The recent passing of Michigan business executive and taxpayers’ champion Richard H. Headlee has brought a flood of reflections on the state Constitution’s “Headlee Amendment,” which prohibits the state from imposing unfunded mandates on local units of government, restrains property tax rates and assessments, and limits the state’s total nonfederal revenues to 9.49 percent of personal income. As a 1993 state commission concluded, Michigan has reaped lasting benefits from Headlee’s 1978 fight to enshrine the amendment.
In the spirit of the amendment, Michigan’s citizens should embrace further measures to discipline state spending and protect taxpayers from relentless growth in government — especially when there is evidence they work. One such tool is the Colorado-style “Taxpayer Bill of Rights” (commonly referred to as “TABOR”).
Colorado amended its constitution with TABOR in 1992. From one state budget to the next, it limits the growth of spending and taxation in the state to the combined population and inflation rate. It requires legislators to ask taxpayers to approve tax hikes and increases in state debt levels at the ballot box. Any surplus in the budget must be returned to taxpayers, a provision that has been invoked on several occasions since 1992.
What’s even more impressive about Colorado’s TABOR is that if there is a recession and legislators must cut the budget to balance it, the new level at which legislators are allowed to spend “rebases” to the level of the new, lower budget.
In the decade prior to TABOR’s passage, Colorado saw a combined population and inflation rate increase of 40 percent, while state spending grew by 90 percent — more than twice as fast. In the decade after the amendment’s passage, population and inflation combined increased 63 percent, while state spending increased by 64 percent. From 1997 to 2001, Colorado’s rebate mechanism for budget surpluses returned $3.25 billion to state taxpayers.
Such a rebate mechanism would have prevented spending sprees such as the one that occurred in Michigan during the summer of 2000. At the end of the fiscal year, budget officials informed lawmakers that the treasury had received $600 million more than had been budgeted. Rather than return it to taxpayers, legislators in Lansing went on a spending spree that included a new polar bear exhibit for the Detroit Zoo.
According to the nonpartisan state Senate Fiscal Agency, between 1990 and 2000, Michigan’s state government debt per capita increased relative to other states, with its rank rising from a respectable 36th to an above-the-median 22nd. During the same period, Colorado’s rank was unchanged at 42nd. It’s doubtful that Michigan’s voters would have approved this dubious state debt strategy if they had been given the choice.
Jon Caldara, president of the Independence Institute of Colorado, notes that state economic development officials use the state’s TABOR amendment as a recruiting tool when persuading businesses to move there. Entrepreneurs place great value on the certainty of projecting their cost of doing business, and one variable in that cost is taxes.
While TABOR is only part of the economic equation, it has no doubt contributed to Colorado’s comparative economic success. Between 1992 and the end of 2001, Colorado went from 15th to 9th among the 50 states in gross state product per capita, a standard measure used by economists to determine a state’s overall economic health. By contrast, Michigan’s rank was unchanged at 30th.
To strengthen the existing Headlee Amendment provisions, state Rep. Jacob Hoogendyk Jr. introduced a Michigan House Joint Resolution in September 2004 to create a TABOR amendment. If it becomes part of the state Constitution, it will curtail growth in state government by imposing new fiscal discipline on legislators.
The Taxpayer Bill of Rights may very well become this decade’s top economic story in states across the nation. Michigan legislators would show real leadership by putting a TABOR amendment before the voters of Michigan.
Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.