Recently, Texas taxpayers were given the cold shoulder by a visiting state district judge in Austin. A lawsuit by Citizens Lowering Our Unfair Taxes (CLOUT) against the State of Texas for not properly implementing the Texas Constitution’s expenditure limit was summarily dismissed because, says the judge, taxpayers lack legal standing.
In short, the ruling means the “Texas Tax Relief Act” (as the amendment was known) effectively does not exist. If taxpayers do not have standing to enforce the constitutional spending limit, it is little more than window dressing.
Unless the Supreme Court of Texas says differently on appeal, state officialdom could almost ignore the constitution with impunity.
Unfortunately, this has happened before. State law passed to implement the constitution’s expenditure growth limit instructs the Legislative Budget Board to adopt a maximum growth rate based on personal income growth. In the 1980s this was not done. At the time, a request to the Texas Supreme Court for an order requiring the legislature to do its duty was simply refused without comment. Only political embarrassment forced the legislature to begin taking the constitution’s expenditure limit seriously.
Texas is among 30 states with expenditure limits. Texans approved our amendment in 1978, shortly after Ronald Reagan first proposed a similar measure when he was governor of California. The idea is to limit how much the legislature can increase spending – even if it were to increase taxes. Otherwise, government tends to grow out of control when the legislature meets as spending advocates descend on Austin while taxpayers are busy making a living.
Unfortunately, Texas’ taxpayer protection is one of the weakest in the nation. The constitution says that spending should not rise faster than the economy grows. That sounds reasonable – until you read the fine print. The limit only applies to tax revenues not dedicated in the constitution. Any spending from fee-based revenues is not included. Spending from the constitutionally dedicated gasoline tax is not included, either.
Another problem is that the expenditure limit only applies to how much the legislature appropriates for the next two years. Therefore, the allowable growth rate is based on only a guess of how much personal income will grow in the future. Who is to say if the adopted rate is correct? No official check for whether these guesses come close to reality ever occurs, and spending is never adjusted to correct for errors.
In short, expenditures can grow considerably faster than growth in the economy, especially if an unexpected economic slump comes along.
Far more predictable is how much population might grow in the near future and how high inflation is likely to be. Government should grow no faster than population growth and inflation would dictate, since they take into account increased demand for government services as well as increased costs. With the current expenditure non-limit, government can grow as fast or faster than the economy, even though increased prosperity should require less government.
But don’t think the limit has been completely without effect. It actually kept Texans this year from getting more property tax relief. Although the state is flush with surplus cash, it could not be used to reduce school property taxes because the state was near the expenditure cap. The bare majority needed in the legislature to declare an emergency to exceed the cap would not vote to do so – not for the sake of taxpayers! Of course, observers expect lawmakers will quietly bust the limit when they meet in January – for “supplemental” spending.
Only time will tell if the Texas Supreme Court will side with taxpayers or big spenders in deciding whether taxpayers can enforce the protections for which they voted.
Whichever side the court takes, Texans need a new “Texas Tax Relief Act,” one that does not require legislative action to implement it, one that applies to local as well as state government, one based on population growth and inflation, and one that requires taxpayer permission before the limit can be violated.
Byron Schlomach, Ph.D., is the chief economist at the Texas Public Policy Foundation, a non-profit research institute based in Austin.