GOP eyes constitutional amendment on state spending in 2012

House, Senate approaches differ; both want to make it harder to grow state government

By most accounts, a constitutional amendment to make it harder to raise taxes was a key sweetener offered by House Republican leaders last summer in their efforts to entice the chamber’s most conservative members into voting for the budget deal that ended Minnesota’s historic government shutdown.

Months later, the so-called “tax supermajority” measure (which would require the vote of 60 percent of legislators, or in some versions two-thirds, to raise state taxes) has emerged as a likely centerpiece of the House GOP’s Reform 2.0 agenda going into 2012. And that reality, coupled with a party activist base that’s still smarting from a 2011 budget deal that spent substantially more than promised, means Republicans can be expected to push, and push hard, for the measure in the coming legislative session.

“We think this is a good idea,” GOP Rep. Steve Drazkowski, a principal backer of the bill, said at an August House GOP news conference where he was flanked by Speaker Kurt Zellers, Majority Leader Matt Dean and many other caucus members. “We already require in the state Constitution 81 votes in order to pass a bonding bill. We require 90 votes to suspend the rules. Many other state legislatures do the same thing.”

But while many members of the Republican majorities at the Capitol — particularly in the House — are unwavering in their support of the measure, its future for this session is not clear. What’s more, the effectiveness of similar measures in other states remains up for debate, as some say a supermajority requirement alone is not enough to ensure the kind of low-tax, low-spending government that the policy’s backers want. And there are other states whose experience with similar measures may be held up by the measure’s foes as cautionary tales when the debate moves forward.

17 states have passed similar provisions

The supermajority requirement to raise taxes is not a novel idea. Seventeen states have some form of the policy on the books, according to the National Conference of State Legislatures. Wisconsin became the latest in 2011, thanks to the efforts of its GOP-controlled Legislature and Gov. Scott Walker. The oldest such requirement on the books, in Arkansas, dates to 1934.

But while the basic idea of each is nearly identical, differing circumstances have driven their adoption over the decades, a fiscal analyst at NCSL said. Such measures tend to follow recessions, a time when states often raise taxes to offset revenues reduced by a larger economic slump. A few such requirements, most notably California’s infamous Proposition 13, passed in 1979. A spate of others passed in the early to mid-1990s.

Mandy Rafool of NCSL said the fervor for supermajority requirements has cooled in recent years. “It was kind of a backlash,” Rafool said of previous episodes. “Legislatures just aren’t inclined to raise taxes like they were anymore.”

Indeed, Minnesota has been one of the few states to tackle post-2009 budget deficits without raising state taxes. But the anti-tax Republicans who control the Legislature seem disinclined to miss an opportunity to make any future tax increases more difficult. A bill to put a constitutional amendment on the 2012 ballot has the added political advantage of bypassing Gov. Mark Dayton entirely.

Not a magic bullet

But it’s unclear whether even a successful push for the amendment would result in keeping taxes low and reducing state spending, at least considering other states’ experiences.

Even in states with supermajority requirements, tax increases can often be passed in one way or another, analysts say. “If people feel the pinch strongly enough, if there’s enough agreement, then [legislatures] will still pass a tax increase,” Rafool said. “They’ll do it as a last resort, and try to cut first, but you can only cut so much.”

That has been the case in places like Nevada, where a temporary tax — later extended — was put in place despite a supermajority requirement. In Washington, a tax increase met the state’s two-thirds legislative requirement and passed by way of voter referendum, as prescribed by law.

Still, Republicans in Minnesota and supporters of the requirement nationally say that making it harder to raise taxes is success enough. And research has shown that budget fixes in states with supermajority requirements tend to rely more heavily on cuts.

Michael New, a professor at the University of Michigan-Dearborn who is affiliated with the Cato Institute, found that in fiscal year 2002 — after a recession — the ratio of budget cuts to tax increases in states with competitive legislatures and supermajority requirements was more than 37 to 1. In all other states, the ratio was 1.18 to 1.

“The supermajority requirement can be a useful long-term tool,” New said. “States that had these were much more likely to cut spending.”

Unintended consequences

But a supermajority requirement’s success can often include undesirable side effects. Most state government watchers are familiar with the horror stories that have emerged from California and Colorado, where fiscal restraints have left the state governments cash-strapped and hamstrung, forced to make deep and widely unpopular cuts.

Those examples tend toward the worst-case variety, observers say, and are often augmented by other restrictions that tend to compound the problem of inflexibility in dealing with crises.

A more common side effect of state-level taxing or spending restrictions is bound to sound familiar to many across Minnesota: Quite often, the burden of raising taxes to make up for state budget cuts falls to local governments.

In this regard, the state with the oldest supermajority requirement, Arkansas, may prove instructive for Minnesota politicos.

Historically a low-tax, low-service state, Arkansas has lived under a supermajority requirement for more than eight decades. Price Dooley, a state government expert at the University of Central Arkansas, says the net effect has been to push services and taxes to the local level.

“It’s moved it on down,” Dooley said. “That’s ultimately what happens.”

In Arkansas, that has frequently led local governments to pursue sales tax increases, some of them jumping by more than 1 percent at a time. By law, locals can raise sales taxes by as much as 2 cents every so often, but all increases have to go before voters. State education spending has also been reduced, forcing higher tuition at state colleges and leading local units of government to try to make up the difference where they can.

In Minnesota, Dooley noted, the burden resulting from this shift could prove more pronounced. As a state with higher levels of education funding and more generous social services, he noted, Minnesota might find itself transferring a proportionally greater burden to local governments over the long term.

“People still want to have the same support and the same safety net,” Dooley said. “Counties and municipalities have had to go ahead and pick up that [burden].”

Tax limits or spending limits?

One hardship experienced by states that have passed tax increase restrictions is the limited flexibility it leaves legislatures and governors in balancing their budgets — which in turn can lead to lowered credit ratings. In March 2011, Nevada had its rating downgraded by Moody’s. One reason, the analysis said, was that its supermajority requirement “presents a challenge to maintaining fiscal balance.”

Some critics also believe that supermajority measures can serve to block tax cuts, since lawmakers know it would be harder to raise them again later if the need arose.

“It doesn’t necessarily stop tax increases as such, it just requires greater consensus,” the University of Michigan-Dearborn’s New said. “They don’t do anything to restrict government when the economy is doing well.”

Even in California, where tax-raising constraints have been faulted for the state’s notorious fiscal problems, New’s research confirmed that revenues and spending still managed to soar when the economy was growing. With that in mind, he and others like him are inclined to favor strict spending limits if the goal is to shrink government.

That notion was the driving force behind the sort of fiscal restraints backed by U.S. Rep Michele Bachmann while she served in the Legislature. Last year, the approach gained new life at the Capitol when Senate Taxes Chairwoman Julianne Ortman proposed spending limit measures similar to those backed by Bachmann. Two of Ortman’s bills proposed constitutional amendments to limit spending, one of them indexed to the previous biennium’s revenues and the other capped at 98 percent of predicted revenues for the coming budget cycle.

According to a Senate GOP caucus spokesman, Ortman’s approach remains the one favored by Senate Republicans. The tactical divide between Ortman’s spending limitations and the House’s preferred route of tax-increase limitations was evident in the number of sponsors that the tax supermajority measure attracted in both chambers last year. The supermajority requirement saw nearly three dozen co-sponsors in the House, in addition to the backing of the House Republican leadership; in the Senate, it garnered only two co-sponsors: freshman Sens. Dave Thompson and Benjamin Kruse.

For now, says the Senate spokesman, leaders there have not really discussed the supermajority push, and “it’s not an issue we have progressed on to the extent the House has.”

That could potentially cause friction between the two bodies heading into 2012, particularly if House GOP hard-liners hold leaders to their reported promise to advance the supermajority amendment this year. But if the dispute at the Capitol is over how best to cut spending and prevent tax increases, that’s a debate many Republicans will be happy to have.