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Tax Reform Debate May Tie Up TABOR
Publisher's note: The author of this post is Dan Way, an associate editor for the Carolina Journal, John Hood Publisher.
Spending-limitation measure on hold until lawmakers agree on tax changes
RALEIGH Tax reform legislation working its way through the General Assembly could affect a Taxpayer Bill of Rights measure originally intended to return budget surpluses to taxpayers, state Rep. John Blust told a Wednesday meeting of the House Finance Committee.
House Bill 274, which would limit annual budget hikes through a formula set in the state Constitution, already passed the Committee on Government, but "came out before the tax reform efforts really got under way," Blust told committee members. The House and Senate are trying to reconcile differing tax packages.
As written, the bill would return to taxpayers any excess collection over 5 percent of budgeted revenue. If H.B. 274 passes both chambers with 60-percent majorities, voters would consider it as a constitutional amendment as early as 2014.
"I think we're looking at giving taxpayers significant relief now, so we may look at changing that [tax rebate] to allow use of funds for something like bolstering the state retirement fund. We haven't really addressed that in this General Assembly or the last," Blust said.
"The retirement [system] looks good if the assumption is made that the treasurer can return 7.25 percent year after year on our current funds, and I think there is considerable doubt whether that can be achieved," Blust said.
North Carolina General Assembly: Above. photo by Stan Deatherage
"So we may well have the need for funds to meet our obligations under our pension plan, and I don't think we want to constrict ourselves too much" by using extra revenue as a tax refund, he said.
But Rep. Paul Luebke, D-Durham, said after the meeting that H.B. 274 is too restrictive, period.
"TABOR puts a straitjacket on legislators by directing by constitutional amendment how budget decisions should be made. That doesn't seem right to me," Luebke said.
"If my constituents don't like the values that I pursue, or the policies that I vote for or against in the General Assembly, they should unelect me. They should defeat me in the next election," he said.
Colorado is the only state that has adopted a Taxpayer Bill of Rights, in 1993. Its model, adopted in 1993, includes state, local, and school budgets. Legislative Democrats and liberal courts have been chipping away at some of Colorado's TABOR provisions over some of the same reasons Luebke cited.
"The fact that Colorado is rethinking its commitment to TABOR, and the fact that it's not been enacted by other states, leads one to question its utility," Luebke said.
"The effect of this bill is to restrict the amount of availability for state government spending" and return excess funds to taxpayers, Luebke said, but "what sounds good in the abstract becomes more questionable" when addressing specifics.
"I think that's why a lot of questions are in fact out there across the country about TABOR. Does a state really want to restrict its investments in public education, for example," he said.
"The bill's title sounds great, but there are those who would counter by saying there ought to be a school children's bill of rights," Luebke said.
"Public school teachers in my district are so frustrated that under this budget they get no raise. Any master's degrees that they work for will not result in any increase in pay, that teaching assistants are being fired. For teachers and for parents who care about public education, this budget is extremely disappointing, it seems extremely inappropriate," Luebke said.
"So TABOR would just make it harder for those investments to be made in education," he said.
"This is a bill and an idea that has been around a long time. A similar bill passed the House back in 1995 with, I think, 93 votes," Blust said.
"It's really a very simple concept. It restricts the future growth in state spending to a fiscal growth factor, which is determined by adding the rate of inflation plus the growth of population using a three-year average," Blust said.
Revenue that exceeds budgeted amounts by up to 5 percent will be placed in an emergency reserve trust fund. Collections beyond 5 percent would become tax refunds.
"Perhaps that figure needs to be somewhat higher, and we'll take a look at that," Blust said.
The emergency fund could be used if there is a budget shortfall, "which we've seen the last few years," Blust said. "The director of the budget is empowered to use those funds in that account to meet the state's general fund obligations without further vote of the General Assembly."
Otherwise, a two-thirds vote of the General Assembly would be required to spend money from the emergency fund for events such as a natural disaster, weather damage, or terrorist attack.
"We have been in some tight fiscal times" the past few budget years, so newer members might not understand the need for restricting budget growth, Blust said.
"But many of us were here when we had large surpluses, and the argument could be made that one reason we're in these tough budget situations is that we just got used to a billion to a billion and a half extra revenue every year, and that raised our base line, and once we hit the wall with the financial crisis of 2008 having gotten used to a revenue base that's growing like this it was hard to get used to one that was flat-lined," Blust said.
"So the idea behind this bill is to keep that from ever happening again. If we keep our budgets restrained in the good years we won't face the bad years," he said.
"This would require a constitutional amendment. If we didn't put something in the constitution, of course, any General Assembly that wants to spend more could simply just repeal the law or ignore the law and move forward," he said. "So this will be put to the people looking to the 2014 ballot."
The base year from which future budgets would be calculated would be the fiscal year that begins July 1, 2015.
The current version of the bill is under review by a task force appointed by House Majority Leader Edgar Starnes, R-Caldwell, and chaired by Speaker Pro Tem Paul "Skip" Stam, R-Wake.
"That group will continue to look at this and possibly make some changes as it moves forward," Blust said.
"There is in this bill, as there is in a bill Rep. Stam has filed separately, also a requirement that when the governor prepares his budget, he cannot exceed the prior year's actual collections. The committee will look at whether that will run in a separate bill so that might come out of this bill," Blust said.
Go Back
Spending-limitation measure on hold until lawmakers agree on tax changes
RALEIGH Tax reform legislation working its way through the General Assembly could affect a Taxpayer Bill of Rights measure originally intended to return budget surpluses to taxpayers, state Rep. John Blust told a Wednesday meeting of the House Finance Committee.
House Bill 274, which would limit annual budget hikes through a formula set in the state Constitution, already passed the Committee on Government, but "came out before the tax reform efforts really got under way," Blust told committee members. The House and Senate are trying to reconcile differing tax packages.
As written, the bill would return to taxpayers any excess collection over 5 percent of budgeted revenue. If H.B. 274 passes both chambers with 60-percent majorities, voters would consider it as a constitutional amendment as early as 2014.
"I think we're looking at giving taxpayers significant relief now, so we may look at changing that [tax rebate] to allow use of funds for something like bolstering the state retirement fund. We haven't really addressed that in this General Assembly or the last," Blust said.
"The retirement [system] looks good if the assumption is made that the treasurer can return 7.25 percent year after year on our current funds, and I think there is considerable doubt whether that can be achieved," Blust said.
"So we may well have the need for funds to meet our obligations under our pension plan, and I don't think we want to constrict ourselves too much" by using extra revenue as a tax refund, he said.
But Rep. Paul Luebke, D-Durham, said after the meeting that H.B. 274 is too restrictive, period.
"TABOR puts a straitjacket on legislators by directing by constitutional amendment how budget decisions should be made. That doesn't seem right to me," Luebke said.
"If my constituents don't like the values that I pursue, or the policies that I vote for or against in the General Assembly, they should unelect me. They should defeat me in the next election," he said.
Colorado is the only state that has adopted a Taxpayer Bill of Rights, in 1993. Its model, adopted in 1993, includes state, local, and school budgets. Legislative Democrats and liberal courts have been chipping away at some of Colorado's TABOR provisions over some of the same reasons Luebke cited.
"The fact that Colorado is rethinking its commitment to TABOR, and the fact that it's not been enacted by other states, leads one to question its utility," Luebke said.
"The effect of this bill is to restrict the amount of availability for state government spending" and return excess funds to taxpayers, Luebke said, but "what sounds good in the abstract becomes more questionable" when addressing specifics.
"I think that's why a lot of questions are in fact out there across the country about TABOR. Does a state really want to restrict its investments in public education, for example," he said.
"The bill's title sounds great, but there are those who would counter by saying there ought to be a school children's bill of rights," Luebke said.
"Public school teachers in my district are so frustrated that under this budget they get no raise. Any master's degrees that they work for will not result in any increase in pay, that teaching assistants are being fired. For teachers and for parents who care about public education, this budget is extremely disappointing, it seems extremely inappropriate," Luebke said.
"So TABOR would just make it harder for those investments to be made in education," he said.
"This is a bill and an idea that has been around a long time. A similar bill passed the House back in 1995 with, I think, 93 votes," Blust said.
"It's really a very simple concept. It restricts the future growth in state spending to a fiscal growth factor, which is determined by adding the rate of inflation plus the growth of population using a three-year average," Blust said.
Revenue that exceeds budgeted amounts by up to 5 percent will be placed in an emergency reserve trust fund. Collections beyond 5 percent would become tax refunds.
"Perhaps that figure needs to be somewhat higher, and we'll take a look at that," Blust said.
The emergency fund could be used if there is a budget shortfall, "which we've seen the last few years," Blust said. "The director of the budget is empowered to use those funds in that account to meet the state's general fund obligations without further vote of the General Assembly."
Otherwise, a two-thirds vote of the General Assembly would be required to spend money from the emergency fund for events such as a natural disaster, weather damage, or terrorist attack.
"We have been in some tight fiscal times" the past few budget years, so newer members might not understand the need for restricting budget growth, Blust said.
"But many of us were here when we had large surpluses, and the argument could be made that one reason we're in these tough budget situations is that we just got used to a billion to a billion and a half extra revenue every year, and that raised our base line, and once we hit the wall with the financial crisis of 2008 having gotten used to a revenue base that's growing like this it was hard to get used to one that was flat-lined," Blust said.
"So the idea behind this bill is to keep that from ever happening again. If we keep our budgets restrained in the good years we won't face the bad years," he said.
"This would require a constitutional amendment. If we didn't put something in the constitution, of course, any General Assembly that wants to spend more could simply just repeal the law or ignore the law and move forward," he said. "So this will be put to the people looking to the 2014 ballot."
The base year from which future budgets would be calculated would be the fiscal year that begins July 1, 2015.
The current version of the bill is under review by a task force appointed by House Majority Leader Edgar Starnes, R-Caldwell, and chaired by Speaker Pro Tem Paul "Skip" Stam, R-Wake.
"That group will continue to look at this and possibly make some changes as it moves forward," Blust said.
"There is in this bill, as there is in a bill Rep. Stam has filed separately, also a requirement that when the governor prepares his budget, he cannot exceed the prior year's actual collections. The committee will look at whether that will run in a separate bill so that might come out of this bill," Blust said.
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