What is TABOR?

Download the White Paper (.pdf)

A state’s budget is a complex mix of politics and management. Legislators seek to establish appropriate levels of expenditures and revenues to promote economic growth while financing the government’s activities. These decisions are not made in a vacuum, however. Political pressure groups seek to influence both the stream of revenues and the stream of outlays. At the same time, these decisions are made collectively under different settings than those of individuals making private decisions in the market. Evaluating the institutional framework within which these decisions are made can provide insights into the outcomes of these choices as well as ways in which these decisions can be improved.

In many instances, the biases in the typical budgetary decision-making process are toward increased spending. This has led to recurring deficits at both the federal and state level that weaken the government’s fiscal position while increasing the burden on taxpayers and creating a drag on economic growth. Institutional reforms can address such biases and identify specific reforms that promote prudent fiscal practices. This paper examines the current fiscal health of the states and reviews the various fiscal restraints that states have adopted. Tax and expenditure limitations, such as Colorado’s Taxpayers Bill of Rights, receive particular emphasis. Such measures offer an effective means to control expenditures and revenues, but as the analysis suggests, their effectiveness is determined by how well they are designed.