Stop the waterfall

Vermont has a new line item in the budget called “waterfall” which was created to support spending of extra tax revenue if it exceeded projections for the year. Hundreds of millions were spent that way the last 10 years by the legislature and both administrations.

Twenty-seven states have some form of tax and expenditure limitation. Vermont doesn’t but each year the Governor submits a balanced budget to the legislature based on a consensus revenue forecast agreed to by the legislature and Governor. Politically, it would be suicide if the budget wasn’t balanced. However, there’s no constitutional provision or statute that impedes government growth. Taxpayers must rely on the discipline of elected officials to limit government.

The pressure of special interests seeking state funding is intense. For instance, Vermont employs twice as many per capita in its non-profits than the national average and many receive tax dollars to operate. Politicians have a vested interest to charm these voters, because it is a big block that extends into every community. There’s no doubt with taxpayers that elected officials are not an adequate buffer against expanding government.

For the last 25 years, Vermont’s state and local tax burden to income hovered between 11-12 percent and now ranks 6th highest in the US. This high ranking can make a case for fiscal policy reform that might be useful to constrain spending habits of politicians. Hundreds of million in surpluses over the last 10 years were spent like a kid in a toy store with oodles of money. The democratic process and fear of reprisal from voters is an inadequate restraint on politicians.

Colorado is the best example of a state spending limit in practice. Growth in state revenues is constitutionally limited to the inflation rate plus a change in population from the prior year. It applies to both state and local government. Excess revenues are refunded in the following year unless voters agree to let the state keep its excess.

A fiscal analysis demonstrates that if Colorado’s limits were imposed in Vermont, our state budget would have been $13 million less in FY05. When we had the budget crisis in FY00, General Fund spending was $860 million but if this spending limit had been in place, we would have spent $808 million. In short, our budget crisis would have been non-existent if such spending limits had been in place.

Iowa mandates a 99 percent spending limit on projected revenue for the General Fund portion of the state budget. When the emergency fund reaches 10 percent of the General Fund, it’s been proposed to return the excess back to the taxpayers.

To be successful, any proposal to protect taxpayers should be added to the state constitution or it would be changed at will by the legislature. There should be a “circuit breaker” to exceed the spending limit in the event of emergencies like voters allowed in Colorado last year. Rather than a voter referendum a super majority in the legislature could be used. A simple majority vote would provide no restraint above and beyond the current reliance on politician’s self-restraint.

Stop over Spending (SOS) by lowering the cost of state government and tax burdens can only be achieved by limiting the growth of government. The pressure of rebate checks would also put necessary pressure on State Legislators and the Governor to spend money wisely. Fiscally responsibility and affordability are needed to protect taxpayers from government spenders.

Frank Mazur, a small business owner and former state representative, is chair of the advisory board of Vermont FreedomWorks. Other columns can be found at www.frankmazur.com

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