Funding Alert

Republican senators offered a proposal to constitutionally limit state spending at a joint committee hearing on October 5 but at the very same hearing a national expert warned that spending caps lead to deterioration in services, votes to override and a widening disparity between rich and poor.

Iris Lav, deputy director of the Center for Budget Policy Priorities was very clear that "spending caps do not necessarily make for good government." Caps on spending have no effect on holding down required government expenses such as health care, debt service payments, transportation and other infrastructure related costs, nor do caps make for more efficient government.

An artificial cap on spending can hold down taxes in the short run, but as uncapped expenditures continue to rise, either services begin to deteriorate or other sources of revenue must be found.

Ms. Lav cited the example of several other states, notably Colorado, which implemented local spending caps and then experienced substantial decline in services. Citizens reacted by voting to override the local caps with 60% of counties eventually passing a permanent override. The cap law was recently repealed in Colorado due in large part to the efforts of the business community which saw the decline in services as a significant hindrance to employment recruiting.

In Illinois, initial savings through efficiencies ran out quickly and the caps soon resulted in significant cuts to instructional programs in classrooms. California’s cap caused it to drop from among the states spending most generously on education to among the states spending the least, resulting in substantial declines in educational services and levels of achievement. For example, California’s high school graduation rate in 1987 was 90.4%; it had dropped to 83.9% by 1995.

Under some caps, an attempt will be made to increase revenue from other sources. In California, local governments attempted to increase sales tax revenue and to try to discourage new housing because of the fiscal impact of new families and students. Looking at Colorado again, Ms. Lav noted that as property taxes went down, other taxes went up and the percentage of personal income paid in taxes stayed constant.

The real choice for policy makers is not to impose a simplistic and overly broad cap on the total amount of money the state can spend, but to engage in a deliberate and thoughtful consideration of the choices that must be made with regard to state spending.