When Does the Ballot Box Limit the Budget? Politics and Spending Limits in California, Colorado, Utah and Washington

1
When Does the Ballot Box Limit the
Budget?Politics and Spending Limits in
California, Colorado, Utah and Washington

• by
• Thad Kousser, Mathew D. McCubbins and Kaj Rozga
• University of California, San Diego

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TELs in a Principal-Agent Framework

• Principals
• Voters in direct democracy states
• Legislators at the time of passage
• Agents
• Legislators and governors in the years and
  decades after passage

3
Implications of Viewing TELs in a Principal-Agent
Framework

• TELs are unlikely to be effective
• If lawmakers were fiscally conservative, why
  would anyone need to constrain them in the first
  place?
• It is difficult to monitor the actions of budget
  writers.
• The passage of a TEL may be endogenous to a
  states prior fiscal policy choices
• Political factors should matter as much as the
  letter of the TEL law

4
Dealing with Endogenous Adoption Interrupted
Time Series Design

• Control Group 26 states that never adopt a TEL,
  Fiscal Years 1969-2002

(pre-test ratio)
(post-test ratio)
TEL state before adoption
TEL state after adoption
TEL treatment
5
Dealing with Devious Legislators Many Measures
of Fiscal Policy
6
Explaining Variation in TEL Effectiveness

• Political Factors
• Method of passage (direct vs. representative)
• Ease of re-amending the constitution
• Ideology of lawmakers who act as agents
• Letter of the Law
• TELs most effective when they cover all spending,
  prevent devolution, grow with inflation, and
  guard against overrides.

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California Case Study1979 Gann Limit (Prop. 4)
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Gann Limit More Bark than Bite?
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Why the Gann Limit Failed

• Letter of the Law
• Tax Revenue Limit
• Alternate Revenue Sources
• Fees and Charges
• Debt
• Budget Gimmickry (revealed in credit ratings)

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Why the Gann Limit Failed

• Limit Growth Rate
• Population
• Proposition 111 (1990)

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Why the Gann Limit Failed

• Political Context
• Principal-Agent
• Ideology
• Institutional Groundwork
• Ease of Constitutional Amendment
• Proposition 99 (1988)
• Proposition 111 (1990)
• Proposition 10 (1998)
• Conclusion

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Analysis from Across the CountryCalifornia is a
Typical Case

• 10 TELs led to statistically significant
  decreases in state spending, relative to the
  control group average, but
• 8 TELs led to statistically significant increases
  in state spending and
• 7 TELs brought no substantively or statistically
  significant change

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Analysis from Across the CountryCalifornia is a
Typical Case

• Debt Borrowing went up in 12 of 25 cases, and
  only declined in 4 cases.
• Fees Most cases brought no change.
• Bond Ratings Moodys rating rose in 7 cases and
  declined in 4 cases.

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Analysis from Across the CountryThe TEL
Adoption Process Matters
Representative Democracy States Representative Democracy States Representative Democracy States Representative Democracy States Direct Democracy States Direct Democracy States Direct Democracy States Direct Democracy States
Passed by Legislature Passed by Constitutional Amendment Process Passed by Legislature Passed by an Initiative, Referendum, or Constitutional Convention
Louisiana (revenue) No Connecticut No Idaho Yes Arizona
New Jersey No Louisiana (spending) Missouri (revenue) No California
North Carolina No Rhode Island Montana Yes Colorado Yes
South Carolina No Nevada Yes Florida
Tennessee Oregon Yes Hawaii Yes
Texas No Utah Yes Massachusetts No
Connecticut No Washington Michigan Yes
Missouri (spending) Yes
Oklahoma Yes
0/3 Worked 0/3 Worked 0/6 Worked 0/6 Worked 5/7 Worked 5/7 Worked 5/9 Worked 5/9 Worked