SUMMARY OF THE MEASURE

Initiative 1033 would impose spending limits on state, county and city governments in Washington.  The measure would set a cap on government spending that would adjust every year based on the annual growth in inflation and population.  Any revenues that exceed the spending limit would be used the following year to reduce property tax rates.  In budget cut years, such as we are currently experiencing, the allowable spending level is “ratcheted” down to a new base.  The measure allows a first increment of funds over the cap to be set aside in a state rainy day fund, but does not include this provision for local government.

The limit on revenue growth would not apply to revenue increases approved by the voters at an election, and money received from the federal government would not be included in the State’s revenue limit. The inflation rate used to calculate the revenue growth limit would be based on the consumer price index for the United States. The limit on state general fund revenue also would be based on changes in statewide population, while for cities and counties it would be based on changes in population for each city and county. The revenue limit would be adjusted if the costs of any program or service are shifted to or from the state general fund or local current expense fund to another fund, or if revenue is transferred from the state general fund or local current expense fund to another fund.

Washington voters passed I-601 in 1993, a similar measure that limited spending from the state government general fund.  Over the years, the Legislature has modified its provisions, a “rolling repeal” according to proponents, who argue that a re-adoption of growth limits is needed.

The Washington Office of Financial Management prepared a fiscal note that concluded that if this measure had been adopted in 1995 it would have reduced state spending by $6 billion and local government spending by $2.8 billion. 

I-1033 is similar to so-called Tax-Payer Bill of Rights (TABOR) measures introduced in other states around the country.  Similar initiatives have been defeated at the ballot in Maine, Nebraska, Oregon and most recently California. Between 2005 and 2009, TABOR was introduced legislatively in 28 states. Only Colorado has adopted a similar measure, but its provisions had to be relaxed to address that state’s fiscal crisis.


ARGUMENTS FOR THE MEASURE

The proponents made the following arguments in support of the measure:

•    I-1033 reestablishes I-601's reasonable growth limit of inflation plus population growth, maintaining the 'safety valve' of voter approval for bigger increases.

•    In the decade before voters approved I-601 in 1993, the average increase in government growth was an unsustainable 17.3% per biennium.  In the years following I-601, the growth of government averaged 8.9%, almost half the previous rate. But as time went on, legislators gradually suspended its policies, putting loopholes in I-601.

•    Those loopholes allowed them to take budgets on a fiscal roller coaster, overextending themselves in good times -- creating unsustainable budgets -- and then slashing during bad times.

•    Putting a reasonable limit on the growth of government, as I-601 previously did, gives politicians the excuse to say ‘no’ to the special interest groups and the courage to finally start prioritizing and reforming government. And if government decides that the automatic increase allowed by I-1033 isn’t big enough, government can use its rainy day fund money and/or go to the voters and ask for a bigger increase.

•    I-1033 is not like Colorado’s TABOR amendment.  They’re very different.  TABOR was a constitutional amendment -- it couldn’t be amended by the Legislature; I-1033, like I-601, is a law, providing the Legislature with flexibility to change it.  TABOR encompassed every government – school districts, library districts, fire districts, etc.  I-1033 focuses only on the state, counties and cities.  TABOR put a limit on every governmental account and every tax dollar received, including transportation funds, pension funds, capital budgets, workmen’s compensation, unemployment insurance funds, federal funds, etc.  I-1033, like I-601, only addresses the general fund.  TABOR didn’t allow rainy day funds.  I-1033, like I-601, gives ‘first bite’ of excess tax revenues to the rainy day fund.  TABOR didn’t exclude federal funds; I-1033 explicitly does.  TABOR was very, very broad and inflexible – I-1033 is very focused with plenty of flexibility.

•    Opponents argue that if I-1033 passes, governments will be forced to base their future budgets on 2009 revenues.  The state, counties, and cities will have to base their future budgets on 2009 revenues with or without I-1033.  The question is should taxes be increased during these tough economic times?  I-1033 deters tax increases by capping the growth of government to a reasonable, sustainable growth rate that ensures government doesn’t get back on the fiscal roller coaster. 

•    Nothing in I-1033 prevents governments from setting aside revenues in a reserve account to save for a rainy day.  In fact, I-1033 specifically carves out exceptions for rainy day funds for the state, counties, and cities. 

•    I-1033 establishes a reasonable, automatic increase in government revenues every year and allows bigger increases by asking taxpayers’ permission.  I-1033 provides fiscal discipline with flexibility:  any revenue from any source deposited into general funds is limited except voter-approved revenues, rainy day funds, and federal funds for the state and except voter-approved revenues for counties & cities.  Opponents want no limits whatsoever. 


ARGUMENTS AGAINST THE MEASURE

Opponents of the measure made the following arguments:

•    Initiative 1033 is a misleading initiative that will have thousands of unintended consequences - and it's an idea that's already been proven a failure in other states.

•    The measure would slow economic recovery and leave us in a permanent recession. This year Washington faced a devastating budget deficit. I-1033 would lock in one of the most restrictive budgets ever as our baseline. The worst of times in Washington would become the best that we can hope for.

•    I-1033 threatens education, health care and basic services during a time when the need for governmental services is greatest. 

•    By initiating the spending cap during the worst recession in half a century, we would be ratcheting spending down to severe cut-back levels and when the economy begins to recover we would not be able to restore services to previous levels.

•    The growth formula of inflation and population used by I-1033 does not take into account that the need for government services is based on economic and demographic trends and legislative responses to emerging needs.  Trends that affect the need for services include the number of school-age children and college-age youth, the proportion of senior citizens, crime statistics, public health mandates and environmental initiatives.

•    Since the passage of I-601 and other taxing and spending limitations, growth in government spending has already slowed significantly.  However, governments have been forced into numerous special votes and special taxing districts that have further balkanized programs, added expensive administrative procedures in lieu of politically responsible action and made prioritizing and shifting funds to meet changing needs even more difficult.

•    Returning funds over and above the spending limits to citizens in the form of property tax cuts is unfair and highly regressive.  Taxes collected from all citizens in the form of sales taxes and from businesses in the form of B&O taxes would be returned to property owners, with the owners of the largest properties benefiting the most.

•    I-1033 is a proven failure. A similar initiative passed in Colorado in 1992.  Since then, Colorado's economy has been devastated and funding for services, ranging from education, to the judicial system, to health care and libraries, has plummeted. The situation was so critical that in 2005 voters put the law on hold so their state could recover.


RECOMMENDATION and RATIONALE

The Municipal League of King County opposes Initiative 1033. 

Washington State is experiencing a severe recession.  State and local governments have instituted drastic budget cuts affecting education, health care, human services, parks, corrections and many other programs that citizens rely on, especially during hard times.  Now is the worst possible time to further hamper government’s flexibility to meet public needs and to help with economic recovery. 

Previous statewide initiatives have already slowed government spending significantly and elected officials are already very cautious about authorizing tax increases to meet service needs.  While it may be a good idea to encourage government to prioritize services and live within its means, this initiative is filled with complex provisions that will make government’s ability to govern much harder and further exacerbate the structural problems of our system of financing public services.