California & Colorado: Why Procedural Restrictions on Revenue-Raising Lead to Disaster

The news from California just keeps getting worse. Faced with a budget deficit that could reach as much as $42 billion by June 2010 and the prospect that the state will soon deplete its cash reserves, State Controller John Chiang announced last week that the state may have to begin issuing IOU's to state employees and to contractors who do business with the state. There's also the chance that, rather than receive the refunds to which they may be entitled, California taxpayers may receive promises that they'll be paid later as well.

So, while Governor Schwarzenegger is busy vetoing the Assembly's latest budget plan, because, he maintains, it "punish[es] people with increased taxes," millions of Californians must now prepare themselves to pay, in essence, higher taxes than they expected to pay this year. Such an outcome hardly seems justifiable, given the likelihood that those residents entitled to refunds are low- and moderate-income families, families that would almost certainly use those tax refunds to pay off bills or to make long-planned purchases.

In light of these developments, the state's Legislative Analyst, Mac Taylor, is now urging policymakers to put tax increases before the states' voters as early as April, so that they can avoid the supermajority-induced gridlock that has plagued Sacramento in recent years.

Of course, California isn't alone in suffering through fiscal crises brought on by unsound tax limits and undemocratic procedural rules. Coloradoknows them quite well too, thanks to the so-called Taxpayer Bill of Rights (TABOR) approved by state voters in 1992. Unless some major changes are made this year, it will likely endure some considerable woes in the years ahead. Why is that? Well, as Erika Stutzman of Boulder's Daily Camera observes, during recessions, "double-whammy style, [ Colorado hits] the 'ratchet' effect: TABOR's requirement that the previous year's budget be used to determine next year's budget." So, if spending falls this year, that lower level of spending will serve as the baseline for growth in all future years. Quite sensibly then, Ms. Stutzman backs legislative changes to TABOR to prevent that from happening.