For this and other reasons, "inflation" as commonly measured does not accurately reflect
growth in the costs to government. The most commonly used measure of inflation and the
measure preferred by those pushing strict tax and expenditure limits 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, governments spend revenue primarily on
education, health care, transportation, and corrections. In short, the market baskets of spending
are entirely different. (See Table 1.)
Because governments purchase services in economic sectors that are less likely to reap
efficiency and productivity gains found in other sectors of the economy, they face a different cost
structure than urban consumers. Table 2 below compares the change in the CPI-U for all items
to components of the CPI-U that are roughly analogous — though not strictly comparable — to
the major categories of states' purchases. While the overall CPI-U increased by 27.3 percent
from 1993 to 2003, costs in the three of the largest categories of government spending increased
by much more. The basket of goods that governments purchase is heavily weighted with items
that have seen significantly greater cost increases in the past decade than the items in the basket
of goods that consumers purchase.
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. Many factors
beyond the control of any one state are causing the rapid growth in these areas. Instead, limiting
For example, the education component of the CPI-U is primarily composed of tuition and fixed fees, while
government spending on education goes toward teacher salaries, student transportation, computer equipment, etc.
Caps Won't Stop Growth in Health Care Costs
When people say state spending is growing "out of control," they often are referring to the
rapid rise in the cost of Medicaid in recent years. But Medicaid is not growing out of control.
Medicaid costs are growing at less than half the rate of growth of private health insurance on a
per -person basis. Medicaid is also more efficient that private insurance, with lower per -person costs.
Growth in Medicaid spending reflects the problem of rising health care costs that is affecting
all health insurance, both private and public. The growth in health care costs is largely driven by
advances in medical technology. It is a major national policy challenge, and only system -wide
approaches to health care costs will address it.
Moreover, Medicaid faces two challenges that private insurers do not.
Increased enrollment during a weak economy, as more people become unemployed or lose
employer coverage.
Filling in gaps in Medicare coverage. More than 40 percent of Medicaid spending is on
services for Medicare beneficiaries — primarily elderly and disabled people. Costs have
been shifting from the wholly federally paid Medicare program to Medicaid as medical
practice has changed, reliance on hospital care has decreased, and patients increasingly
use other services like prescription drugs. (Under the new Medicare law, states will
remain responsible for most of the cost of prescription drugs for the population that is
eligible for Medicare and Medicaid.)
No state can solve these larger problems on its own. Only the federal government can stop the
shift in costs from Medicare to Medicaid. And it will require some combination of the federal
government and the health care industry to bring down the annual rate of increase in health care costs
in the country.
Many states already have, however, taken actions to improve the efficiency of their Medicaid
programs through promoting disease management, managed care, prescription drug cost containment
and similar policies. Beyond that, states have few good options to bring dawn the rate of growth in
Medicaid costs.
Policies such as reducing eligibility or imposing cost sharing on families living at the poverty
line unfairly shift the burden of a system -wide problem onto the most vulnerable members of society.
And such policies are often counterproductive because they increase the ranks of the uninsured. Sick
people cost more when they are uninsured — and receiving care in emergency rooms — than when
they are covered by Medicaid.
state expenditures will cause a sharp drop in the amount of medical care and education services a
state can support, and reduce its quality. This is what has happened in Colorado.s
'Nicholas Johnson and David Bradley, Public Services and TABOR in Colorado, Center on Budget and Policy
Priorities, January, 2005.
Table 2
Inflation Factor
Percent Change, 1993-2003
CPI-U, All Items
27.3
CPI-U, Medical Care
47.5
CPI-U, Medical Care Services
50.8
CPI-U, Prescription Drugs and Medical Supplies
46.3
CPI-U, Education
71.4
CPI-U, Transportation Services
32.8
Source: U.S. Bureau of Labor Statistics.
Note: To provide comparable analysis, comparisons start in 1993, the first year for which education inflation data
are available.
Just as the general rate of inflation fails to capture actual price changes faced by
governments, overall population growth fails to capture changes in the level of need for services.
Table 3 provides a comparison of growth factors affecting government costs. While total
population grew by a total of 15.4 percent from 1990 to 2002, other areas of state budgets that
are the determinants of the need for services and expenditures grew by much larger percentages
during this period. For example, Medicaid enrollment of the expensive -to -serve population of
elderly, blind, and disabled rose nearly 70 percent from 1990 through 2002.
In the future, the growth of subpopulations may take on even greater significance in
determining the cost of providing state services. In particular, the elderly population will be
rising rapidly. According to Census Bureau projections, the share of the population aged 65 and
older is projected to rise from 12.4 percent in 2000 to 20.4 percent in 2040. While the total
population is projected to increase by 39 percent from 2000 to 2040, the population aged 65 and
older is projected to increase by 128 percent during this period. Put another way, while total
population growth is expected to increase at an average annual rate of 0.8 percent from 2000 to
2040, the elderly population is projected to increase at a rate more than double that —1.9
percent.
Table 3
Determinants of Budget Costs
Percent Change, 1990-2002
Population
15.4
State Prison Population
82.8
Vehicle Miles Traveled
33.2
K-12 Enrollment
16.3
Disabled Children in Schools IDEA
34.6
Medicaid Enrollment — Elderly and Blind/Disabled
69.6
Medicaid Enrollment — Children and Adults
80.8
Public University Enrollment*
12.8
Source: U.S. Bureau of the Census, U.S. Bureau of Justice Statistics, U.S. Federal Highway Administration,
National Center for Education Statistics, Centers for Medicare and Medicaid Services. *Data through 2001.
ri
Figure 1
Population -Plus -Inflation Growth Formula Would
Shrink State Governments
g 8.0
cB
0
e 7.5
4
N
m 7.0
al
N
C
a 6.5
� $182.7 Billion
a
N
e 5.0
0
5.5
p -tF Actual State Spending -t State Spending with TEL Since 1990
5.0
"�
H Cip a s s ^ "CO se 4' Gp efl° "CO .^ ,Ao°
° �°' o o°° 'b h 8rL cP�ti ' °
�s h 'b
Source: CBPP ca Wauon of NASBO data.
Note. "Own -Source" spending is the sum of general fund and other state spending.
When TABOR proponents argue that spending limitations will not shrink government,
they imply that the limits will allow government to continue providing services at current levels.
The reality is that spending increases limited to increases in population and general inflation will
result in a reduction of service provision over time. For example, if caseload in the average
program grows just 1 percent faster than general population and the cost of providing public
services on average grows just 1 percent faster than general inflation, within ten years state
government would be providing services to 20 percent fewer people than it would without the
limit, or would be providing a level or quality of services 20 percent lower.
A formula that fails to take into account the cost factors in Tables 2 and 3 would force a
state to scale back public services. Figure 1 shows trends in state own -source spending under
two scenarios — actual spending and spending limited to the growth of population plus CPI.
From 1990 to 2004, total state own -source spending rose slightly, from 6.6 to 7.0 percent of
gross domestic product (GDP). If state own -source spending had been limited to changes in
population plus inflation over this same time period, total spending would have declined from
6.6 to 5.6 percent of GDP 6
6 Spending data for Figure I are from the National Association of State Budget Officers' (NASBO) State
Expenditure Report, various years. "State own -source" spending is the sum of general fund and `other" state
spending. This sum was divided by GDP adjusted for the normal state fiscal year (July -June) to determine state
spending as a percent of GDP. To calculate state spending under a population -plus -inflation TEL, the previous
year's allowable spending limit was multiplied by the sum of the percent growth in population plus inflation. Since
the model starts in 1990, actual (not allowable) spending was used to determine the spending limit in 1991.
Specifically, actual state own -source spending was $375.3 billion in 1990 and the growth in population plus
0
How Might States Cut $162.7 Billion?
If a population -plus -inflation spending limit had been in effect for total state spending
since 1990, state spending in 2004 would have been $631 billion rather than the actual figure of
$793.7 billion. In other words, states would have had to cut $162.7 billion from their annual
budgets. To place that amount in context, $162.7 billion equals:
• 78 percent of all state elementary and secondary school spending, or
All state Medicaid and transportation spending combined, or
• 1.6,times all state higher education spending, or
• 13 times all state public assistance spending, or
4 times all state corrections spending, or
60 percent of all other state spending.
Source: CBPP calculations from NASBO data.
Source: CBPP calculation of NASBO State Expenditure Report data, various years.
If a population -plus -inflation growth formula had been in place in all states from 1990 to
2004, total state own -source expenditure in 2004 would have been $631 billion, which is $162.7
billion, or 21%, less than actual spending in 2004. Public services would have been cut far -
below their current levels. (See box.)
Mandates
There is another basic flaw with the population -plus -growth formula: It fails to take into
account the possibility that court, voter, or federal mandates may require a state to take on new
responsibilities. Mandates, whether internal or external, may increase the responsibilities and
costs borne by the state without any proactive policy change on the part of state lawmakers.
Rigid tax and expenditure limits, such as those based on population change and inflation,
inadequately reflect the potential costs that may be imposed on state and local governments.
Court mandates, particularly for K-12 education funding, in numerous states have
increased costs to state governments in recent years. In the past 35 years, there have been court
challenges to the adequacy and equity of K-12 education funding in 44 states. Courts in
Connecticut, Kentucky, New Hampshire, New Jersey, Ohio, Texas, and Vermont, among others,
required states to make education funding more equitable and/or adequate. These court
mandates resulted in increased state spending on education as states invested greater resources in
poorer school districts and shifted part of the financing of schools from localities to the state.
For example:
inflation from 1990 to 1991 was 5.6 percent. Thus the estimated 1991 total state spending under a population -plus -
inflation growth formula was $375.3 billion x 1.056, or $396 billion. The estimated 1992 figure was then calculated
by multiplying $396 billion by the change in population plus inflation from 1991 to 1992. By 2004, actual state
own -source spending was $793.7 billion while spending under a TEL growth formula would have been $631 billion
— a difference of $162.7 billion. Note that the calculation does not include a ratchet effect such as the one in
Colorado's TABOR.
10
The 1990 Kentucky Education Reform Act (KERA) was passed in response to a state
Supreme Court judgment mandating Kentucky to make its school funding more
adequate and equitable. In order to comply with KERA the Kentucky General
Assembly passed House Bill 940 that generated $532 million in new revenue in fiscal
year 1991.
In New Jersey, the cost of implementing various state Supreme Court orders from the
multiple Abbott cases of the 1990s was estimated to be more than $1 billion in fiscal
2003.
Voter mandates and initiatives have also increased costs to the several states, both
through funded and unfunded initiatives. Ballot measures often do not have dedicated funding
sources or even specific cost estimates. By definition a population -plus -inflation TEL does not
provide funds for policy changes, but only for the current service levels. When confronted with
new voter demands, policymakers must accommodate voter mandates by squeezing funding for
existing programs or by getting voter approval for a tax increase.
In the 1990s voters in California, Oregon, and Washington approved ballot measures
that strengthened sentencing laws, thus increasing these states' incarceration costs.
The Legislative Analyst's Office in California estimated ongoing annual costs to the
state of Proposition 21 (passed in 2000), which primarily strengthened sentencing
laws forjuveniles, of more than $330 million.
In the past decade, voters in several states, including Florida, New Jersey, Ohio, and
Rhode Island approved funding for open space preservation. Voters in Florida passed
Amendment 6 in 1996 to create the Everglades Trust Fund. This Fund did not have a
specified funding source but has spent over half a billion dollars to date. Of the 122
tax financed open space measures on state and local ballots in 2000, 70 percent
passed, indicating a strong desire to spend money for environmental protection.
Beyond internal changes, federal pressures — such as increased demands for states to
improve homeland security or underfunded education mandates — have driven up
costs to state and local governments. Just three underfunded mandates from the
federal government — election reform, education of disabled children, and the No
Child Left Behind law — are costing states around $73 billion from fiscal year 2002
through fiscal year 2005.
States are also shouldering a larger share of health care costs for low-income people
because of the cost shift from Medicare (a federal program) to Medicaid (a joint program in
which states bear an average of 43 percent of the costs). States are expected to spend around $28
billion in state and local funds from fiscal year 2002 through fiscal year 2005 to provide
prescription drugs to low-income elderly and disabled beneficiaries eligible for Medicare and
Medicaid. While the new Medicare law enacted in 2003 will cover under Medicare some of the
cost of prescription drugs for all Medicare beneficiaries beginning in 2006, states will not realize
'New Jersey Office of Legislative Services, See hnp://www.njleg.state.nj.us/legislativepub/budget/educ04.pdf.
11
substantial savings. The new law includes an unprecedented provision that will require states to
reimburse the federal government for most of the cost of prescription drug coverage for
individuals who are eligible for Medicaid as well as Medicare.
The interaction between federal unfunded mandates and underfunded expectations and
strict state tax and expenditure limitations may impede the ability of states to implement their
own citizens' policy priorities. If states do not exempt all federal mandates from TEL
limitations, any additional cost imposed from the U.S. government will necessarily cut the
revenue available for in -state programs. As noted above, if one spending area must grow faster
than the rate allowed under the limit due to a federal mandate or "underfunded expectations,"
then another spending area must grow at a slower pace to accommodate the TEL caps.
New Initiatives
State governments need to be able to change with the times. What is considered an
adequate level of public services at one point in time may seem inadequate 30 years later. Voters
and legislators may adjust their policy preferences to improve or expand government investment
and program coverage. In the 1990s, there were a number of examples of such changing policy
preferences:
Recognizing the positiveeffects of smaller class sizes on educational outcomes, a
number of states including California, Maryland, Nevada, New Mexico, Tennessee,
Utah, and West Virginia, enacted measures in the 1990s to reduce class sizes. This is
a costly policy.
In recognition of the increasing importance of a well-educated workforce and the
desire to attract and retain college -bound students, a number of states have
implemented or increased merit and need -based scholarship programs for college
students since the 1990s, including California, Florida, Georgia, Texas, and Virginia.
The Institute for Higher Education Policy estimates that Florida, Texas, and Virginia
each increased state grant aid per student by more than 100 percent (in inflation -
adjusted terms) in the 1990s.
In the 1990s, nearly every state expanded health care for children in recognition of
the high levels of uninsured children and the availability of federal matching dollars.
For example, MinnesotaCare was established in 1992 to provide health insurance for
low- and moderate -income people who do not otherwise have access to health
insurance. The program has grown from an average monthly enrollment of 22,896 in
1992 to 137,936 in 2002, while state funding has risen from $6.9 million in 1992 to
$194.6 million in 2002.
Ifd
The Slow Squeeze of a TEL Formula
It may be a period of time — years, even decades — before the reductions in public services
shown elsewhere in this paper as a consequence of a strict TEL actually result in reduced services and even longer, perhaps, before a decline in the quality of life becomes apparent. There are
several reasons to expect such delayed impacts.
• Spending limits typically rise at a rate only slightly lower than the cost of providing
services, perhaps a difference of one or two percentage points. Over time, however, the
difference grows dramatically. A one- or two -percentage point difference every year can
translate into a 13 to 26 percent gap over the course of a dozen years.
• Short-term deferrals can become long-term problems. Any time that a state needs to cut
spending, it looks first to cut items that can be deleted without a short -run impact on the
provision of services. For example, states may defer routine maintenance items, capital
improvements, staff training, or other investments in infrastructure or workforce. Such
changes may help balance budgets in the short run, but can be costly in the long run.
• Accounting maneuvers are only effective in the short -run. Even under a tightly worded
limitation, policymakers may be able to find a way to push spending into a future fiscal
year in order to avoid the caps — a strategy that defers but cannot avert the financing
squeeze. For several years under its revenue limit, for instance, Colorado accounted for
tax rebates in the fiscal year following the year in which revenues exceeded the limit — a
strategy that worked as long as revenue collections remained strong, but which led to even
greater budget cuts when revenue collections slowed in the recession.
Fluctuations in the formula itself may provide unexpected "room" in some years.
Colorado's spending formula is based on population growth plus the Denver -area inflation
rate. As it happens, local consumer prices — particularly the cost of housing — rose
rapidly in the mid-1990s due to a Denver -area housing crunch. So it was not until 1997
that state revenues even began to hit up against the limit. Of course, the opposite can
happen also: in a housing slump, consumer prices might hardly rise at all, further holding
down the limit.
When public expenditures are investments, it may take many years for the harm from lack
of investment to be evident. Much state spending is intended to have long -tern impacts.
Studies show, for instance, that early childhood spending has great benefits for a state that
do not begin to show up for many years. Infrastructure spending is another example.
Certain spending, therefore may not affect a state's quality of life for decades.
Unanticipated Needs
State governments inevitably face spending needs that cannot be anticipated. Natural
disasters, public health emergencies, economic changes, and other such occurrences place
expensive but unexpected demands on state and local governments. In the last few years, for
instance, states have faced:
13
New homeland security requirements. In the wake of the September 11, 2001
terrorist attacks, most states and local governments increased spending on homeland
security. Although there has been some additional federal aid, most analysts estimate
that local and state governments are spending more on homeland security than is
covered by the federal aid.
Natural disasters. Hurricane -related damages and costs to local governments in
Florida from hurricanes Charley, Frances, Ivan, and Jeanne, for example, are
estimated at least $2 billion. Despite federal assistance in the wake of natural
disasters, state and local governments still shoulder significant costs.
Economic problems. Unexpected economic dislocation from problems such as plant
closings has cost implications for state and local governments. The loss of nearly 3
million manufacturing jobs since the start of the recession in March 2001 has eroded
tax revenue and increased the need for public resources.
Conclusion
Formulaic tax and expenditure limits are bad public policy. Tax and spending limits
based on population changes and inflation will hinder significantly the ability of state and local
governments to cope with unanticipated changes, initiate policy changes, accommodate voter
and court mandates, or even maintain current service levels. Evidence in this paper should give
policymakers pause before replacing deliberative, legislative budget processes with inflexible,
constitutionally -based formulas.
14
Center on
""'"--
.aa...:.
Budget
NOF Aaaa.
or Bongo
" '""'
of lag...
of laa...
and Policy
Eli �aaaaa
Priorities
April 25, 2006
820 First Street NE, Suite 510
Washington, DC 20002
Tel: 202-408-1080
Fax 202-408-1056
center@ebpp.org
w .cbpp.org
A "SUPER" BAD IDEA -
Requiring a Two-thirds Legislative Supermajority to Raise Taxes
Protects Special Interest Tax Breaks and Gives Budget Veto
Power to a Small Minority of Legislators
By Nicholas Johnson
Summary
Enactment of state legislation normally requires approval by a majority vote in each house of the
legislature plus the governor's signature. Anti -tax activists in Kansas, however, are proposing to
require a two-thirds supermajoriry vote of each house of the state legislature plus the governor's
signature in order to enact any bill that includes a tax increase.
Such a supermajority requirement would be deeply flawed.
Tax breaks, even those narrowly targeted to special interests that fail to serve the public interest,
would gain additional protection under the amendment because ending the tax break would be
considered a "tax increase." In addition, tax breaks enacted at the federal level that
automatically lower Kansas taxes, even those that do not benefit Kansas residents, would be
extremely difficult to remove from the Kansas code because their removal would be considered
a tax increase subject to the two-thirds vote requirement.
A supermajority requirement would increase the power of a small minority of legislators. In
years in which a tax increase is necessary to balance the budget — for example, because of a
recession, natural disaster, or other unforeseen circumstance — a small number of Kansas
legislators in either house (42 of 125 representatives, or 14 of 40 senators) could prevent the
majority from enacting a balanced budget. This minority could use its veto power to extract
special favors or projects; evidence from other states such as California suggests that a
supermajority requirement increases pork barrel spending. Or they could effectively shut down
the budgeting process if their demands were not met.
• A supermajority requirement would have its largest impact during economic downturns.
Kansas is required to balance its budget each year. During a recession, when state budget
deficits must be closed, the most evenhanded way to do so usually involves a mix of
4-25-ossfp.d.�
expenditure cuts and tax increases. Excluding revenue increases as a budget -balancing strategy
would make the task of balancing the budget much more difficult, and would necessitate even
larger service reductions than would otherwise be required.
A supermajority amendment would increase uncertainty, and perhaps judicial intervention in
state budget decisions. For instance, the dividing line between "tax" increases and "fee"
increases is not always clear. The legislature might, for example, balance the budget with what it
considered a fee increase not subject to the supermajority rule, only to have a judge disallow the
fee increase because it is detem-tined to be a tax that should have required a two-thirds majority
— and thereby throw the budget out of balance mid -year.
Kansas policymakers have historically shown great reluctance to raise state taxes, suggesting a
supermajority requirement is quite unnecessary. Tax burdens relative to income in Kansas have
changed little in the last 30 pears. Like most other states, Kansas cut taxes in the late 1990s and
raised them in the early 2000s. But Kansas remains an average -tax state.
Enactment of a supermajority requirement would move Kansas along a path toward, even more
restrictive limits on legislative fiscal flexibility and accountability. In several states with
supermajority requirements, including Arizona, California, Nevada, Oklahoma, and Oregon,
political supporters of the requirement have used it as a steppingstone toward promoting such
measures as a Colotado-style TABOR. A campaign for a supermajority requirementbecomes
merely one step in a multi -year campaign designed to severely restrict the ability of the
legislature to meet the state's needs.
The Amendment Would Make It Dt flcuit to Close Tax Loopholes
The requirement for a two-thirds supermajority would apply not only to measures to raise tax
rates but also to measures to reduce or eliminate unproductive tax breaks that have been enacted in
earlier years. These so-called "tax expenditures" grant narrow, often unproductive subsidies to
powerful special interests, and often persist in the tax code even when they no longer have a valid
policy purpose. Such "tax expenditures" can be very valuable for specific individuals, corporations,
or industries who lobby for them, but they have the effect of driving up tax rates for everyone else
in order to compensate for the lost revenue.
California's experience with a constitutional supermajority requirement for raising taxes bears out
this concern. The California Citizens Budget Commission, a distinguished bipartisan panel of
business and community leaders formed in 1993 to study the state's budget problems, reported that
the state's supermajority requirement "makes it relatively easy to enact tax breaks but difficult to
repeal them." The Commission recommended the state Constitution be changed to allow the
legislature to narrow or eliminate tax breaks by a simple majority vote, so that it would be as easy to
eliminate tax breaks as to create them.'
A particular problem might result if Kansas were to enact a tax break that turned out to be far
more expensive than originally thought. Such an error is uncommon but far from unheard-of; in
' A 21" Century Budget Process for Cai tomie: Recommendations of the C81#16mia Citizens Budget Commission (Los Angeles, Center for
Governmental Studies, 1998).
Legal Scholar Warns of Perverse Effects, Including Increased
Difficulty in Stanching Unintended Revenue Losses
At the federal level, a similar two -thuds requirement has been considered and rejected by Congress
several times in the last decade. In testimony before the Subcommittee on the Constitution of the
House Judiciary Committee on March 1 S, 1997, Samuel C. Thompson, then Dean of the University of
Miami Law School, warned of potential perverse consequences from a constitutional amendment
requiring a supemtajority vote to raise revenues. Thompson stated:
"[The amendment] will have the effect of making it much harder for Congress to close tax loopholes,
because any such legislation could be blocked with a mere 34 percent vote in either house of Congress....
"The core problem with this proposed constitutional amendment is that it would give special interest
groups the upper hand in the tax legislative process. Once a group of taxpayers receives either a planned
or unplanned tax benefit with a simple majority vote of both houses of Congress, the group will then be
able to preserve that tax benefit with just a 34 percent vote in one house of Congress. Thus this
amendment would create an unlevel playing field in the tax legislative process.
"Indeed, I believe that if enacted this amendment would become known as the `Tax Loophole
Preservation Amendment to the Constitution." "
Thompson has served in the Treasury Department's Office of Tax Legislative Counsel and has taught tax law at
UCLA, the University of Chicago, the University of Miami (serving as Dean of the Law School), Northwestern
University, the University of Virginia, and Yale University.
recent years, states as diverse as Arizona and Maryland have made headlines by enacting tax credits
that tamed out to be far easier to claim — and therefore had far greater impact on the state treasury
— than was originally intended when the credit was enacted. (In Arizona's case, it was a tax credit
for low -emission vehicles; in Maryland's case, it was a tax credit for historic preservation.) Under a
supetmajority requirement, reversing or tightening up the rules for the credit would require a two-
thirds vote. The history in other states such as California suggests that could be difficult to obtain.
Federal tax policy changes could become highly problematic for Kansas under a supermajority
requirement; the supemtajority requirement could sap Kansas's ability to make judgments on
revenue issues that differ with federal policy. Kansas' personal income tax and corporate income tax
are tied automatically to the federal definitions of adjusted gross income and taxable income. This
means that when Congress enacts a measure that reduces the income tax base, it automatically flows
through to reduce Kansas revenues, unless Kansas specifically acts to "decouple" from that
provision.
For example, the federal government is now phasing -in a tax break known as the "qualified
production activities income" deduction. This tax break will have negligible economic benefits at
the state level, because multistate corporations can claim the tax break for either in -state or out-of-
state investments. But states that conform to it will lose substantial revenue (an estimated $12
million to $16 million per year in Kansas, for example). Some 19 states have already chosen to
decouple their tax codes from this deduction.' In Kansas, however, such an adjustment would
2 Elizabeth McNichol and Nicholas Johnson, States Are Deroupk'ag From The Federal,Qu4fiied
3
require a supermajority under the amendment, because it would technically be a tax increase. It is
not clear why such a federally enacted tax break should enjoy such an extraordinary level of
protection.
The federal government is considering new tax breaks to corporations that invest in the portions
of the Gulf Coast affected by Hurricane Katrina. As a result, some corporations with Kansas
operations that invest in Louisiana, Mississippi or Alabama would receive a break on their federal
taxes, and by extension on their Kansas taxes as well. With a supetmajority requirement, Kansas
lawmakers would find it more difficult to prevent such tax breaks for non -Kansas investments from
reducing the,services Kansas can afford for its own residents.
The Amendment Would Empower a Minority of Legislators
Balancing a state budget is a challenge, particularly during difficult economic times. A
superrnajority requirement would make it even harder, because a budget that included any revenue -
raising measures could be blocked by just 42 of the state's 125 House members or 14 of 40 Senators.
This would give unusual level power to a small number of legislators.
The task of persuading two-thirds of each house of the legislator to support tax changes is made
still more difficult by the decision by several Kansas legislators to take a "no -taxes" pledge.
Americans for Tax Reform, an anti -tax group, reports that as of October 2005, 10 members of the
Kansas Senate and 21 members of the Kansas House have signed a pledge to "oppose and vote
against any and all efforts to increase taxes."' These pledges do not allow exceptions for any
circumstances. Were those pledge signers (or a comparable number of pledge signers in a future
legislature) to stand by their commitment, a tax increase would require 27 of the remaining 30
senators and 84 of the remaining 104 representatives.
The Amendment Could Make It Difficult to Finance Transportation Projects
In Kansas, most highway and other transportation projects are funded through the State Highway
Fund , which in turn is funded largely by state gasoline taxes. Kansas gasoline tax rates are not
indexed for inflation, but highway -construction costs inevitably rise over time. As a result, gasoline
tax rates must be periodically increased just to keep up with construction costs. Kansas enacted
gasoline tax increases in 1999 and again in 2002 to pay for highway projects.
A supermajority requirement would make it substantially more difficult to finance road projects,
even those with broad support. A small number of legislators in either house of the legislature — for
instance, a coalition of anti -tax conservatives and anti -highway environmentalists, drawn from the
extremes of the political spectrum — could block measures that otherwise command broad support.
Pmdue ionActitities Income"Deduction, Center on Budget and Policy Priorities, http://w .cbpp.org/9-14-05sfp.htm.
3 Americans for Tax Reform, "Pledge Signers Update," 1=://w .atr.org/content/pdf/2005/oct/10140512r-state-
pledge-sieners.odf (accessed October 20,.2005).
The Amendment Could Increase Pressures for Pork -barrel Projects
The proposed supermajority requirement could result in the expansion of special -interest projects.
The two-thirds requirement would empower individual legislators to demand state funding for pet
projects in return for agreeing to provide the necessary votes so legislation containing revenue -
raising measures could obtain two-thirds support and pass. To be sure, such vote -swapping can
occur whether revenue -raising measures require a simple majority or a supermajority. But as the
California Citizens Budget Commission noted, the degree of vote -swapping tends to intensify as the
level of difficulty needed to obtain the necessary votes to pass a budget increases. The level of
difficulty is much greater when a two-thirds, supermajotity is required.
The Commission found evidence that California's requirement for a two-thirds majority to pass
budgets has led to enactment of substantial "pork -barrel" legislation that individual legislators have
promoted.; Supermajority requirements present legislators with tempting opportunities to threaten
to block revenue -raising measures that a majority favors unless the majority accepts various pet
projects or programs these legislators are pushing.
The Amendment Would Hinder Balanced Budget Decisions During Economic Downturns
States are required to balance their budgets. As a result, many states cut taxes and expand the
provision of public services during economic expansions as their tax bases expand, and many states
increase taxes and reduce services during economic downturns as their tax bases shrink. The ability
to consider both sides of the budgetary ledger — taxes and spending — gives legislators room to
utilize a wide range of strategies in order to best meet the needs of their constituents during good
times and bad.
During a recession, when state budget deficits must be closed, the most evenhanded way to do so
usually involves a mix of spending cuts and tax increases. Most state governments — including those
controlled by Republicans, those controlled by Democrats, and those with mixed party leadership --
follow this approach. In both the economic downturn of the early 1990s and that of the early
2000s, for instance, a majority of states raised taxes as well as reduced expenditures.
Under a supermajority requirement, a budget that is balanced entirely with spending cuts would
require only a simple majority of each house of the legislature, while a budget that relies both on
spending cuts and on tax increases to achieve balance would require a two-thirds vote of each house.
The most likely outcome in a difficult budget year would be a budget in which the entire burden of
compensating for the reduced revenues and increases costs that occur during a recession is met
through reductions in state services.
Relying entirely on spending cuts to balance the budget would mean that the cuts would be deeper
than they would be under a more balanced approach, with likely adverse consequences for public K-
12 schools, health care, universities, transportation, and public safety (which are the major spending
items in the Kansas budget).
4 Reforrning California's Budget Process: Preliminary Report and Recommendations of the California Citizens Budget Commission, (Los
Angeles: Center for Govemmental Studies, 1995), pp. 43-47.
Supermajority Rules Invite Judicial Intervention
A supermajority amendment would increase uncertainty and perhaps judicial intervention in state
budget decisions. For instance, the dividing line between "tax" increases and "fee" increases is not
always clear. A simple majority of each house of the legislature might, for example, balance the
budget with what it considered a fee increase not subject to the supermajority rule. A taxpayer
might then challenge the fee increase as violating the supermajority rule. At best, such a challenge
would throw the validity of the budget into doubt; at worst, a judge could disallow the fee increase
and potentially throw the budget out of balance mid -year.
Taxes in Kansas Have Been Flat for Thirty Years and Are Average Among the 50 States.
The argument for a supermajority requirement appears to rest on the premise that an
extraordinary rules must be enacted to head off Kansas lawmakers' predilection for tax increases. In
fact, there is no evidence that Kansas policymakers are particularly prone to raising taxes. Like most,
states, Kansas has cut taxes during economic expansions and increased them during economic
downturns. Overall, total taxes in Kansas have changed little as a share of the economy since 1970.
This suggests that Kansas lawmakers probably represent the views of their constituents, who appear
to desire a reasonable tax burden that is sufficient to pay for adequate public services.
State and local taxes in Kansas have been virtually unchanged as a share of the economy over the
last 35 years. Kansas tax collections in 2005 equaled 11.8 percent of personal income, the same level
as they were in 1970 and approximately the same level as they were in 1980, 1990, and each of the
last ten years, according to data from the Kansas Department of Revenue.
Kansas presently collects a level of revenue that is average among the 50 states. Using the latest
available U.S. Census Bureau data, the Rockefeller Institute of Government finds Kansas has the
26s' highest level of state and local taxes per capita among the 50 states. Kansas also has the 26's
highest level of state and local taxes as a share of personal income. (These Census data are
recognized widely as the only comprehensive survey of state and local government finances that
allows for state -to -state comparisons.) Using a slightly broader measure — total general revenue --
Kansas is below average with the 34s' highest level of total state and local general revenue per capita
and the 35'' highest level of total state and local general revenue as a share of personal income.5
A Supermajority Requirement May Place a State on a Path Toward Even More Restrictive
Limitations Such as TABOR.
A supermajority requirement could move Kansas in the direction of enacting a full-fledged
"Taxpayers' Bill of Rights" or "TABOR" amendment like the one that was enacted in Colorado in
1992. In Colorado, TABOR, has led to declines in funding for K-12 schools, higher education,
health and hospitals, among other areas.
5 Rockefeller Institute of Government, "State Fiscal Rankings," ham://rfs.rockinst.org/data/fiscal (accessed October 21,
2005).
TABOR supporters favor a supermajority requirement if they cannot enact TABOR this year, as a
second-best policy. It is tempting to believe that by enacting a constitutional amendment that is not
as extreme as TABOR, such as the proposed supermajority requirement, Kansas might in the longer
term avert a more restrictive limit such as TABOR This is not likely to be the case, and in fact the
reverse may be true.
The experiences of states like Arizona, California, Nevada, Oklahoma, and Oregon — each of
which already has a supermajority requirement to raise taxes — are instructive. In each case, political
supporters of a supermajority requirement have been strengthened by their success and have used
that additional strength to build momentum for even more restrictive limits. Indeed, three of those
states (Nevada, Oklahoma, and Oregon) presently face strong movements to enact Colorado -style
TABOR limits. In each of those states, the campaign for a supermajority requirement appears to
have been merely one step in a multi -year campaign designed to severely restrict the legislature's
flexibility and capacity to enact appropriate tax policies.