Taxpayer Protection Amendment - TPA - on Fast Track

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1 February 17, 2006 Taxpayer Protection Amendment - TPA - on Fast Track New Constitutional Amendment Proposal Replaces TABOR Finds Broader Capitol Support TABOR Is Back with a New Name Introduced February 14 th, the identical Joint Resolutions SJR 63 and AJR 77 represent the latest attempt to control state and local government fiscal affairs by constitutional formula. Affectionately known as the Son or Bride of TABOR, the TPA was renamed largely because TABOR does not resonate well in public polling. The TPA is on a very fast track. It was the subject of an invitation-only hearing on February 15 th, just 24 hours the legal minimum - after its introduction. Assembly Speaker John Gard (R- Peshtigo) has already asked members to hold dates in late February and March to bring the TPA to the floor. Unlike a bill, a constitutional resolution does not go to the Governor for signing or veto. Rather, if the resolution is passed by both houses of the legislature in two successive legislatures, a statewide referendum is triggered. Passage of that referendum amends the constitution. Passage of either of the identical resolutions before early August, 2006, would set up a vote on second consideration anytime beginning after inauguration of the new legislature in January, A referendum could then take place as early as April, TPA Sees Broader Capitol Support The TPA is much more widely supported by leadership and majority legislators alike. Both Senate Majority Leader Dale Schultz (R-Richland Center) and Speaker Gard have publicly committed to support it, and many majority Republicans in each house - while perhaps lukewarm or skeptical behind closed doors - are reluctant to question the initiative in a key election year. TPA sponsors are listed at the end of this report. Earlier and often-cited polling by Wisconsin Manufacturers and Commerce (WMC) states that Wisconsinites support a constitutional amendment to limit taxes by a 2-to-1 margin. However, our own 2004 polling suggested that support is much less likely when consequences ( if it may reduce access to technical college courses, programs, and services ) are added to the question. The Wisconsin State Journal roundly criticized the TPA in a February 15 th editorial (reprinted below), and other papers are following suit.

2 The TPA s Complex Formula The TPA s provisions are quite complex and are still being reviewed. Several of the provisions are also subject to very different interpretations: TPA is a Revenue Limit: Essentially, the TPA would limit total state and local revenues that can be collected in a given year from all taxes, bonding, fees, permits and other collections. It would not include tuition or federal funds. It is not yet clear if WTCS contract revenue would be included or excluded. The TPA Formula: Beginning in FY2010, a technical college district could collect in total revenue the prior year s amount plus an increase up to a limit based on a formula: First, the formula uses average inflation (the CPI for the Milwaukee-Racine area) over three prior years (basically, years two, three, and four before the current year). Second, that amount is limited to be no more than the amount that statewide personal income grew over one past year (from three years ago to two years ago). Third, the resulting number can be adjusted by a district s estimated population growth. The inflation/ income figure is added to district population growth, if any, in the prior year, as estimated by the state and adjusted by each 10-year census. It is very difficult to calculate the effect of this limit if it had been in place in recent years. Such calculations will be shared as soon as available. A preliminary study of the TPA s long-term statewide effects is contained in a new paper by UW-Madison professor Dr. Andrew Reschovsky. A copy of the paper can be found at: Different Governments Follow Different Formulas: In contrast to the above formula for the WTCS and counties, the K-12 formula is based on pupil enrollment. Villages, cities, and large towns are based on a factor (60%) of new construction growth. Most town governments, however, are exempted from the TPA. CPI/Population Formula Does Not Fit Demand Drivers for WTCS Services: At the February 15 th hearing, WTCS President Dan Clancy and Paul Gabriel questioned linking the WTCS to a population/cpi factor. TPA co-sponsor Senator Glenn Grothman (R- West Bend) stated that he and Representative Jeff Wood (R-Chippewa Falls) avoided using an enrollment formula for the WTCS because of concerns that WTCS districts would have too large an incentive to increase or play with enrollments under such a formula. Bonding Counts Under Cap: Of great concern, proceeds from bonding are counted under the formula limit. While it is not clear what exactly counts as bonding (promissory notes, for example?), this provision would make it difficult to make investments in capital equipment without facing possible cuts to other operations including instruction.

3 Formula s Effect Questioned: It is not clear how year-to-year changes in state aid distributions will affect a district s cap. The TPA provides that the loss of state support can be replaced with other (local tax) revenue under the cap. However, this could be very problematic if total state aid funding remains flat but varies from year-to-year in a given district. It appears that a district receiving more aid would need to count it under the cap, while a district losing aid could levy more to replace it outside the cap. This eliminates incentives to receive more aid and results in property tax increases to stay even when aid goes down. It is not clear how categorical aid would be counted or excluded. Importantly, the district may not replace the lost state aid outside its cap if the legislature eliminates or reduces a program or function for which the aid is provided. Finally, the state must reduce its own cap by any amount it cuts aid distributions to local governments including technical colleges. Ending (Maybe) Unfunded State Mandates: The TPA also seeks to end unfunded state mandates. The state would not be allowed to enact a law or rule requiring local government to make an expenditure unless the state provides for the reasonable costs to comply. However, the legislature would have exclusive authority to decide what constitutes a reasonable cost. It is not clear if this provision is enforceable and could really be binding on future legislatures. Taxpayer Refunds/No New Fund Balances: Any revenue collected over the year s cap must be refunded to taxpayers. However, there is little guidance as to how a district would accomplish this. A district may also choose to reduce its base revenue cap instead of making a refund. There is no provision for local government to create or maintain a fund balance for excess revenues over the cap. It would appear that a district could keep, but not increase, any existing fund balance when the TPA takes effect. However, the state would create such a fund for itself to be filled to a maximum of 8% of the state s annual total revenue. That fund could only be used to reduce taxes. Referenda Required: Any expenditure of revenue above the formula amount requires approval by a districtwide referendum. The legislature would have to authorize dates on which any such referenda may be held. Enforcement and Amendment: Any individual residing in or owning property in a district would have legal standing to sue for enforcement of the TPA s provisions. The TPA also creates a unique method for amending its own provisions. The TPA could be amended by a statewide referendum after the legislature passes one resolution rather than resolutions in two consecutive legislatures.

4 Hearing Criticized The February 15 th public hearing, held just 24 hours (the legal minimum) after the resolutions introduction, was criticized because of its invitation only nature. Senate Minority Leader Judy Robson (D-Beloit) refused to provide members to serve on the new Senate Select Committee on Taxpayer Protection Amendment created to shepherd the TPA. The hearing was conducted jointly by the Senate Select Committee and Assembly Ways and Means. Senator Grothman noted that there would be at least one public hearing open to citizens at a later date. Grothman stated that the invitation-only hearing was intended largely to collect suggestions for adjustments or improvements from fiscal experts rather to debate the merits of a constitutional amendment itself. Despite this, both President Clancy and Paul Gabriel began and ended testimony clearly stating their respective organization s opposition to using the constitution to manage complex state and local government fiscal policy. More information concerning the TPA will be provided as it s available. (end of report) Attachments: TPA sponsors list WSJ Editorial

5 AJR 77 and SJR 63 TPA Sponsors (all Republicans): Representatives: Wood, Honadel, Huebsch, Gard, Pridemore, Strachota, Kerkman, Nass, Lothian, F. Lasee, J. Fitzgerald, Gundrum, Hundertmark, Jensen, Musser, Pettis, Nischke, LeMahieu, Vos, Kleefisch, Gunderson, Newcomer, Kestell, Vukmir, Suder and Montgomery Senators: Grothman, Lazich, Darling, S. Fitzgerald, A. Lasee, Kedzie, Kanavas, Zien, Leibham, Reynolds, Schultz and Stepp

6 Tax-limit gimmick avoids hard choices Wisconsin State Journal February 15, 2006 If the Republicans who run the state Legislature really want to control spending and taxes in Wisconsin, why don't they just do it? Why don't they make the hard choices between what the state can afford and what it can't? Instead, they continue to blame local officials and dodge responsibility for their own spending habits. Republican lawmakers unveiled details Wednesday of what they're calling the Taxpayer Protection Amendment. It's yet another tax-limit gimmick that's overly- simplistic and designed primarily to give GOP lawmakers a nifty campaign slogan this fall. The 2,500-word constitutional amendment would basically limit how much the state, counties, municipalities, public schools and technical colleges could collect in taxes and fees. Generally, with a few exceptions, tax collections could not increase faster than inflation plus population and construction growth. Colorado already tried a similar scheme, and voters recently suspended it after the effects - some unforeseen - started to become reality. What our Republican-run Legislature ought to do is simply carve out of the state budget any spending that it thinks is not justified or unaffordable. Sure, the Democratic governor has a lot of power to put spending back in. And certainly the Republicans have done a better job of scrutinizing spending than their Democratic counterparts. But when you come down to it, there wasn't that much difference in total spending between the Republican-run Legislature's budget and the final version the governor signed into law.

7 That can only mean that the Republicans who control both legislative houses are afraid to make some hard choices, or they think most of the state's spending is justified. Either way, the proponents shouldn't need to alter the state constitution to try to force them to do their job. It's as if they're declaring: "Stop us before we tax you again." Why don't they stop themselves? If they can't, why don't they step down from public office and let someone else do the tough job of setting priorities and sometimes telling people no.