6-92 March 25, 1992 COMPETING VISIONS OF TAX LIMITATION FOR 1992 A Policymaker's Guide and Economist's Backgrounder by Associates of the Independence Institute A Scorecard and Detailed Survey on HB 1262, the CACI Plan, and the TABOR Plan Evaluating the Three Proposals for Slower Government Growth By Vern Bickel A new law, and three proposals to amend the constitution, are this year’s manifestation of a pattern of increasing citizen discontent over high taxes and rapidly growing government in Colorado since 1986. Initiatives to limit taxes and government growth to a formula of growth no faster than Colorado paychecks (tax-expenditure limita- tions, or TELs) have been attracting greater and greater support at each election ~— 38% of the vote in 1986, 42% in 1988, 49% in 1990. This latest near-victory of a spending limitation, which would also have required voter approval of all tax increases, prompted the General Assembly last year to adopt its own statutory TEL, HB 1262, in an effort to head off another citizen initiative in 1992. Legislative activity has continued this year with Rep. Steve Arveschoug and Sen. Larry Trujillo proposing a referred constitutional amendment to expand and supersede all provisions of HB 1262. But this measure, HCR 1002, appears dead after losing narrowly in the House in late March, Meanwhile the Colorado Association of Commerce and Industry (CACD), is finalizing a proposed amend-(Continued on Page 2) Fiscal Constitution Must Recognize What Makes Politicians Tick and Taxes Rise... How Colorado Can Put Teeth in its Tax-Expenditure Limits By Barry Poulson A.critical evaluation of the proposed reforms Of the Colorado tax-expenditure limit (TEL) presupposes some criteria as the basis for such an evaluation, These criteria, in tun, must be grounded in a perception of the role of fiscal policy and of State government's proper place in the economy. Americans have fiscal rules for the same reason that we have other rules constraining government in a constitutional republic. In a Constitutional republic the role of the state is to maintain a rule of law, defining and protecting the rights of individuals, Under a constitutional order where property rights are defined and enforced, individuals have an incentive (Continued on Page 13) Evaluating Three Proposals... Fiscal Rules That Bite. Scorecard: TABOR Tops. 4 Proposals Point by Point If Two Amendments Pass. aie. References.Bickel: Scorecard on Proposals Continued from Page One ment that is more comprehensive than the legislative proposal, and preparing to place it on the 1992 general election ballot. ‘And Douglas Bruce with hisTaxpayers Bill of Rights Committee (TABOR) has drafted a more moderate version of the 1990 TABOR Amendment and qualified it for the general election ballot next November. For a spending limitation to have real substance it must include certain key provisions. In the analysis that follows, the major competing proposals are scored comparatively on eight essential provisions, with non-scored comments on two additional provisions, The ten items we'll examine are: 1, The formula that limits spending, and what levels of government it covers. 2. Voter approval required for tax increases? (no score given). Voter approval required to exceed the spending limit? ‘Voters’ right to petition for changes in taxes. Emergencies and how to pay for them. 3 4, 5 6. Mandates and state shifts of costs to local government. 7. Paying for future government obligations. 8. Definitions of the terms in the limitation; are they clear and precise? 9, Enforcement of the limitation. 10. How the spending limitation is implemented (no score given). We can start by summarizing all four proposals on their weaker provisions and on some provisions that are not included across the board. The stronger provisions, which are handled differently in each proposal, are discussed in detail below, under the section on "model provisions." »w in for: iv £13, We a, The formula for the spending limitation allows government to continue to grow faster than inflation or personal income. b. There is no limitation on local government spending. c. There is no practical enforcement of the spending limit, 4. A simple majority of the legislature can exceed the limit, €. Voters have no direct means to restrain taxes or spending.12, the Arveschoug-" nd that was recentl itmov. h the pr B nal draft, this " ‘weak areas were: a, Its formula did not account for changes in local government growth; and the formula was based on estimated statistics that would require later adjustments. b. Fiscal emergencies as defined in the proposal were not clear as to duration or permissible spending levels. ¢, Local governments would be allowed to create debt that is outside the spending limitation and exempt from voter approval. . No enforcement of the limitation was provided for. ¢. There would be no limit on new or increased taxes, and excess taxes collected above the spending limit would be kept by government. This would appear to allow government to build up large reserves from taxes and then spend them for a "fiscal emergency." £, Tax and spending referenda could be held not merely on the general election day but on "regular" and "special" elections. In the past, such multiple scheduling has resulted in low voter turnout, allowing as little as 5% of special-interest-motivated Voters to raise taxes on everyone else. g. Growth of future liabilities is not addressed in the measure. mendment scores 21 poit s amend the spending limits. Its weaknesses are: a. Definition of terms b. No enforcement provisions The Taxpayer's Bill of Rights Amendment earns our highest score with 26 points, We found no obvious wea in this josal, Some of its provi jot found in the other measures are: a. Voter approval would be required for new taxes and tax increases; limits would be placed on certain taxes. b. Requires accountability for creation of future government debt. c. Requires notification mail materials. gs for tax and debt elections, with analytical 4. Requires government units to build a 3% emergency reserve.