State Limits on Revenues and Budgets Stifle Democracy

This year, 18 state legislatures have considered roughly 50 proposals that would create or tighten arbitrary limits on state and local revenues and budgets. These limits tie the hands of future policymakers and undermine their ability to advance policies that meet their constituencies’ evolving needs. In doing so, they needlessly — but arguably deliberately — constrain the democratic process.

State and local budgets should be reflections of public will. Policymakers, elected by constituents, make decisions about how to raise and spend resources to support essential public services and infrastructure. When it comes to guaranteeing a good education for all kids, building infrastructure to provide safe roads and access to clean water, and making health coverage and care more affordable, the people’s representatives should be free to make policy as they see fit — without being saddled by arbitrary limits set by policymakers in the past — and they should then be held accountable for their decisions by voters.

Arbitrary revenue or spending limits undermine that process of accountability and, ultimately, the effectiveness of a representative democracy.

Revenue and expenditure limits do nothing to make government run more efficiently or ensure that dollars are well spent. Instead, they erect a barrier that undermines policymakers’ ability to keep pace with rising costs and changing needs. They reflect policy judgments made in the past and limit policymakers in the future from making sound judgments based on the realities they face (which past policymakers may not have accurately forecast). States with such limits have had to find circuitous workarounds to fund K-12 education and other services, or turn to regressive revenue sources such as fines and fees in the criminal legal system, which harm families with low incomes and other vulnerable populations the most.

No two limits are exactly alike. Some place caps on the ability of communities to raise needed revenue through property taxes. Others place statutory or constitutional limits on state taxes and spending. The most dangerous would place tax and budget limits in state constitutions, making them nearly impossible to undo later. This is especially true in states with supermajority requirements that make overriding these unnecessary rules even further out of reach.

When in place, such limits are difficult to circumvent or undo and can give a small group of legislators — who may be heavily influenced by special interest lobbyists — an effective veto on policies to raise revenues or increase spending on critical needs, even if those policies have majority support but can’t overcome supermajority requirements.

These are some examples of proposed limits from this year:

• Alaska’s legislature considered a proposal that would repeal the state’s current spending limit installed in 1981 and replace it with a lower limit, plus an arbitrary cap of 11 percent on top of that — a limit on a limit. Projections by legislative staff show that if this proposal were adopted, $340 million would be cut as early as 2024 to the state’s operating and capital budgets.
• Arizona is considering a revenue limitation that would ratchet down the state’s income tax over time, generating a hole in the budget of $6 billion — the equivalent of the state’s support for K-12 schools in 2023. This gap would need to be backfilled from other revenue sources in part, or not at all.
• Nebraska approved a framework for property tax limits that will diminish local revenues for education by nearly $300 million over the next two years and place greater reliance on the state legislature to backfill the lost funding, which could compromise noteworthy commitments for public schools made by the legislature this session.
• Texas is sitting on a $33 billion surplus resulting from the federal government’s historic pandemic response and the ensuing strong economic recovery, but appears poised to quickly dispatch this incredible opportunity to invest in the state’s future by instead enacting a massive $18 billion plan to permanently limit property taxes.

States that are considering new revenue or spending limits should pay attention to the cautionary tale told by former Colorado state budget writers, who warn other states of the self-sabotage these limits can cause — including locking in recession-level spending, protecting the wealthiest taxpayers, and hamstringing state leaders from being able to meet the needs of families and communities. Additionally, states with such limits should strive to loosen them or to simply follow Washington’s lead by repealing them outright, as they did with a 25-year-old spending limit in 2020.

Looking to the local level, state lawmakers should reverse efforts to control local decision-making authority on taxes and instead explore efforts to strengthen it, such as by authorizing new revenue sources or relaxing the most deeply ingrained constraints on communities. In cases where policymakers are determined to provide taxpayers with some sort of economic relief — which should be within their purview — they should reject the flawed arguments for caps and instead look to more targeted property tax relief policies such as income-based homestead credits, responsive rate setting, quality assessment practices, regular revaluations, and property tax deferral programs.

Even better would be for states to adopt smarter property tax policies such as “circuit breakers,” which assist homeowners and renters earning below a certain income level when their property taxes are high relative to their income.

Voters deserve a participatory government that is responsive and accountable to the needs of its people. State legislators can and should reject arbitrary revenue and expenditure limits — at both the state and local levels — and instead allow elected officials to determine how best to invest in current and new initiatives that could help boost economic growth, expand opportunity, and enrich our quality of life.