MAY 8, 2012

Why Pennsylvania Needs Spending Limits

In a Capitolwire story (subscription), Senate Appropriations Chair Jake Corman notes that the proposed version of the state budget the Senate will take up this week increases spending by less than the rate of inflation and population growth.  He also suggests that is the standard for all future budgets.

"We believe the budget should never increase higher than TABOR would allow, so we can be sure we have sustainable growth in the budget" Corman said.

However, to realistically control state spending growth, lawmakers need to enact a spending limit like the Taxpayer Protection Act, especially a constitutional amendment version to prevent future tampering.  Matt Mitchell explains why fiscal guardrails like the TPA are needed to constrain overspending in Heritage Insider Magazine:

Spending growth threatens to push both federal and state debt-to-gross domestic product ratios past 90 percent in a matter of years. That is the level at which the largest and most comprehensive studies suggest debt begins to dramatically reduce economic growth.

It might seem that the natural solution is to elect politicians committed to reining in spending, especially on the entitlement programs and pensions at the heart of state and federal overspending. The problem, however, is that even fiscally conservative politicians face significant perverse incentives to spend beyond their constituents' means. And even if they do manage to trim the budget, today's cuts can be reversed by tomorrow's leaders.

Luckily, there is hope. Political incentives are shaped, in part, by institutions, i.e., the rules that govern budgeting, electioneering, and legislating. These rules influence the decisions of legislators, governors, presidents, bureaucrats, voters, and even lobbyists. So if we can improve the institutions, we can enduringly diminish the incentive to overspend.

Indeed, due to decades of overspending, even modest growth in this year's budget isn't enough to protect Pennsylvania's fiscal house.  The proposed Senate budget would spend about $300 million more than net revenue collections next year (based on Independent Fiscal Office projections), and doesn't begin to address cost drivers in corrections, welfare, and government workers' pensions. 

When the economy rebounds, and tax revenues start increasing, future lawmakers will be tempted to repeat the same mistakes and overspend taxpayers' money.  Passing the Taxpayer Protection Act now would limit the growth in government spending, prevent future fiscal disasters, and provide tax relief to families.

posted by NATHAN BENEFIELD | 00:10 PM | 1 comment

JANUARY 10, 2011

How to Limit State Spending

A recent study by Matthew Mitchell of the Mercatus Center suggests that not all spending and taxation limits are created equal. The study examines the effect of certain limitations and their effectiveness on curbing the spending growth of state governments. Currently 27 states have tax-and-expenditure limitations (TELs). Of these limitations, Mitchell found many did little to curb spending.

Here's a list of the bad, better and best limitations as identified by the study:

Ineffective Spending Limitations:

Pegging budget growth to income growth of residents—Florida has used this method for nearly 20 years and yet the state's per capita spending grew 30% faster than per capita income. This limitation works better with low-income states, but gives middle- to upper-income states free rein to spend more than they would without the limits.

Better Limitations:

Pegging budget growth to population growth and inflation—Seven states currently use this method, and Mitchell's research has found that it reduces state budgets on average by 3 percent annually during the length of the TEL

Balanced Budget Requirements—These requirements, which all states but Vermont have, depend greatly on the strength of their enforcement. By not allowing a deficit to be "carried over" from one year to the next, by requiring proposed and enacted budgets to be balanced, and by limiting the amount of debt issued, states can strengthen their balanced budget requirement to limit spending growth.

Best Limitations

Supermajority requirements for tax increases—Twelve states currently require a 2/3 supermajority on all votes raising taxes. This substantially lowers the number of tax increases passed. Coupled with other limitations, supermajority requirements can be a great tool to limit state spending.

"Item-reduction" veto power abilities for the Governor—Allowing the governor to single out and lower a particular line in the budget, rather than simply rejecting an appropriation or the whole bill, plays a major role in state spending. His study find that granting the governor this ability can limit state spending by 14 percent.

posted by NICHOLAS FETT | 00:15 PM | 0 comment

OCTOBER 21, 2010

Get Ready to Be Amazed

In Lancaster County, PA, local government officials have done the inconceivable—they've given up their raises. Strasburg Borough's ten employees including police, public works, and administrative assistants, agreed to forgo their 2011 pay and benefit raises.

Of course, the borough will still have to face a 2011 shortfall of about $34,675. The total budget is up 3.4% from last year.

Strasburg employees have made an admirable sacrifice, but efforts to rein in state and local spending cannot stop there. What governments really need are spending limits to ensure that politicians are not spending beyond taxpayer means.

posted by ELIZABETH STELLE | 08:19 AM | 0 comment

MARCH 11, 2010

Reckless Driving With Taxpayer Dollars

Pennsylvania's move towards big government is many ways mirrored by the fleet of cars it has amassed over the last three decades. The number of cars increased from 5,700 in 1980 to 16,186. The Senate "cost cutting commission" recently discussed primarily the increase in the number of vehicles for the state.

The misuse of taxpayer money does not stop there. Numerous state employees have been in car wrecks due to drunk driving. Former Pennsylvania Turnpike Commissioner Timothy Carson wrecked his turnpike-issued car not once but twice while drunk. But he never told the commission about either incident for at least four years, until his resignation on Feb. 8.

The General Services Department relies on self-reporting and is "dependent on the honesty of the vehicle operator." Auditor General Jack Wagner, who released an audit last year calling for stricter oversight of state vehicles says, "If an individual alone is the only one that is aware of what happened with the use of the state vehicle, there's something wrong that needs to be fixed." The General Services Department received 149 phone calls from the public about misuse of state vehicles, and to this date, not one vehicle has been taken away as a result of the calls. Sen. Mike Folmer has legislation to do away with this practice.

posted by ABHILASH SAMUEL | 08:40 AM | 1 comment

DECEMBER 15, 2009

Pew Study Says Little about Pennsylvania's Fiscal Health

In his budget mid-year briefing, Gov. Rendell cited, repeatedly, a Pew study on states' fiscal outlook. While it is true that Pennsylvania is in better shape than states like California or New York, in terms of budget deficits, the Pew study says little about Pennsylvania's fiscal health.

For instance, the Pew study gives states low grades if they limit spending increases and tax hikes.

Seventeen states require a supermajority vote by their legislature to enact tax increases, budget bills or both. We looked at supermajority requirements to enact tax increases because finance experts generally agree that this institutional arrangement significantly reduces taxes or constrains a state's ability to generate greater revenue by increasing taxes.

In other words, Pennsylvania is in better shape because it is easier to raise taxes going forward.

Several of the other measures in the Pew report aren't very useful either:

• They are backward looking on economic decline during the recession. Given that, states like Pennsylvania that tend to enter recession and leave recessions late will look better. It also doesn't consider looming costs (e.g. pensions) or state rainy day funds, that I can tell.
• Foreclosure rate is a variable. Making states like Florida, Arizona, and Nevada, that were hit hard by housing crisis look bad. But that is the only sector of the economy they look at, states that didn't have a housing boom (Pennsylvania, Michigan, Ohio) will look better, even though these states - especially the latter two - have been decimated in other sectors of their economy like automotive manufacturing.

Click here for our news release on the Pennsylvania budget mid-year briefing.

posted by NATHAN BENEFIELD | 11:40 AM | 0 comment

NOVEMBER 20, 2009

State Tax Trends

ATR has a new report on state tax trends. In addition to a roundup of state tax changes, the new report highlights trends with policy implications.

While we pointed out previously that residents are fleeing high-tax states to low-tax states, ATR's analysis also finds that the average income of households leaving high-tax states, and of households migrating to low-tax states, is higher than the national average (by 50% and 100% respectively). That is, states attempting to soak "the rich" are actually chasing them away.

ATR also notes that high tax states have an unemployment rate substantially higher than low tax states - in good times and bad, but the gap has grown during the recession.

The report concludes with a number of solutions for addressing budget shortfalls in the coming years. These solutions include

• Defined Contribution Plans provide each worker with his or her own individual, personal retirement account. Government employees can choose the blend of investment vehicles that best serve their unique situation. Best of all (for state budgets), the individual worker has already paid for his or her own retirement when retirement day comes. No structural problems occur as population growth declines. Unfortunately, most states and localities provide defined benefit pension plans for public employees, which finance retiree benefits with subsidized contributions from current workers. These plans are "baked in the cake" of many of today's budget crises.

• Privatization of Infrastructure and State Operations removes the taxpayer burden of paying for improvements and helps cities to save money and create jobs. For example, in 2005, Chicago began a lease of the Chicago Skyway bringing the city $1.8 billion in revenue. The city also leased four parking garages worth $563 million. In recent years states with the most severe budget shortfalls have found privatization to be an effective way to generate new revenue without raising taxes. This year Arizona will raise $735 million through the sale of prisons and other state assets. In July, California authorized the sale of 17 state office buildings and will generate hundreds of millions of dollars alone through the sale of the Orange County Fairgrounds.

• Competitive Sourcing opens up jobs currently done by government employees to private sector competition to save states money and increase efficiency. For example, Gov. Jeb Bush (R- Fla.) saved taxpayers over $550 million by outsourcing government services to private companies. A similar measure was also enacted by Gov. Bobby Jindal (R-LA) this year, and was considered in other states such as Arizona.

• Eliminate "Prevailing Wage" laws to save double digit percentages in state construction and maintenance, amounting to hundreds of millions of dollars. Prevailing wage laws require contractors to essentially pay workers no less than the union wage. As a result, unionized construction companies significantly inflate the cost of any government project.

• Constitutional Limits on Taxes and Spending: If lawmakers wish to end the boom and bust budget cycles and eliminate structural deficits, they will need to promote policies that force the government to live within its means. The best way to do so is to prohibit government spending from increasing faster that the rate of population growth and inflation. Legislation that would require such is commonly referred to as the Taxpayer Bill of Rights. Colorado implemented TABOR in 1992, and as a result kept government growth in check during the boom years of the late '90s, allowing it to weather the first recession of the 2000s while other states were swimming in red ink. Unfortunately, TABOR was suspended in Colorado, and its effectiveness is muted during the current recession.

Click here for the full report.

posted by NATHAN BENEFIELD | 01:51 PM | 0 comment

NOVEMBER 20, 2009

What Next for "Tea Party" Activists?

Following the recent "Taxpayers March on Harrisburg," as well as recent health care protests in Washington DC and elsewhere, a grassroots organizer posed the question, "what should we do now?" Here are a few thoughts for the tea party movement.

Protest is not enough. Repeated protests and rallies can simply be ignored, and wear out activists who want to attend. Furthermore, events with unclear or mixed messages fail to advance the effort. And "Obama is Hitler" comparisons (even when they come from 7-time Democratic presidential candidate Lyndon LaRouche), make the entire movement look bad. Here are some suggestions for tea party and 9/12 activists.

• Strategic involvement in elections. Politicians tend to react only when their electoral prospects are at stake. While protests can strike fear into elected officials, they will only be successful when the movement shows it can influence election outcomes. Strategic involvement includes recruiting candidates for office; getting involved in primaries, particularly in districts where Democrats or Republicans dominate; supporting third-party candidates when neither major party offers a viable alternative; putting candidates on the record for what they support; and researching and exposing incumbents' voting records.

• Focus on state and local issues. Sure national health care, federal deficit spending, Cap & Trade, Card Check, and countless other national issues remain important, but state and local issues should not be ignored. State budget battles, corruption in state and local government, local property tax hikes, and eminent domain abuses by local authorities have largely been ignored at tea parties. State and local governments spent about $3 trillion last year, nearly matching the federal government. State and local governments have almost 15 million full-time employees - about six times the federal civilian payroll. State and local policymakers have vast powers, and yet activists can have greater influence on local issues.
  

• Push a policy agenda. Opposing higher taxes and bigger government is needed, but you can't beat something with nothing. Simply saying "no" to bad ideas, or even championing "following the constitution" is not adequate without tangible ideas average citizens can get their heads around. The movement needs to do a better job of identifying and championing policy alternatives. Some ideas I think most can support include:
  
  
  1. Spending Limits - The first step to stopping out-of-control government spending is to limit the growth of government. Strict limits on the growth of government spending or taxes - such as tying it to inflation and population - would protect taxpayers, focus lawmakers on eliminating waste and pork, and also trigger economic prosperity. There have been proposals to limit federal spending, but tax and expenditure limits can, and have been, implemented at the state and local level, via voter referendum.
  
  
  2. Spending Transparency - Many states have enacted online databases of state spending, and even some local governments and school districts have done the same. Pennsylvania lags behind on this front, though legislation is moving in the state House. Transparency databases allow taxpayer to see where their money is being spent; help to eliminate waste, fraud and corruption; promote greater competition for government grants; and cost little to build. Of course, even with greater access to information, activists still need to be vigilant, taking opportunities to read and report on state and local government spending and corruption at places like SunshineReview.org.
  
  
  3. State Constitutional Convention and/or Initiative and Referendum - Given the rampant corruption in state and local government in Pennsylvania, there is a clear need for government reform. Term limits, a part-time legislature, redistricting reform, and numerous other reforms - both good and bad - have been proposed, but it is clear that few of these reforms will happen if we rely on lawmaker to reform themselves. A state constitutional convention and allowing Initiative and Referendum in Pennsylvania are ways to return power to the people, creating additional checks on the abuses of elected officials.
     
  
  
  4. Interstate Competition in Health Care - While we have outlined many policy recommendations in health care as an alternative to national takeover, allowing interstate competition is one that has started to catch on among lawmakers and pundits. One estimate suggests interstate competition would reduce the number of uninsured by 25 to 33%.

posted by NATHAN BENEFIELD | 00:51 PM | 1 comment

OCTOBER 30, 2009

Spending Limits: Not Special Exemptions

Yesterday, Republican state Rep. Sam Rohrer of Berks County introduced legislation to help local governments cope with declining revenues, ever-increasing amounts of regulation and new programs from the state. The Emergency Mandate Suspension Act would allow municipalities, school districts, and counties to temporarily ignore unfunded mandates from the state -- including programs where the state has missed two consecutive payments to the local entity.

"Essentially, if there is no money, there will be no mandate," Rohrer said. "Local authorities would be given the option to opt out of expensive unfunded mandates. This is the fastest and most direct way that we can help school districts, local governments and the taxpayers who must fund them." HT: Capitolwire (Subscription)

While the proposal may prevent local tax hikes, it fails to address the underlying issue: out-of-control state spending and mandates. The Taxpayers Protection Act (TPA) would create a strong disincentive for the General Assembly to reduce funding for existing municipal mandates, and to enact new ones. The TPA proposes to cap annual spending growth from the state's General Fund at the lesser of: 1) the average rate of personal income growth for the preceding three years; or 2) the combined rates of inflation and population growth for the three preceding years.  Also, under TPA, any cuts in funding for municipal mandates would result in commensurate reductions to the state spending limit.

Spending limits are highly correlated with strong economies; in fact, taxpayers in Maine and Washington State will vote on their own versions of spending limits next week.

posted by ELIZABETH STELLE | 05:00 PM | 0 comment

OCTOBER 22, 2009

Yes, We Really Do Mistrust Lawmakers

Gerald Prante of the Tax Foundation raises a philosophical question about state spending limits. Namely he wonders, if we don't trust how legislators spend money now - a sentiment I think many people share - why would we trust them with spending limits. That is, lawmakers will make just as bad spending decisions, "cutting" spending in the wrong places.

I had a few thoughts I shared with Gerald

1) TABOR/spending limits would not require any spending cuts, but would limit the growth of state spending. Legislators would have the same priorities regardless of TABOR. If they would misspend money under TABOR, they are likely to misspend more money without TABOR.

2) It matters both what government spends on, and how much. While spending should be limited to the core functions of government (which is subject to debate - but not a debate we are having in Pennsylvania or elsewhere) - too much spending on even the functions, will take too much out of the private economy, harming economic growth. While it is true that some government spending does foster economic growth - such as defense of property rights - the consensus is that government spending in excess of 25% of GDP hampers economic growth. Between federal, state, and local spending, we are now around 40%. Even if lawmakers made poor choices, reducing total spending as a percentage of GDP would be a good thing.

3) Prante almost ignores the fact that spending limits might force greater efficiency in spending. For instance, lawmakers might repeal prevailing wage laws which drive up the cost of highway and school construction, they might promote greater school choice (since private and charter schools cost taxpayers much less), they might seek to privatize state-run businesses, look to reform Medicaid, pensions for state employees, criminal justice, or countless other ideas for efficient delivery.

4) Most importantly: under spending caps, lawmakers can exceed the cap...with voter approval. That is, if they can successfully make the case that the spending increase justifies higher taxes, they will be able do so. You're right, we don't trust politicians to make the right choices on spending and taxes...we trust the people. While I'm not advocating for direct democracy/majority rule in the budget process, voter referendum on tax hikes or spending increases over TABOR limits are another check on government power, and
one which is desperately needed.

posted by NATHAN BENEFIELD | 09:58 AM | 0 comment