Taxpayer’s Bill of Rights Could Have Prevented Texas Budget Crisis

Published March 1, 2005

The state of Texas’ recent $10 billion budget crisis could have been prevented if the state had implemented a Taxpayer’s Bill of Rights amendment in the 1990s, according to a study by the Americans for Prosperity Foundation.

The report, “A Taxpayer’s Bill of Rights (TABOR) for Texas,” was released January 6. It shows that if such a bill had passed, the state would have amassed $10.9 billion in surpluses since 1991, and the largest budget shortfall would have been less than $2 billion–a fraction of the recent deficit that created a major budget crisis in the state.

The study also found Texas taxpayers would have received $4.7 billion in tax relief and rebates, and $5.4 billion would have been invested in a budget stabilization fund to better handle revenue shortfalls.

The report was written by Barry Poulson, a distinguished scholar with the Americans for Prosperity Foundation and professor of economics at the University of Colorado.

Limits Spending Growth

A Taxpayer’s Bill of Rights (TABOR) is a state constitutional amendment that limits the annual growth in government. Under a TABOR, state expenditures and debt cannot grow faster than the rate of annual population growth plus inflation. Surplus revenue received above this amount is placed in a budget stabilization fund, and a portion returned to taxpayers.

Tax increases or spending above the amount of the TABOR limit would require voter approval.

State Rep. Carl Isett (R-Lubbock) introduced a TABOR proposal in the Texas legislature in 2003, but it was not acted on.

Poulson’s report says Isett’s proposal “is certainly an improvement on the existing tax and spending limit in Texas,” which has Texas-sized loopholes in it.

“It would apply the tax and spending limit to a broader definition of revenue covering all state-generated revenues,” the report noted. “It would create a Rainy Day Fund, and allocate half of the surplus revenue to the Rainy Day Fund, and half to tax cuts. It would also raise the bar for the legislature to break the spending cap from a simple majority to a 2/3 vote.”

However, Poulson noted Isett’s proposal is less stringent than the TABOR amendment he used in his study, which is more closely based on the TABOR amendment currently in place in Colorado.

No Service Cuts Necessary

Poulson says critics of TABOR “will likely argue that limiting the growth of state spending to the rate of population growth plus inflation would force drastic cutbacks in essential social services,” even though the TABOR does allows government spending to grow.

“Limiting excessive spending does not mean requiring drastic cutbacks in essential state services,” Poulson says in his report.

“TABOR will force elected officials, like almost any Texas household, to set budget priorities,” Poulson’s report says. “If one program must grow above the rate of the TABOR limit, another program must grow at a slower rate or be reduced. Further, TABOR allows elected officials to ask voters for approval to increase taxes and debt, and to spend surplus revenue.”

Push for TABOR Expected

Peggy Venable, director of the Texas chapter of the Americans for Prosperity Foundation, said there will be a significant push for a TABOR amendment in this Texas legislative session.

“The painful $10 billion budget crisis we experienced in the last session is still very fresh on the minds of every legislator who had to deal with it, and a Taxpayer’s Bill of Rights amendment is the best way to guarantee we don’t have to go through that nightmare again the next time the economy cools off,” Venable said.

She said she favors a TABOR even though Texas last year pulled itself out of the budget hole and is now projecting a surplus.

“We cut spending for probably the first time in state history,” Venable said. “We cut back on programs across the board, agency by agency. We’re in good shape now, though the tax-and-spend liberals are saying they want all of that money back and more.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.