States Must Respond with Discipline After Credit Downgrade: Lee Schalk and Thomas Savidge in The OC Register
"Fiscal reform in state capitals today will prevent pain for taxpayers in the years ahead."
Lee Schalk, ALEC Vice President of Policy, and Thomas Savidge, Research Director of the Center for State Fiscal Reform, co-authored a new op-ed in The Orange County Register and affiliated sites about the need for states to become less dependent on federal dollars in light of the recent credit downgrade.
To cut dependency on DC, states should turn to priority-based budgeting and strong fiscal rules. Priority-based budgeting focuses on the core functions of government instead of automatic increases in spending. That means determining what the state needs to accomplish and how those priorities can be efficiently achieved.
After the 2001 market downturn, Washington state lawmakers from both parties worked with then-Democratic Gov. Gary Locke and used priority-based budgeting to trim waste. The Priorities of Government Budgeting Initiative eliminated a deficit of more than $2.4 billion without resorting to tax increases.
Strong fiscal rules, such as the Taxpayer’s Bill of Rights (TABOR) in Colorado, can also help states minimize wasteful spending. Approved by voters in November of 1992, TABOR is considered the gold standard of state fiscal rules because it limits the growth of most of Colorado’s spending and revenue with an equation based on inflation plus population. If the state collects more tax dollars than TABOR allows, the money is returned to taxpayers. Since 1992, approximately $8.2 billion has been returned to Colorado taxpayers, thus strengthening their confidence in the TABOR Amendment over the years.
Prior to TABOR, California was the gold standard of fiscal rules. Unfortunately, those rules were altered so much that by the 1990’s they were effectively useless. With Governor Newsom turning a $97.5 billion budget surplus in 2022 into a $31.5 billion deficit in 2023, it’s obvious that the Golden State could benefit from a fiscal rules revival before the their debt becomes unsurmountable.
Finally, states like California should learn from Utah, which passed its Financial Ready plan in 2013. This package of bills created a Federal Funds Commission to monitor the impact of federal overspending on the state. It also required every state agency to have an emergency action plan in the event of a 5%-25% reduction in federal funding. As a result, Utah is prepared for a rainy day.