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Press Release

    Getting the Job Done with a TEL

    09/01/2004

    Ohio Secretary of State J. Kenneth Blackwell recently announced his support of a constitutional amendment to limit taxing and spending. The proposal, called a Tax and Expenditure Limitation, or TEL, involves reining in the state legislature that seems unwilling, or unable, to maintain a grip on the state budget. However, those unfamiliar with TELs may be uncomfortable voting to restrict legislative authority through a statewide ballot. A quick overview of this tool, though, reveals just how beneficial a TEL could prove for Ohioans.

    Since the 1970s, Ohio has moved from one of the lowest taxed states in the country to one of the top 10 highest taxed. Moreover, the Washington, D.C.-based Tax Foundation found Ohio had the third highest state and local tax burden in the nation in 2003. As a result, economic progress and real personal income has lagged behind its neighbors.

    Out of frustration with higher and higher taxes, and facing yet another assault on their pocketbooks, a group of citizens formed an organization to spearhead repeal of the 2003 sales tax hike. As opponents have tied that battle up in courts, organizers have since shifted their focus to a much more comprehensive approach.

    Rather than simply reacting to such egregious tax increases, a TEL prevents them from occurring in the first place - at least without voter approval. Indeed, the current proposal actually represents an attempt to fulfill the promise of Ohio's balanced budget amendment and enact some reasonable size limitations.

    The proposed TEL limits state spending increases to the inflation rate so that govern-ment does not grow faster than the private sector and our ability to pay for it. A two-thirds, or super, majority of the legislature can override this limitation as well as institute a new or an increased tax. Voters, though, would be able to repeal such an effort. At the local level, unfunded state mandates would be eliminated and voter approval would be necessary for any tax or tax increase. This is a key measure. In "Tax and Expenditure Limitations: The Next Step in Fiscal Discipline," The Fraser Institute warns, "One common method used to get around TELs is to devolve state responsibilities to localities."

    Based on evidence from other states and Canada, an Ohio TEL has the potential to bring the state budget under control." States with TELs in place maintained combined state and local real per-capita spending $41 lower than states without TELs," according to one report. Once enacted, the growth rate of per-capita state spending in TEL states dropped significantly.

    Some have questioned whether employing the ballot box to amend the constitution is the appropriate path to spending control. The truth is this approach is absolutely necessary for the TEL's success.

    Spending growth in states where TELs have been written or enacted by legislators outpaced those that were brought about by the citizens themselves and passed as amendments. As Fraser explains, "in states with constitutional TELs, the growth rate of per-capita state spending fell by 4.8 percentage points relative to the U.S. average whereas, in states with statutory TELs, the decline was 2.3 percentage points."

    Thus far, while few have questioned the ability of TELs to cut spending, some worry about whether the state government can effectively function on such a diet. The simple answer is that it must, just like private businesses in Ohio and families.

    While some legislators and special interest groups claim the budget has been stripped to the bone, plenty of fat remains. Indeed, when compared to other states, Ohio's state and local tax burden moved from 13th to 3rd highest in the nation from 2000 to 2004. For Ohioans to prosper, state government must return to being lean and efficient.

    The key to bringing the budget under control ultimately involves attacking the problem from a number of fronts - and this is the reason the current proposal includes the measures that it does. As we have learned, a balanced budget amendment alone accomplishes little. The same is true for a supermajority requirement or a TEL if enacted alone. But if Ohioans want to follow through on the spirit and intent of the balanced budget amendment, then completing the package with those components that are currently missing will finish the work that was begun years ago.