INDEPENDENCE KSI: Naa # 14-88 hy b, 1988 SHOULD COLORADO TAXPAYERS IMPOSE TOUGHER SPENDING CONTROLS? By Barry W. Poulson Professor of Economics University of Colorado INDEPENDENCE INSTITUTE 14142 DENVER WEST PARKWAY, SUITE 185 DEN, COLORADO 804 (303) 2796596 FAX (303) 279-4176 only andthe shor peal fie denenFor Immediate Release Contact: John Andrews duly 13, 1988 303/279-6536 ANENDMENT COULD CUT STATE BUDGET BY 10%, ECONOMIST FINDS The Colorado law supposedly restraining the growth of state spending has leaked badly in the 1980s. Taxpayers could have saved a quarter-billion dollars this year, and almost $1.5 billion over the past 13 years, if the state had had a tougher spending limit like those of California or Nassachusetts. These are the Findings of a fiscal policy analysis conducted for the Independence Institute by a University of Colorado economist. Should Colorado Taxpayers Impose Tougher Spending Controls?, published this week as Independence Issue Paper No. 14-88, was researched and written by Dr. Barry W. Poulson. Poulson, an Independence Senior Fellow, is a professor of economics at CU-Boulder and recently served as a Bradley Scholar at the Heritage Foundation in Washington. The paper is available by mail or phone from the institute office in Golden at $4.00 per copy. The Poulson study may help explain the voter appeal of the so-called "Tax- payer's Bill of Rights" or TABOR proposal, now petitioning for signatures to go on the Colorado ballot as a constitutional amendment next fall. That plan would cap annual spending growth at the level of inflation plus population growth in ‘the same manner as California now does. Poulson notes that spending limits have proved more effective in other states where voters have placed them in the constitution, in contrast to the statutory limit approved by the Colorado legislature in 1977. If TABOR were in place this year, he estimates, expenditures from the general fund in 1988-89 would be about 10%, or $250 million, less than their anticipated actual level. This issue paper is the fifth that Poulson has authored for the Independence Institute since 1985. Last year, his research was influential in dissuading the legislature from keeping all of the revenue windfall that resulted from federal tax reform, and in encouraging enactment of a single, lower income tax rate for the state.” Earlier this year, he published Fiscal Constitution Breaking Down in Colorado, Independence Issue Paper No. 9-88, analyzing the pattern by which ~~ ‘unorganized taxpayer interests are out-voted by smaller but better organized spending lobbies which cater to the self-interest of officeholders. Independence Institute is a nonprofit, nonpartisan think tank specializing in Colorado's economic growth through improvements in the tax and regulatory climate.14-88 Intro duly 13, 1988 SHOULD COLORADO TAXPAYERS IMPOSE TOUGHER SPENDING CONTROLS? By Barry W. Poulson Professor of Economics University of Colorado duction: TEL-Tale Pressure on Taxes Tax were a result “tax 1977 Limit The i polic from and expenditure limitations (TELS) introduced in a number of states as of the widespread, grassroots revolt" of the 1970s. Colorado in became the third state to impose a on state taxes and expenditures. impact of these TELs on state fiscal jes has been a controversial issue the very outset. A 1983 study by the National Conference of S state in t opera are, taxes Never some be pa berin That be ai Dur in: nia their rebat. In ot | signs posin: which again cies. teres’ of Color: the tate Legislatures concluded: "Few s will be bumping into their ceiling he near future... if a state is ‘ting far below its ceiling, as most it has considerable room to increase before the ceiling is approached. ‘theless, by the end of the 1980s of the limitations which now seem to per tigers may turn out to be slum- 19 giants." prediction has certainly proven to iccurate, at least in some states. 1g the past year two states, Califor- and Massachusetts, did bump into ceiling resulting in a significant e to taxpayers. her states, economic of accelerating inflation are g a similar prospect in which TELs have been dormant in the 1980s will constrain the state's fiscal pol The result has been a renewed in- t in and debate regarding the impact TELs on state fiscal policies. ado is one of the states in which slower economic growth in recent recovery and (Continued on Page 2) IN BRIEF The growth of spending by Colora- do'state government is less effec- tively restrained by law than in some big states like California and Massachusetts, even though we were among the first states to legislate a spending cap in the inflationary ‘70s. Despite sone tax cuts earlier in the '80s, Colorado outlays are now rising faster than population and inflation combined, and priorities seen to be distorted by loopholes in the law. The self-interest of officeholders and their allied lobbies explains why existing spending limits tend to leak. Limits work better when put into the constitution by voters. If Colorado's limit were struc- tured like California's, the state would be spending 10% less this year; savings since 1975 would have approached $1.5 billion. The “Taxpayer's Bill of Rights," a proposed constitutional amend- ment currently petitioning for ballot status, would impose such a limit; see text on back page.