May 2, 2006

Contact: Debra S. Tingley, APR

717-526-1010, ext. 3336

CAPS Limit More Than Spending

By Douglas Hill

Executive Director

How strange that just as property tax reform moves forward, the General Assembly is poised to take action on a constitutional budget cap – a proposal that will surely result in the need to increase local property taxes. These imbalanced and incompatible actions quite clearly demonstrate that Pennsylvania has not yet grasped the clear connection between the services constituents’ demand of government, and the need for government to develop revenue streams to pay for those services.

Senate Bill 884 would amend the Pennsylvania Constitution to impose spending caps on future Commonwealth budgets. The County Commissioners Association of Pennsylvania (CCAP) expresses opposition to the state spending cap legislation.

CCAP believes a cap on the state budget will result in decreased state funding of vital local services and increase pressure on local property taxes. Caps will result in the Commonwealth balancing its budget on the backs of local governments and local taxpayers. Pennsylvania residents should not be fooled.

The proponents of state spending caps claim the measure will “keep state governments from spending more than they take in,” or forcing government to “live within its means.” On the surface, this has very strong appeal and certainly resonates well with Pennsylvanians. But the flip side is that the artificial limits do hurt the residents who are forced to live under them.

More than 80 percent of county budgets are for mandated services. Artificial caps on state funding will mean reduced state appropriations to local governments to execute mandated services, such as court services, prison operations, assistance to victims of child abuse, drug/alcohol dependency and assistance for mental health and mental retardation, conduction of elections, training a workforce and maintaining local infrastructure. Counties are forced to rely on adequate state and federal funding for mandates, or pass along the burden to the property owner in the form of increased property taxes.

If a spending cap had been in effect when Governor Rendell took office, a $2 billion cut would have been required in this year’s state budget. What programs would be cut? This is a powerful discussion on the consequences of budget caps that is not being heard in the halls of state governments as it debates the merits of artificial budget caps. It is a serious omission; it is irresponsible, if not impossible, to discuss cutting expenditures without concurrently discussing cutting programs.

Colorado is a good example of caps gone bad. The state had a 10-year-old spending cap that is now squeezing spending enough that the same governor, who once touted the idea, has urged voters to lift the cap for five years. Many counties in Colorado and other states are hurting from the same type of artificial spending caps.

As in Colorado, caps create unintended consequences. Since debt service payments do not count under the cap, state borrowing to finance ongoing expenditures will increase. Connecticut, another state with artificial caps, now has the third-highest rate of state tax-supported debt in the nation. Why would Pennsylvania want to adopt a program that is failing in other states?

Pennsylvania already has a law that limits spending—the state Constitution, which requires a balanced budget. The Constitution says the General Assembly shall not make appropriations that exceed actual and estimated revenues and surplus available in the same fiscal year. Pennsylvania cannot now adopt a budget that exceeds its revenue.

Let’s not forget, the General Assembly has sole power to approve spending levels. The Governor, through line-item veto, can reduce spending to a level even lower than what the legislature approves. A separate cap law or additional constitutional language is not necessary. Good budgeting is about making choices.

Curbing spending and reducing taxes are laudable goals, but the realities of our society and economy argue that artificial budget caps are not responsible long term public policy nor a viable solution. CCAP stands ready to work with state officials to find one.

The County Commissioners Association of Pennsylvania is a non-profit, non-partisan association providing legislative, educational, insurance, research, and similar services to all of the Commonwealth’s 67 counties.