Tuesday, February 14, 2006

Reschovsky's Analysis of Revenue Restrictions Amendment

This analysis of the revenue restrictions amendment by UW-Madison economist and professor of public affairs, Andrew Reschovsky, is really good.

In the interest of space, I'll only cut-and-paste a few key sections here that challenge the need for this amendment and the rationale that supports its structure. He has much more in the report regarding his predictions of what would happen if the amendment passed. I highly recommend everyone take the time to read through the entire report. (Note: The numbering system is mine.)

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  1. “The core of the amendment is a revenue limitation formula that restricts the growth of government revenue per capita (or per pupil, in the case of public schools) to price inflation as measured by the Consumer Price Index. While this limit may at first glance appear reasonable, it is important to remember that by design the CPI is based on a “market basket” of goods and services purchased by the typical household. Governments however, purchase a very different basket of goods and services. A substantial share of their budgets goes to pay for the services of highly-skilled labor, for example, police officers, teachers, and doctors. A significant portion of the budget of families goes towards the purchase of food, clothing, and various consumer durables. Over time the price of these items has grown quite modestly compared to the price of goods (especially fuel) and services that are typically purchased by governments.

    If the costs of providing public services continue to grow faster than the inflation and population growth rates, the impact of the amendment would be to continuously reduce the level and quality of public services provided to the residents of Wisconsin. Without high-quality services, particularly education, Wisconsin’s ability to compete for businesses and residents will suffer.”

  2. “Supporters of the Taxpayer Protection (TP) Amendment argue that the amendment is necessary as a means of forcing governments in Wisconsin to 'live within their means.' The best measure of Wisconsin residents’ 'ability to pay' for both private consumption and state and local government services is the growth rate of the Wisconsin economy, measured by the growth of personal income in the state. The TP Amendment, however, is designed to assure that governments in Wisconsin become a continuously smaller part of the state’s economy.

    In 1985, state revenues were 8.8 percent of personal income. By 2005, the formula restricting the growth of state revenue would have limited state government revenue to 6.6 percent of personal income. This trend of reduced state government would continue into the future. While reducing the role of government might sound appealing in the abstract, it would reduce the ability of the state to invest adequately in education, in health care for a population that is growing older, and in highways and other types of public infrastructure that are critical in enhancing the competitive environment of the state and in assuring future growth of the state’s economy.”

  3. “By imposing identical revenue limitations on all municipal governments, on all county governments, and on all school districts, the TP amendment greatly diminishes local control in Wisconsin. This is a diverse state with varied preferences for public services, great variation in economic conditions and social conditions. If the amendment were enacted, every jurisdiction would face the same revenue limitations, regardless of local conditions. While the ability to hold local referenda would provide some degree of local control, referenda are a very blunt instrument—one can vote either yes or no—for making complex budgetary decisions. There appears to be absolutely no evidence that the current process of budget decision making at the local level—the use of elected representative bodies, for example, school boards and county boards—does not serve the needs of the citizens of Wisconsin very effectively.”

  4. “Supporters of the amendment have argued that it is needed because taxes and spending in Wisconsin are 'out of control.' The data tell a quite different story. According to data from the Wisconsin Department of Revenue, state and local taxes in Wisconsin relative to state personal income are considerably lower today than they were 10 years ago. Also, if we use the measure of revenue included in the amendment, namely the sum of all taxes and fees, Wisconsin is a quite average state. According to the Census Bureau, in terms of state and local general revenue relative to state personal income, Wisconsin ranks 23rd from the top, only a few tenth of a percentage point above the national average. The solid line in Figure 1 demonstrates that state government revenue is now lower relative to personal income than it was 20 years ago.”

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The analysis really speaks for itself.

I wonder how long it will take for conservatives to label Reschovsky as a typical liberal professor. How could facts and a lifetime of accomplishments in studying public finance possibly match up to that rhetorical zinger?

1 Comments:

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March 18, 2006  

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