Would a Spending Cap Help or Hinder Virginia’s Ability to Budget?

August 1, 2013

TABOR chart 7.31Flawed Formula for State Budgeting Binds Legislators’ Ability to Make Choices

Proposals to limit the growth in state spending to a rigid and arbitrary formula would make it virtually impossible for the commonwealth to keep pace with residents’ changing needs and cope with new challenges, according to new analysis released today by The Commonwealth Institute for Fiscal Analysis, an independent fiscal and economic policy organization in Richmond.

As part of his Economic Growth and Virginia Jobs Plan, Attorney General Ken Cuccinelli has proposed ensuring “state government growth does not exceed inflation plus population growth.” While he has not revealed the specifics about how that goal would be pursued, a spending cap would dramatically alter the way Virginia budgets, including for key priorities like schools, public colleges, and transportation, stripping lawmakers of their ability to judge how best to meet obligations today and invest in the future economy.

Key findings of the new analysis:

  • The budget cap formula is flawed:
    • Changes in the cost of consumer goods, which is often the inflation factor relied on by these proposals, d not capture the cost of providing public services.
    • Overall population growth is another flawed predictor of growth. Virginia’s population is constantly shifting, and certain segments of the population require more public services than others.
  • Under such a budget cap, recessionary cuts would have been even worse:
    • If Virginia had an actual inflation plus population growth formula in place back when the recession began, the state would have been forced to cut an additional $2.5 billion from education, public safety, health care, and other priorities between 2007 and 2013.
    • If the proposed spending restrictions had been in place over the past decade, the commonwealth would have not been able to afford such major initiatives as ending parole, expanding children’s access to health care, and reducing class sizes.
  • Only one state, Colorado, has ever enacted TABOR and the experience was so bad they suspended it in 2005.
    • Rankings of the state’s schools, health care and other services fell from the middle of the pack nationally to bottom of the barrel.
    • Nearly 100,000 senior citizens lost their property-tax exemptions.
    • More than 30 states have rejected similar efforts since.

Get the report (pdf)
Get the release (pdf)