Stop State Spending Insanity Part I - Background

Disclaimer from the author: This piece was written just before the legislature "solved" the school finance problem via the business tax.

Executive Summary

Texans were seduced into voting for a 1978 state constitutional amendment that falsely promised a state tax cap.  Ever since then the state legislature has not come close to honoring even the loosest interpretation of that poorly crafted amendment, sometimes refusing to acknowledge its mere existence.
Fact is, since 1978 the rate of growth in state spending, instead of being better controlled, has been exacerbated and has greatly exceeded the combined rate of growth in the state’s population and inflation.

The state’s elected leaders and the legislature are now faced with the necessity of at least acknowledging the existence of the 1978 pseudo-tax-cap constitutional amendment.  This facing of reality was forced by a lawsuit brought by a courageous Houston businessman, Edd Hendee.

Now that the elected leaders and the legislature have been forced to acknowledge the ill-conceived constitutional amendment, they have elected to try and hide behind it as justification for breaking its cap for funds to furnish Texans property tax relief from their school districts. 

State elected leaders and the legislature must not be permitted to hide behind a constitutional amendment that they have historically dishonored and ignored, even if it is a pseudo-tax-cap.  Instead, they should be forced to grasp the critically needed control of state spending.

I recommend that this be done via the following:

1. Immediately freeze the 2008-2009 biennial budget  (including funds for school property tax relief) at the current budget level for the 2006-2007 biennium.
2. Every legal Texas resident should receive a promptly delivered $100 sales tax refund.
3. A special nonpartisan and nonpolitically connected commission of highly qualified members be immediately convened by the governor to analyze the current state budget and growth in state spending since 1978 and rapidly come up with fundamental and specific recommendations for curing the state’s spending insanity.
4. I suggest that the commission chairman be Paul Burka of the Texas Monthly publication.  Its members should include: (a) the co-chairmen of the Texas legislative budget board; (b) the state comptroller; (c) the state auditor; (d) a representative from the American Productivity and Quality Center (Houston); and (e) three retired partners of Texas accounting firms who are expert in governmental financial accounting and reporting.
5. The commission’s study should include analyses of spending by the state’s public school and higher education systems, as they are integral parts of the state’s spending problems.
6. The commission should conduct a Texas city-by-city tour explaining their findings and their recommended constitutional amendment to permanently place control in the voter’s hands over the overall rate of growth in state spending.

What Is The 1978 Tax-Cap Constitutional Amendment?  Why Hasn’t It Worked? 

A tax revolt swept across this country in the 1970s.  The anti-tax feelings were so strong that, even though the Texas constitution did not permit (and unlike about half of the states still does not permit) citizen petitioning at the state government level, the governor and the state legislature were forced to place a preemptive-strike, pseudo-tax-cap constitutional amendment proposition on the 1978 ballot.  The amendment passed by a whopping 82% to 18% margin.

However, nothing really changed.  The constitutional amendment still left it totally up to the legislature (the spenders) to specify how the supposed tax cap was to work and gave the legislature the emergency power (as determined by the legislature) to override the cap at any time with a two-thirds vote of each house, without voter involvement.  The measure did not provide for enforcement or penalties for non-compliance.  The measure essentially was nothing but a smoke-and-mirrors effort to placate the voters.  

Excluded from the cap are revenues derived from the federal government and state generated taxes that were already dedicated by the state constitution.  The legislature decided that the remaining tax revenues under the cap could grow at the most liberal economic rate available, the rate of growth in total Texas personal income. 

The legislature then statutorily abdicated to the non-elected legislative budget board (LBB) the responsibility for determining the cap prior to each biennium budget.  The LBB does that by soliciting estimated growth rates in total Texas personal income from several economist sources and then selecting the supposedly most probable estimate and applying it to the cap from the preceding biennium budget.  There is no retroactive look-back adjustment.  That is important in that there have been some very significant variances between chosen estimated rates and subsequent actual rates.

It is bad enough that the legislature abdicated its cap determination responsibilities to the LLB.  But added to that are the facts that: (a) the state comptroller, preceding the current one, rejected responsibility for determining state compliance with the cap or even referring to it in the state’s Comprehensive Annual Financial Report (CAFR); and (b) the state auditor, preceding the current one, rejected responsibility for auditing and reporting on the state’s compliance with the cap.  It was only after I had some very spirited correspondence with them that the two state officials agreed to at least commence disclosing in the CAFR footnotes the existence of the cap.

In a nutshell, no state elected official or body will take responsibility for enforcing the pseudo-tax-cap---not the legislature, the governor, the lieutenant governor, the state comptroller or the state auditor.  They all claim responsibility and authority lies solely with the LBB, a non-elected body.

The legislature has sometimes gone through the cap determination exercise (via the LLB) and sometimes not.  In at least two biennial budget periods, the LBB has not even bothered to solicit growth estimates from the economists and publish them in the Texas Register, as legally required.  Therefore, the supposed beginning cap base in any current budget exercise for 2008-2009 is significantly in error and cannot now be reconstructed with any accuracy or legal legitimacy.

The legislature has exercised the pseudo-tax-cap’s override provision in anticipation of the 2008-2009 budget, which will commence inclusion of state underwriting of the school districts’ property tax rate cuts.  The legislature has exercised the override option even though, as clearly shown by Exhibit A, the state budget growth has greatly exceeded the rate of growth in the state’s economy, as measured by population and inflation, and has exceeded the growth in the state’s economy by even the most liberal economic measurements.  Thus the base upon which the cap is being computed for 2008-2009 is overstated to begin with and already is in presumed violation of the 1978 constitutional amendment.

Accordingly, the 2008-2009 budget (including funds for school property tax relief) should be frozen at the 2006-2007 budget level until the cumulative effect of the state’s overspending can be sufficiently estimated.

… Continue reading: “Stop State Spending Insanity Part II – Out of Control!”