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We must control government spending

In the Public Interest • Guet View

November 15, 2010
By Deborah D. Thornton

Tax and Expenditure Limits (TELs) are used to control growth in government spending. Limits are put on the amount of revenue that can be raised (taxes), the amount of money that can be spent (budget), or the amount that can be authorized (appropriated) by the Legislature, or a combination of all three. Constitutional limits are generally stronger and more effective, because statutory limits are easier to override. Increased government growth and spending have resulted in new movements across the U.S. to require voter approval before implementing tax increases, such as a Taxpayer Bill of Rights (TABOR). Other options are Legislative supermajority requirements, “waiting periods,” and Internet posting of legislation before final passage.

According to the Center on Budget and Policy Priorities (CBPP), the current recession has resulted in the “steepest decline in state tax receipts on record.” As many as 46 state budgets are facing current fiscal year shortfalls totaling $112 to $180 billion, with additional shortages in FY 2012. The recession has broadly affected all areas of the economy, from employment, to housing, to consumer sales, to household wealth. As a result sales tax, personal income tax, and property tax collections are all down. State budget cuts are more severe later in the financial cycle because states use their reserves or rainy-day funds to initially backfill the budget — postponing cuts as long as possible.

In Iowa, the Governor and Legislature are required by law to use the December Revenue Estimating Conference (REC) Report of expected tax revenues to budget for the next fiscal year. Thus, the December 2008 REC report was used for the FY 2010 budget — the fiscal year that began July 1, 2009 and ended June 30, 2010. The FY 2010 budget estimates were optimistic, beginning with a high of $6.16 billion, then falling to $5.4 billion. The biggest drop of over $400 million, or 8.4 percent, occurred between the March and October 2009 reports. Accordingly, in October 2009 Governor Chet Culver (Democrat) ordered an across-the-board cut of 10 percent, less than a month after touting the previous year’s balanced budget. In order to end up with a legally balanced budget, a combination of spending cuts, federal money, and transfers from reserve funds were required.

From 2000 to 2009, the Iowa state and local government expenditures grew over 65 percent, from $17 to $28.4 billion. This is almost 20 percent of GDP. Iowa’s population has only grown by 81,000 people, a 2.4 percent increase. As a result, expenditures per capita have increased dramatically, to over $9,400 per person.

As government takes more and more from our workers and families, what funds will be used to support future private sector growth? To educate our children? To save for our retirement? We need stronger tax and expenditure limits on both state and local governments. Tax and Expenditure Limits (TELS) Helping to Control Government Spending, Policy Study #10-4, is available at <>

The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.

Deborah D. Thornton is a research analyst at the Public Interest Institute in Mount Pleasant.


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