Getting the Job Done with a TEL
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 legislators and public officials who seem 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 to one of the top 10 highest taxed in the country. As a result, economic progress and real personal income has lagged behind its neighbors. [1]
Out of frustration with the situation and facing yet another assault on their pocketbooks, a group of citizens formed to repeal the largest tax increase in Ohio history – the 2003 sales tax hike. As opponents have tied that battle up in the courts, the 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 full 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. [2]
The TEL limits state spending increases to the rate of inflation so that state government growth does not exceed that of the private sector. A two-thirds, or super, majority of the legislature can override this limitation as well as institute either a new or an increased tax. Voters, though, retain the right to repeal any such effort. [3]
At the local level, unfunded state mandates would be eliminated and voter approval would be necessary for any tax increase or creation. This is a key measure. In their report “Tax and Expenditure Limitations: The Next Step in Fiscal Discipline,” The Fraser Institute warns that, “One common method used to get around TELs is to devolve state responsibilities to localities.” [4]
Based on evidence from other states, an Ohio TEL has the potential to bring the state budget under control. Research indicates that “states with TELs in place maintained combined state and local real per-capita spending $41 lower than states without TELs,” and once enacted, the growth rate of per-capita state spending in TEL states dropped significantly. [5]
Some have questioned whether employing the ballot box to amend the constitution is the appropriate path to spending control. The truth is such an approach is absolutely necessary for the TEL’s eventual success.
Spending growth in states where TELs have been written or enacted by legislators statutorily 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.” [6]
Thus far, while few have questioned the ability of TELs to cut spending, concerns have been raised as to how state government will be able to effectively function on such a diet. The simple answer is that it must.
While some legislators and special interest groups claim the budget has been stripped to the bone, plenty of fat yet remains. 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. As Ohio proves, 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 adding these missing components will finish the work that was begun years ago.
Footnotes:
[1] Richard Vedder, Grinding to a Halt: Ohio's Tax Policy and its Impact on Economic Growth, The Buckeye Institute, September 2002.
[2] Lee Leonard, “Amendment sought to curb state taxes, spending,” The Columbus Dispatch, 18 August 2004. Available at: http://www.dispatch.com/.
[3] Ibid.
[4] Jason Clemens, Todd Fox, Amela Karabegovic, Sylvia LeRoy and Niels Veldhuis, “Tax and Expenditure Limitations: The Next Step in Fiscal Discipline” (Vancouver, British Columbia: The Fraser Institute, October 2003). Available at: http://www.fraserinstitute.org/.
[5] Ibid.
[6] Ibid.
