In a recent article published by the Mises Institute, Daniel J. Mitchell argued that balanced budget requirements are, in effect, useless in forcing government institutions operate with sound fiscal policy. Instead, he argued for the implementation of programs like Colorado’s Taxpayer’s Bill of Right, or TABOR.
The idea that balanced budget requirements are less than effective in limiting overspending and financial mismanagement by governments is nothing new, and you do not have to look any further than states like California or Illinois—both of which have balanced budget requirements—to see the truth in the claim. However, is TABOR a clear-cut solution?
TABOR operates as a check on how quickly government spending can grow. According to Colorado’s Independence Institute, “TABOR allows government spending to grow each year at the rate of inflation-plus-population. Government can increase faster whenever voters consent.” In other words, the rate of increase in government is limited to a fixed yearly amount, with the exception of when the voters decide to allow it to grow faster. This does two things: It allows taxpayers to have more control over tax increases and the use of that tax revenue, and it also theoretically keeps the government from spending more money than it has in the past without taxpayer consent.
However, while TABOR may be useful in reducing the amount of money that Colorado collects in taxes, it has proved to be less effective in controlling the amount of money that Colorado promises. According to Truth in Accounting’s most recent report on Colorado’s financial condition, the state owes $33.3 billion in contractually promised retirement benefits, of which less than half has been funded. As a result, the state currently has a $19.3 billion shortfall, which amounts to a Taxpayer Burden of $9,800. That’s how much money each taxpayer would have to pitch in for the state to pay all of its bills. More on that Taxpayer Burden later.
Of that $19.3 billion in debt, Colorado added $11.6 billion between the last two fiscal years, a period in which TABOR was in full effect. Much of this change resulted from the Colorado Public Employees' Retirement Association’s decision to reduce the discount rate of the pension plan from 7.50 percent to 5.26 percent. Essentially, this was a branch of the government increasing the amount of a bill, after it had previously agreed on a different amount. A claim that TABOR is the obvious solution does seem to leave out these recent trends and the impact on Colorado’s budget by fluctuations in contractually promised benefits, as opposed to other liabilities.
Another chink in the argument for TABOR as a clear-cut solution to government mismanagement is the unintended consequences of TABOR. Since any new tax would require a statewide vote, Colorado officials have instead turned to workarounds of the system by increasing fees, taking out mortgages on public buildings, and more. The Denver Post has a great video on this topic that you can watch here if you want to learn more.
Yes, TABOR is a constitutional amendment that officials should theoretically follow, but so are many balanced budget requirements. As we see in Illinois, California and indeed even Colorado, these amendments are unable fully to control governmental mismanagement as officials are readily able and willing to find ways to work around them. At most, these amendments and requirements only make it more complicated and inconvenient for governments to do so.
In effect, these requirements are little more than ink on a page, regardless of whether it’s a balanced budget requirement or a “taxpayer bill of rights.” Forty-nine states have balanced budget requirements of some sort, and 45 of those states have it in their constitutions. Yet government mismanagement of finances continues.
In fiscal year 2016--the most recent year for which data has been analyzed --27 states needed more money to pay off all their bills than they did during the 2009 fiscal year. Furthermore, the total amount of money needed for all 50 states to pay off all their bills had increased by more than $432 billion. There are some noticeable benefits to having these requirements, but as the data shows they are no sure fix.
Mitchell ends his article by saying that TABOR should be nationally emulated, but how much of a difference would TABOR make? Let’s take a second to compare Colorado to other states to find out. According to David M. Primo’s 2007 book, balanced budget requirements can fit into two categories: strong and weak. What we see is that states with weak or no balanced budget requirements, according to Primo, had an average Taxpayer Burden of about $4,400 more than states with strong balanced budget requirements for the fiscal years 2009 to 2016.
These 33 weak requirement states (including Colorado) averaged a Taxpayer Burden of $10,414 over that period of time. Although fiscal year data for 2017 is yet to be released for all fifty states, Colorado’s 2017 Taxpayer Burden of $9,800 is only slightly better than that $10,414 sum.
It needs to be pointed out, though, that out of the nine states with a Taxpayer Surplus, six of them had weak balanced budget requirements. Maybe, there is more involved in government management than simply the ink written in law. Yes, laws and amendments can make a difference, as the data from states with strong requirements suggests. However, in the end, it is still the responsibility of the officials to decide what to do, and it is our responsibility to decide who our officials are.
If we continue to elect officials who mismanage state finances, no amount of ink is going to stop them. Of course, TABOR may have its advantages, but it is no sure solution to government mismanagement. The best and only sure check on government bungling remains a well-informed and educated populace, with both the ability and willingness to hold government officials accountable.