Ref. C Could Turn CO into CA
by Ari Armstrong, October 13, 2005
Don't Chip Away at Spending Limits, Economist Warns
Colorado is relatively good at protecting economic liberty. But we shouldn't take our protective laws -- or our economic progress -- for granted. By chipping away at limitations on government spending, Referendum C could threaten to subject Colorado to budgetary problems such as those now faced by California. Lawrence McQuillan, Ph.D. in economics and director of Business and Economic Studies at the Pacific Research Institute in San Francisco, made that case when he spoke at the Denver Press Club on October 12 about the "U.S. Economic Freedom Index."
Dennis Polhill, a Senior Fellow with the Independence Institute, noting that Colorado is currently ranked second for economic freedom, asked McQuillan, "If C passes, how many slots will Colorado drop in the ranking?"
McQuillan didn't offer a new ranking, but he did make some general comments: "I can give you a prediction of what's going to happen here, based on what happened in California. In 1979 California passed the Gann Limit... [that] was almost exactly what you have on the books here, where spending can only increase at the rate of inflation plus population growth. And they had a rebate... of tax revenue above that level... They actually rebated over a billion dollars in the early '80s. And that was the last time they ever rebated anything, because there were initiatives that got on the ballot that chipped away at it.
"They changed the formula... to personal income growth... After a while, they started pulling out certain types of expenditures from under the cap... So after a while this was no longer binding. So now we have this really auto-pilot type of spending program in California, where the constitution actually mandates how much spending has to increase every year, even if the money's not there. So we've gotten into a huge budgeting problem there, and it's all because they gradually chipped away at what was actually working well.
"And now we have a huge problem, probably the worst fiscal situation in the country at the state level. So I would warn you that, if you go down that path, it's a very slippery slope, and it's hard to ever turn it back once you ever go down there, because there are so many vested interest groups that start seeing it as their little honey-pot that they don't want to change. So I can kind of see the future of what's going to happen here if you do pass those initiatives."