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New England Public Policy Center
Research Report No. 06-3
by Heather Brome and Darcy Rollins Saas
Full-text paper 
At least 30 states, including Connecticut, Maine, Massachusetts,
and Rhode Island, operate under “tax and expenditure
limitations” (TELs): formula-based budgeting requirements
that apply specific limits to expenditures, appropriations,
or revenue collections by state or local government. More
than a dozen states considered TELs in 2006. Legislation proposing
a new TEL to further limit General Fund appropriations in
Rhode Island was introduced; Maine citizens will vote on a
more restrictive TEL this November.
Several factors, including a desire for lower taxes and a
belief that additional measures are needed to keep government
spending in check, drive this interest in TELs. This paper
discusses such arguments. It also examines how TELs affect
state budgets, in part through a simulation of the impacts
of current or proposed TELs in Maine and Rhode Island. The
general finding is that while TELs can limit the growth in
state budgets, the actual relationship between TELs, tax burdens,
and state economic competitiveness is more complex than can
be captured by any single budgetary formula. Determining whether
government, at whatever level, is too big or is growing too
fast is a contentious issue. Setting an optimal rate of governmental
growth is similarly fraught with challenges. After all, one
person’s wasteful program is another’s essential
service. Even many voters who support TELs do so out of a
desire to enhance governmental efficiency, not to reduce the
level of public services. But even the best-written TELs cannot
guarantee that governments will respond to formal fiscal restraints
by maximizing efficiency before cutting service levels.
Because they tend to be arbitrary, TELs can sometimes weaken
the ability of state and local governments to respond to changing
conditions and challenges, from natural disasters to unanticipated
infrastructure or human service needs. Just as policy makers
should be responsive to constituent concerns about spending
and taxes, they must also consider the possibility of unintended
consequences from a TEL. They must balance theory with careful
attention to a TEL’s specific language and details.
Full-text paper
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