Study Urges Arizona to Adopt a Colorado-Style Expenditure Limit

Posted on April 21, 2003 | Type: Press Release
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PHOENIX-In a study released today by the Goldwater Institute, Harvard/MIT Data Center fellow Michael J. New reports that Colorado's Taxpayer Bill of Rights has been the most effective expenditure limit enacted in any state during the last three decades. "Enacting a Colorado-style constitutional amendment is Arizona's best hope to restrain spending, generate tax relief, and help prevent future fiscal crises of the kind that have plagued the state during the last two years," Dr. New states.

In "Tax and Expenditure Limitations: What Arizona Can Learn from Other States," New presents the results of a regression analysis on budget data from all 50 states from 1972 to 1996. The results demonstrate that limiting increases in expenditures to the rate of population growth plus inflation reduces state and local expenditures by $115 a year per capita. If the limit includes a taxpayer refund provision but does not cap expenditure growth at population growth plus inflation, the limit reduces state and local expenditures by $40 a year per capita. If a state has neither provision, its expenditures increase by $15 a year per capita.

New also presents several state-specific case studies. Washington state's Initiative 601, for instance, succeeded in sharply reducing state expenditure growth. But the most effective limit is Colorado's Taxpayer Bill of Rights, passed in 1992. The Colorado amendment caps spending growth at the rate of population growth plus inflation and requires immediate refund of surplus revenues to taxpayers. The result is that Colorado taxpayers have received $3.2 billion in tax rebates since 1997, an average of $900 per taxpayer. At the same time, Colorado's economy has been exceptionally strong. Between 1995 and 2000, Colorado ranked first among all states in gross state product growth and second in the nation in personal income growth.

New notes that Arizona voters passed three fiscal limitations since 1978: an expenditure limit, property tax limits, and a supermajority requirement for tax increases. However, he concludes that none of those limitations has been able to limit spending effectively. But if Arizona had enacted a Colorado-style limit in 1992, it would have avoided the fiscal crisis of the past two years and residents would have received $4 billion in tax refunds.

The study is available online here.

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