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A tale of two budgets

By Keith D. Cummings
web posted April 19, 2004

In the fall of 1992, a group of incredibly intelligent and forward-thinking individuals joined together to impose one of the most impressive pieces of legislation on the place in which they lived. Its opponents hotly contested the law, but the proponents stuck to their guns and the law passed. Those proponents were the citizen voters of the State of Colorado and the law was the Taxpayers Bill of Rights, TABOR, an amendment to the state's constitution.

Since its inception, TABOR has limited the increase in state spending to the combined rates of inflation and population growth in the state. Under the law, any increases in spending beyond the limits imposed under TABOR must be approved by the voters in a general election.

In 2003, the state saw only the second year during which state revenue failed to reach the TABOR limits since fiscal year 1997. In fact, from 1997 through 2001, the state of Colorado was forced under TABOR to refund approximately $3.4 billion to the residents. This money was the result of taxation exceeding the constitutional needs of the state. Colorado's 2003 TABOR limit, the amount the state was permitted to expend on all programs and projects funded by taxes, user fees, federal funds, etc. was $13.5 billion. This represented a 6.9 per cent TABOR growth over 2002. Because of TABOR and permanent tax cuts imposed before 2003, the state faced a $514 million budget shortfall. In 2004, Governor Bill Owens held the line on spending in his proposed budget.

There were multiple complaints from the progressive/activist politicians in Colorado during the days of TABOR excess. As the state was returning $3.4 billion to the rightful owners of the money, polemicists claimed that the people shouldn't be given back the money that TABOR was costing the state valuable funds for important programs and that TABOR limits should be increased or revoked. In a few cases the voters were convinced to lift some TABOR restrictions for specific projects like education with 2000's Amendment 23. For the most part, the state's budget held the line and recent budget shortfalls are much less painful than they might have been.

Turn now to the converse: the Old Dominion, the Commonwealth of Virginia. For months Democrat Governor Mark Warner has been pushing for higher taxes to cover his budget priorities. Like most politicians seeking to soften the blow of tax hikes, Governor Warner uses weasel words like "tax reform" and "tax restructuring."

The Joint Legislative Audit & Review Commission of the Virginia General Assembly reports that, from 1981 to 2002, the Virginia budget has grown more than 127 per cent, adjusted for inflation. The state's population has grown from 5.3 million in 1980 to an estimated 7.3 million in 2002; a nominal growth of 36 per cent. This means that the Commonwealth's spending has exceeded the limits a TABOR law would impose by 91 per cent over 22 years. Spending is out of control.

Under the Virginia system, the General Assembly and the Senate are expected to pass a two-year budget this year. Governor Warner has indicated that he will not sign a one-year deal into law, leaving closely divided houses in overtime while they wheel and deal, trying to invent a budget where none currently exists.

Of course, the budget problem isn't really Governor Warner's fault. The problem goes back through a succession of governors; from John Dalton to Jim Gilmore and the state legislature that had no problem spending happily as economic growth filled the coffers of the Commonwealth. As with 42 other states in the union, the recession that hit after the September 11 terrorist attacks, Virginia fell into budgetary shortfalls.

Nevertheless, as stewards of government go, Governor Warner could do a much better job. Rather than acknowledge that the state overspent itself for the last twenty years, rather than call for something approaching austerity in difficult times, Governor Warner proposes increases in a variety of taxes, including a hike in the state's 4.5 per cent sales tax. The members of the General Assembly, Republican and Democrat both, don't seem interested in correcting the Governor's problems. Each side is simply fighting over the best way to spend money they don't have and raise taxes (or eliminate tax breaks) that can't help but impair the state's economy in the future.

Colorado and Virginia are examples of how to handle government budgets. Reasonable limits on spending growth, such as those in Colorado in the 1990s, may limit the glee of high-stepping bureaucrats, but they ease the ulcers in times of economic downturn. Virginia is just the best example of how unrestrained government growth in good times creates fiscal disaster in lean times. Washington, Jefferson and Madison are all spinning in their graves.

Keith D. Cummings is the author of Opening Bell, a political / financial thriller. His website can be found at http://www.keith-cummings.com.

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