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Structure of State-Level Tax and Expenditure Limits------4

aSourced from a comprehensive review of constitutional and statutory provisions.
Notes to Table 2.
bCalifornia’s voter approved Proposition 111 changed the states appropriation limit from one of population plus inﬂation to one of per capita personal income growth plus changes in population. The limit also adjusted all expenditures related to K-12 and community colleges with an additional factor equal to the percentage change in the total statewide average daily attendance.
cColorado has two limitsFvoter approved population growth plus inﬂation revenue limit and a statutory restriction on growth in general fund expenditures
(6%). Before the state’s 1991 statutory limit on general fund spending, the state had a 7% limit on growth in general fund spending in place since 1977. Colorado’s refund requirement was temporarily suspended in 2005. This provision is expected to expire in 2010.
dConnecticut’s voter approved referenda is equivalent to their legislatively authorized TEL. The constitutional TEL requires that the General Assembly
statutorily deﬁne the growth restriction. The state, however, has never passed a vote deﬁning the restriction by law. The constitutional limit has never been imposed.
eLouisiana has two limitationsFa statutory revenue limit (La. R.S. 47:5001 to 5010.) and an voter approved expenditure limit (1993). The statutory revenue
limit was repealed in 2001.
fIf Maine ranks among the top one third of states, then the ﬁscal growth factor is equal to the average real personal income growth plus average population growth; however, real personal income growth cannot exceed 2.75%. If the state ranks in the middle one-third of states, the ﬁscal growth factor is equal to the average real personal income growth plus average population growth.
gMontana recently suspended its limit on expenditures. The Attorney General of the state rendered an opinion that ‘‘[t]he enactment of Mont. Code Ann. 17-8-
106 [the expenditure limit] by the 1981 legislature placed no enforceable limits on the spending power of a subsequent legislature’’ (correspondence with Legislative
Analyst on ﬁle with the author).
hOklahoma is the only state to limit appropriations in the next ﬁscal year to the amounts appropriated in the current year with adjustments for changes in price and an allowable growth in spending of 12%. Appropriations, however, cannot exceed 95% of estimated revenues.
iOregon amended its 1979 personal income growth rate (based on personal income growth for the preceding two years) to a growth restriction that limits
expenditures to be no greater than 8% of projected personal income in Oregon for the same biennium.
jUtah’s statutory code ‘‘placed limitations based upon the average changes in personal income and the combined changes in population and inﬂation’’ (Section
63-38c-102). In 2004, the state amended its limitation to ‘‘combined changes in population and inﬂation.’’
kWashington initially had a revenue limit (enacted 1979) that had a ﬁscal growth factor of the state’s three year average personal income growth that was replaced by an expenditure limit (1993) that was based on population growth plus population. In 2005, the state amended the ﬁscal growth factor for its expenditure limit to one based on the 10-year average of personal income effective FY 2007.
Rev, Revenues; Exp, Expenditures; App, Appropriations on Revenue Estimate; Con, Constitutional; Stat, Statutory; Con & Stat, Constitutional with additional statutory provisions; Leg. Amend, Legislative Amendment; Leg. Vote, Legislative Vote; Initiative (DA), Direct Constitutional Initiative; Initiative (DS), Direct Statutory Initiative; Initiative (IDS), Indirect Statutory Initiative.

budget stabilization fund (BSF), or used for purposes as provided by law. In Delaware, Iowa, Mississippi, Oklahoma, and Rhode Island the limitation is on estimated revenues. For these states, the limits are not constraints on growth in revenues but rather ensure the budget is balanced at the end of the ﬁscal year by appropriating an amount less than expected revenues (generally 95 up to 99 percent). Given that these limits are not directly indexed to any socio-economic factors, they are considered to be the least restrictive. Table 2 provides a summary of TEL provisions across the 31 states. It includes the year the limit was approved, the approval method and codiﬁcation (including source), the base classiﬁcation widely used in the public ﬁnance literature, the ﬁscal growth factor, the treatment of surplus revenues and the limits override provisions.

METHODS OF APPROVAL, CODIFICATION, AND AMENDMENT

Scholars generally consider that the most important provisions to be the TEL’s base (revenues or expenditures), method of approval (voter initiative, referendum, or a leg- islative vote), and institutional codiﬁcation (constitutional or statutory). Typically TELs are approved by voters after a measure is proposed by a citizen’s initiative, referred to them by their legislature, or approved by a simple majority vote of the legislature (see Table 2).39 Of the 33 TELs, only six were voter-initiated measures. Four of these six measures were constitutional amendments (California, 1979; Colorado, 1992; Michigan,
1978; and Missouri, 1981) while the other two measures (Washington, 1979; Massachu- setts, 1986) were statutory measures initiated and approved by voters but subject to legislative approval as well. Eleven of the 33 TELs were drafted by the legislature and approved by voters as an amendment to the state’s constitution.40 However, a vast majority of the tax limits are statutory limits.41
Scholars argue that statutory TELs do not constrain spending because the legislature lacks the incentive to place any meaningful constraint on its behavior. They further argue that statutory TELs are a preemptive move to forestall any voter action.42 While the leg- islature can claim credit in the short term, they are more likely to insert a variety of loopholes that would undermine the TELs effectiveness over the long term.43 Besides,

39. The initiative process allows citizens to amend their constitutions (18 states) or their statutes (21 states)Feither directly without seeking the approval of the legislature, or indirectly, after the legislature has had the opportunity to review and approve the measures (see //www.iandrinstitute.org/Quick%20Fact- Handouts.htm: accessed June 8, 2009).
40. Alaska, Arizona, California, Delaware, Florida, Hawaii, Louisiana, Oklahoma, Rhode Island, South Carolina, Tennessee, and Texas.
41. 16 statesFColorado (expenditure limit), Connecticut, Iowa, Idaho, Indiana, Louisiana (revenue limit, repealed 2001), Maine, Mississippi, Montana, North Carolina, New Jersey, New York, Ohio, Or- egon, Utah, and Wisconsin.
42. See D. R. Mullins and B. A. Wallin, ‘‘Tax and Expenditure Limitations: Introduction and Over- view,’’ Public Budgeting and Finance 24, no. 4 (2004): 2–15.
43. Poulson and Kaplan (1994).

58 Public Budgeting & Finance / Summer 2011

statutory limits are easily modiﬁed or circumvented by the legislature, as a simple majority vote is all that is necessary to change them. Constitutional limits, on the other hand, are drafted by groups and individuals who have an actual interest in limiting taxing or spending. As a result, these measures are likely to be both more stringent and more effective. While it is generally thought that TELs proposed and approved by voters are the most restrictive, given the extraordinary processes required to amend a state’s constitution, a number of consti- tutional TELs provide the legislature with substantial discretion.44 Moreover, states amend their constitutions often and effortlessly; once enacted, however, constitutional provisions can be very difﬁcult to remove, no matter how antiquated the provision maybe.45
An extensive review of the laws ﬁnds that a large number of the limits are still in their original formFthis is contrary to much of the discussion as to why the limits are ineffective.46 Some well-known changes to the legal provisions were proposed by legislators and approved by voters in California in a series of measures, the most notable being Proposition 111 (or Prop. 111).47 Prop. 111 modiﬁed the two components used to determine the state’s ﬁscal growth factor by replacing the change in price factor with one equal to the change in California’s per capita personal income and also modifying the change in population factor to one equal to the change in state-wide attendance in public schools and community colleges (for all education spending) or the change in state-wide population (for all other expenditures subject to the limit).48
The State of Washington legislature has amended its voter initiated statutory measure on several occasions. Most notable is the legislature’s amendment of its initial personal income ﬁscal growth factor to one equal to population growth plus inﬂation in 1993. In 2005, the legislature approved a measure that rescinded this amendment (effective 2007). Utah also

44. In South Carolina, Tennessee, Connecticut, Hawaii and Texas, the constitutional provisions re- quire the General Assembly to deﬁne the ﬁscal growth factor.
45. See S. E. Sterk, and E. S. Goldman, Controlling Legislative Shortsightedness: The Effect of
Constitutional Debt Limitations. Wisconsin Law Review, 1991: 1301–1367.
46. This discussion is limited to only amendments to the ﬁscal growth factor, revenues or expenditures subject to the limit and how the appropriation limit is estimated. It excludes amendments in the statutes that refer to the state’s use of the override provisions that are also included in the TEL laws (see Tennessee Code Ann. 9-4-5203 (e)).
47. The three voter approved amendments include Proposition 98, 99, and 111. Proposition 98 (1988) required any excess revenues to be distributed to public schools and community colleges rather than returned to taxpayers (funds were limited to 4 percent of minimum school funding, all remaining funds would be rebated to taxpayers). Proposition 99 (1998) allowed all revenues from the tobacco surtax to be excluded from the limit. Proposition 98 and 99 also altered the revenues and expenditures subject to the limit (see Cal Const, Art. XIII B Sec. 8. (e) through (f)).
48. Cal Const, Art. XIII B Sec. 8. (f) ‘‘Change in population’’ of the State shall be determined by adding (1) the percentage change in the State’s population multiplied by the percentage of the State’s budget in the prior ﬁscal year that is expended for other than educational purposes for kindergarten and grades one to 12, inclusive, and the community colleges, and (2) the percentage change in the total statewide average daily attendance in kindergarten and grades one to 12, inclusive, and the community colleges, multiplied by the percentage of the State’s budget in the prior ﬁscal year that is expended for educational purposes for kin- dergarten and grades one to 12, inclusive, and the community colleges.’’ (Emphasis added).

Kioko / Structure of State-Level TELs 59

amended its ﬁscal growth factor in 2004 to correctly approximate its ﬁscal growth factor.49
Rhode Island recently amended its limitation by gradually reducing its percent of estimated revenues from 98 percent down to 97 percent and increasing its BSF reserves from 3.4 to 5 percent of estimated revenues effective in 2013. For a few states, the amendments were intended to reﬁne the structure of the limit. Louisiana, for example, repealed its ambiguous revenue limit in 2001 while retaining its voter approved expenditure limit. Oregon also amended its limit by redeﬁning its coverage and ﬁscal growth factor.
In 1991, a year before the Colorado taxpayers approved the TABOR; the legislature approved the Arveschoug-Bird limit, which amended its general fund appropriations limit to the lesser of 5 percent of Colorado’s personal income or 6 percent over the total state general fund appropriations for the previous ﬁscal year (previously set at 7 percent over appropriations for the previous year). While the legislature could amend or suspend any statutory limitation, the passage of the TABOR required all limits applied on revenues, expenditures, and debt be amended by voter approval only. The TABOR also imposed a second limit, a growth restriction on its revenues equal to population growth plus inﬂation. This limit also required all excess revenues to be refunded to taxpayers. Following the recession that began in 2001, the legislature drafted and voters approved a measure that suspended the state’s refund requirement (herein Referendum C effective
2005–2010). This past November, voters overwhelmingly rejected measures that would place signiﬁcant limits on state and local government spending authority including one measure that would require school districts to cut property taxes in half and repeal a variety of other tax provisions,50 a second measure that would have prohibited the state from issuing any kind of debt,51 and a third measure that would drastically reduce a wide range of state and local taxes and fees.52
While the TABOR has been touted as the quintessential limit on government spend- ing, widespread support for such a tax limit has not been forthcoming. In the 2006 legislative sessions, for example, there were 15 TABOR proposals that either failed to meet the signature requirement, died in committee, or were defeated at the ballot box.53
In 2009, voters in Maine for a second time rejected a TABOR like voter-initiated mea- sure that proposed to limit growth in spending to population growth plus inﬂation and

49. Utah’s statutes ‘‘placed limitations based upon the average changes in personal income and the combined changes in population and inﬂation’’ (Section 63-38c-102). This limit was amended to only ‘‘com- bined changes in population and inﬂation’’ in 2004.
50. Proposition 101 was rejected by voters 67.68 percent to 32.32 percent. For more details see //
//www.thebell.org/node/3724: accessed June 3, 2010.
51. Proposition 61 was rejected by voters 72.99 percent to 29.01 percent. It was a constitutional measure that would ban the state from issuing debt of any kind (including revenue bonds, certiﬁcates of participation, tax anticipation notes, or borrowing by any other name. For more details see // //www.thebell.org/node/3501: accessed June 3, 2010).
52. See //www.thebell.org/node/3513: accessed June 3, 2010. This measure was rejected 75.48 per- cent to 24.52 percent.
53. Supra note 3.

60 Public Budgeting & Finance / Summer 2011

required voter approval for any changes to the limit laws. Perhaps this reﬂects voters’
apprehension about the possible impact of a TABOR on public services.
While much consideration has been given to the approval process and codiﬁcation, these factors tell us nothing about how the limits actually work. Our discussion thus far only serves to provide some historical context. In the following section, we focus on the technical pro- visions we believe would enhance the explanatory powers of the current TELs. Generally, states do not change how they estimate their cap except in the case of an amendment to the laws (as aforementioned) or when a judicial interpretation deviates from current practices. In estimating their spending caps, states generally have to (1) estimate all revenues or expen- ditures subject to the limit, then (2) apply the ﬁscal growth factor, in order to (3) estimate their appropriation limit. These are the most critical technical elements in any TEL law.

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