Wednesday, February 23, 2005

TABOR's Colorado Criticism.

Many critics of TABOR say that it has devestated Colorado. My contact at the Heritage Foundation states that this is true to a certain extent due to something he referred to as the "ratcheting effect". He described the effect to myself and IMO a better term be the "sawtooth effect" but whatever!

Here is why this happens and why it will not happen in Wisconsin. The Colorado TABOR has two indices with which it looks to, to limit spending growth. The first one is revenues, the second is inflation + population growth. The index for a given budget cycle is the lower of the two and while I neglected to ask Brian I take it fairly safe to assume if the chosen index results in absolute budget cuts then absolute budget cuts happen (by "absolute budget cut" a real cut in spending, not just a lesser than expected increase, e.g. a budget goes from $100.00 to $95.00 not from $100.00 to $105.00 instead of the expected $110.00).

So when a recession occurs revenue drops and that drop dictates actual budget cuts. For example Year 1 the budget is 100.00, year 2 inflation + population growth allows for a new budget of $105.00, year 3 a recession hits. So in year 3 the revenue index dicates a new budget of $95.00 instead of a inflation + population index budget of $107.00. So in year 3 real cuts must happen, but in year 4 the economy rebounds and the populatin + inflation index dictates a new budget of $99.00 whereas without year 3 it would stand at $112.00.

YearWith Revenue CapWithout Revenue CapW/O Any Cap
3 (recessionary economy)$95.00$107.00$120.00

I will try to find the time to model this on a spreadsheet and create a chart to illustrate what is happening. The effect is real and it does require budget cutting and program gutting. The question I have is this: Does Frank Lasee's proposal consider revenue as a cap? My understanding is that it does not. So if it is true that Lasee's TABOR does not contain a revenue cap than the Colorado cricism DOES NOT APPLY!

This is not the only criticism but a big one coming from the Left. There is a criticism from the right as well and I will address that later.

[UPDATE] 2/23/2004 3:50 pm CST
Added "W/O Any Cap" column to the table.