According to the Voters’ Pamphlet, Initiative 1033 is a measure that would “limit growth of certain state, county and city revenue to annual inflation and population growth, not including voter approved revenue increases. Revenue collected above the limit would reduce property tax levies.” For fiscal conservatives like me who believe in limited constitutional government and have been regularly frustrated with the inability of lawmakers to live within their means, the intent of this measure seems quite laudable.
After spending weeks researching I-1033, I still support its intent and even better understand its popular support.
Consider that during Governor Gregoire’s first term state spending increased 33%. That’s an increase of over 8% per year even though inflation and population growth averaged about 3%. The result: the inflation-corrected tax burden on the average citizen increased about 5% per year without their consent. It’s not surprising that voters now don’t trust Olympia to show spending restraint of their own volition. During periods of rapid revenue growth lawmakers will spend the extra revenue because it garners support from beneficiaries, and during periods of revenue decline they
look to tax increases to cover shortfalls. So left to its own devices, government seems to grow until the taxpayers force restraint.
So why not support Initiaitive 1033? Unfortunately, it's execution is fundamentally flawed. Specifically:
- The formula for the revenue growth limit is too simplistic. The Office of Financial Management forecasts state revenue based on the change in real per capita personal income plus change in inflation plus change in population, adjusted for revenue elasticity, while I-1033 only considers inflation and population growth. So if average inflation-adjusted incomes go up due to productivity improvements (which they have for centuries), then the revenue growth limit creates a growing inequity between salaries in manufacturing and government service.
- The “Ratchet Effect” leads to significant reductions in service over time. During tough economic times (like now) we may have the I-1033 authority to raise more revenue, but still have a significant shortfall because of tax revenue elasticity. When the economy eventually recovers, revenue cannot rise back to pre-recession levels without a referendum because growth is based on the previous year only. So over time, natural economic cycles lead to lower and lower inflation-adjusted per capita tax revenues.
- The “Reverse Robin Hood Effect” redistributes sales tax revenues to land owners. Despite the fact that property taxes only constitute 10% of revenue to the State General Fund, any revenue collected above the limit will be used only to reduce property tax levies. Sales and use taxes are already considered regressive, but with I-1033 we’d be effectively redistributing those funds to unfairly reward property owners.
So what actual evidence do we have of how I-1033 will impact government services like public education?
Well, in 1992 Colorado became the only state in the nation to impose a
revenue limit like the one in I-1033. During the years that followed Colorado’s per-pupil funding for K-12 education plummeted to 49th in the nation, even despite provisions to earmark surplus revenues for educational improvements and an adequate rainy-day fund before reducing property tax levies. In 2000, an amendment was passed requiring education spending to increase at a certain rate regardless of revenue, and lead to a greater portion of revenue devoted to education. However, the revenue growth limit required that other cuts in spending be made to offset education increases, and many of these cuts were unpopular. By 2005 the budgeting process got so paralyzed and convoluted that Colorado voters—led by a bipartisan coalition of business leaders, teachers, seniors, healthcare providers and firefighters—voted to suspend the law for five years to stop the deterioration of their state.
My conclusion is that despite it's good intentions, the flawed implementation of I-1033 will cause substantial harm to our state. I don’t believe education reform needs to come hand-in-hand with larger government and higher taxes, but the political reality is that passage of this measure would be a significant barrier to enactment of the basic education reform initiatives that we so boldly began last legislative session. As much as I’d love a property tax rebate, preparing future generations to better compete in our global 21st century workplace is much more critical to our long-term success as a state and a nation.
Please vote NO on Initiative 1033.