The Texas Public Policy Foundation testified before the House Transportation committee this week concerning the mammoth local option transportation funding bill that has passed the Senate. TPPF’s Justin Keener expressed alarm about the rising cost of government (to no one’s surprise):

Between 2000 and 2008, the state’s total budget grew by 73.1 percent from $49.5 billion to $85.7 billion, while the sum of population plus inflation only increased by 41.3 percent over the same period. That means the cost of government per person has gone up during this decade. The discrepancy between
spending and the population plus inflation measure is even more distinct at the local level.

Keener’s point is that government at all levels is growing faster than the index of population growth plus inflation. This index represents what TPPF, and conservatives generally, believe the state spending cap ought to be. The question I have is whether TPPF’s measure of population growth plus inflation is the best gauge of how much spending the state can afford. I believe that the answer is no.

Texas already has a spending cap on general revenue. This is Article 8, Section 22 of the state constitution, adopted in 1978:

RESTRICTION ON APPROPRIATIONS. (a) In no biennium shall the rate of growth of appropriations from state tax revenues not dedicated by this constitution exceed the estimated rate of growth of the state’s economy. The legislature shall provide by general law procedures to implement this subsection. [Section (b) authorizes the Legislature to suspend the cap by majority vote if it declares an emergency.]

Economic growth is determined by the Legislative Budget Board–not the staff, but the elected officials who comprise the board. The LBB provides five scenarios for estimated economic growth, ranging from the most optimistic to the least, and the Board chooses one. In 2007, for example, it chose the least optimistic. I believe that using the measure of economic growth has served Texas well. It is a a realistic spending cap, whereas inflation plus population growth is an ideological one, designed to achieve a predetermined outcome of less spending. Economic growth measures the ability of the state to pay for state services: greater in good times, lesser in bad times.

If Texas were to adopt the TPPF spending cap, the result would be disastrous. Why? The short answer is, as is the case with much of Texas’s future, that demographics is destiny. The population that is dependent upon services–the old and the very young–is growing faster than the population as a whole. Texas, particularly Anglo Texas, is aging (requiring expensive services such as long-term care), while Hispanic Texas has a large cohort of the very young, who consume Medicaid and education services. A spending cap based upon population growth does not accurately reflect the demand for state services.

Inflation is another dubious measure. The consumer price index measures the cost of goods purchased by…consumers, of course. Government buys some of the same goods. Gasoline. Automobiles. Electricity. Furniture. But government also buys teachers, hospitals, prisons, and judges. It buys life insurance and pension plans for its workers. It buys steel for highways. The things government buys are different, and often more expensive, than the things consumers buy.

I came across a chart prepared by the National Conference of State Legislatures concerning state spending caps as of 2005. Not all states are represented. Of those that are, five use the TPPF standard of population growth plus inflation. Four use the state revenue estimate as the cap. Fifteen use a formula that includes income. And two are “other.”

Governor Perry supports “[s]tricter state spending cap tied to the average of inflation
and population growth, which during this session would be 3.5 percent
lower than the current limit.” He won’t get it.

* * * *

I support Texas’s spending cap that is based on economic growth. I do not agree with the formula of population growth plus inflation proposed by Governor Perry and touted by TPPF.

The rest of this post is going to be a summary of the experience Colorado has had with the most restrictive spending cap in the nation, known as TABOR, or the Taxpayer Bill of Rights. A couple of surgeon general’s warnings: (1) You have to really care about this stuff to read it. (2) The report below is the work of the Washington-based Center on Budget and Policy Priorities, which is definitely on the left side of the political spectrum. I also found defenses of TABOR from the conservative Cato Institute and the Heritage Foundation. TABOR is the extreme case of what can happen when draconian restrictions on revenue raising and spending are put in place. However, its most controversial provision, which has a racheting down effect on revenue and spending, appears to be unique to Colorado.

* * * *

In 1992, Colorado adopted the Taxpayer Bill of Rights (TABOR), a constitutional amendment that limits budget growth to changes in population plus inflation. A growing body of evidence shows that in the 13 years following its adoption, TABOR contributed to a deterioration in the availability and quality of nearly all major public services in Colorado. Colorado voters recently chose to suspend TABOR’s population-plus-inflation formula for five years, in part to restore some of the service cuts it induced.

* Since its enactment in 1992, TABOR has contributed to declines in Colorado K-12 education funding. Under TABOR, Colorado declined from 35th to 49th in the nation in K-12 spending as a percentage of personal income. Colorado’s average per-pupil funding fell by more than $400 relative to the national average.

* TABOR has played a major role in the significant cuts made in higher education funding. Under TABOR, higher education funding per resident student dropped by 31 percent after adjusting for inflation. College and university funding as a share of personal income also fell, from 35th to 48th in the nation.

* TABOR has led to drops in funding for public health programs. Under TABOR, Colorado declined from 23rd to 48th in the nation in the percentage of pregnant women receiving adequate access to prenatal care. Colorado also plummeted from 24th to 50th in the nation in the share of children receiving their full vaccinations. Only by investing additional funds in immunization programs was Colorado able to improve its ranking to 43rd in 2004.

* TABOR has hindered Colorado’s ability to address the lack of medical insurance coverage for many children in the state. Under TABOR, the share of low-income children lacking health insurance doubled in Colorado, even as it fell in the nation as a whole. Colorado now ranks last among the 50 states on this measure.

Tagged: justin keener, spending cap, texas, texas public policy foundation, transportation