Tax rebels battle state spending through the ballot - how initiatives have fared in efforts to control state budgets - Cover Story

0 Comments | Insight on the News, August 8, 1994 | by William Tucker

Reformers in Michigan avoided the loopholes that undermined California's Proposition 13. Their Headlee Amendment reined in spending and tax increases so much that the state is giving money back to taxpayers. Now voters across the nation are pushing initiatives that give them control of tax reform.

Sixteen years ago, with great fanfare, California voters passed Proposition 13, slashing property taxes and putting politicians on notice that taxpayers had had enough - that they were tightening the reins.

Today, however, California remains in fiscal crisis. The state is rolling over a $2 billion to $4 billion annual deficit And although property taxes remain low - unfairly so, in some instances - practically every other form of taxation has skyrocketed.

In marked contrast to California, the big issue in Michigan today is how to return the state treasury's $300 million lion surplus to taxpayers as required by the state's "Headlee Amendment," a tax-limiting ballot initiative also adopted in 1978. Although it lacked the spectacular, tax-cutting quality of Proposition 13, the Headlee Amendment was carefully crafted to draw a noose around spending increases and to prevent the state from passing the costs of new programs to local governments - the "unfunded mandates" problem.

The results have been impressive. Once a high-tax state, Michigan now ranks within the Top three tax-cutters in the nation. Unemployment rates have fallen below the national average, the economy is booming and state spending in real dollars has shrunk since 1990.

"We've gone from being a typical, high-tax, Rust Belt state to a low-tax, competitive state," says Patrick Anderson, a former tax-limitation leader who is Gov. John Engler's deputy director of the Department of Management and Budget. "We're a perfect example of what cutting government can do for a state's economy."

The Headlee Amendment has become a model for what might be called the "second generation" of taxpayer revolts spreading throughout the more populist regions of the country.

"You might say that tax rebels have become both older and wiser," says Lewis Uhler, president of the National Tax Limitation Committee. Uhler crafted California's Proposition 1, the original tax- and spending-limitation measure developed in 1973 for then-Gov. Ronald Reagan. "A lot of the early tax revolts didn't amount to much because politicians always found a way of getting around them," he says. "We've learned from experience. The new initiatives and constitutional amendments are being drawn much tighter. The politicians are finally realizing they have no alternative except to face up to special-interest groups and cut spending."

A roster of the budget-cutting amendments adopted during the last four years looks like this:

* Colorado's Amendment 1, adopted in 1990, limits state spending by a formula tied to the inflation rate plus population growth and requires voter approval for any state or local tax or fee increase. It subjects all state and local bond issues to voter approval. Spearheaded by maverick Colorado Springs real estate agent Doug Bruce the amendment has had a profound effect on the way state and local governments conduct business. (See "Coloradans Decide to Pay as They Go," May 31,1993.)

* Washington state voters adopted Initiative 601 in 1992, limiting the growth in state spending by tying it to the inflation rate and the growth of the state's population. Any tax increase that pushes spending over the limit requires voter approval. "We had the entire political establishment arguing against it," says Marjorie Huffault, head of the Committee to limit Taxes Now. "But voters proved to be much more sophisticated."

* Arizona voters adopted Proposition 108 by a 72 percent majority in 1992. The constitutional amendment requires a two-thirds majority in both houses of the Legislature to pass any new measure that will increase taxes or general revenues, including fees. "One news analyst recently argued that 108 hadn't accomplished anything because no one has introduced any legislation that would increase fees or taxes," says Sidney Hay, former chairwoman of the "It's Time" campaign. "That's exactly our point - no one is introducing [such legislation] because they know it won't pass."

* Oklahoma voters adopted State Question 640 in 1992, which requires that any legislation introduced to raise taxes must pass with a three-fourths majority in both houses of the Legislature or by a voter referendum. "The Legislature tried one measure, a Health Care Provider Tax, that would have raised taxes to hospitals and doctors," says Dan Brown, head of the Oklahoma Taxpayers Union. "It was soundly defeated. Other than that, there haven't been any new attempts at tax increases."

Even in states that do not allow ballot initiatives, voter pressure for tax cuts has become overwhelming. In New Jersey, Republican Gov. Christine Todd Whitman promised a three-stage 30 percent tax decrease during the 1993 gubernatorial campaign and went on to defeat incumbent Gov. James Florio, who had pushed through the biggest tax increase in the state's history. Whitman since has made good on the first part of her promise and supports a "state-mandate/state-pay" constitutional amendment that would prevent the state from passing the costs to city and county governments. In the process, Whitman's popularity ratings have soared to 78 percent. "Government must stop thinking of the taxpayers' money as its own," she said after signing the tax-cut bill on July 6.