Solving Tennessee's Spending Problem

February 1, 2006 10:18PM

By Justin Owen Drew Johnson calls for improving the state’s Copeland Cap to rein in spending. This article originally appeared in the Chattanoogan. With the Tennessee General Assembly preparing to turn its attention from ethics reform to the business of a state budget, income tax advocates statewide are preparing their annual campaign for a less regressive tax structure that creates more revenue for the state’s bloated budget. Thankfully, by simply strengthening existing budgetary controls, Tennessee can rid itself of its most regressive tax—the sales tax on groceries—while reining in spending and enjoying the burgeoning economy associated with income tax-free locales. Tennessee’s state spending swelled by over 32% in the past five years—a level nearly four times the rate of inflation. With a budget approaching $26 billion, the state government devours more cash in 35 seconds than the average Tennessean earns in an entire year. Simply put, the state government does not have a revenue problem. It has a spending problem. In 1978, prudent legislators attempted to prevent the problem of runaway spending by instituting the “Copeland Cap,” an innovative constitutional amendment intended to limit the growth of state expenditures. Under the Copeland Cap, state spending can grow no faster than the annual growth in personal income, in theory making tax hikes unnecessary. Unfortunately, state legislators can override the Copeland Cap by a simple majority vote leaving the Cap feeble and ineffective at preventing outbursts in spending. In fact, legislators desiring to dig deeper into the pockets of taxpayers have broken the Cap a dozen times over the last 21 years. This year alone, the state budget will be nearly $3.5 billion higher than it would have been if legislators had spent within the confines of the Cap since its implementation. It is possible to prevent state spending splurges in the future by strengthening the Copeland Cap. Amending the state constitution to require a two-thirds vote by the state legislature—rather than a simple majority—to exceed the limit prescribed under the Copeland Cap would help ensure that state spending would not grow faster than taxpayers’ ability to pay for it. Importantly, requiring a two-thirds vote to exceed the spending cap would still offer legislators the latitude to raise additional state funds in times of emergency or disaster. Capping state spending does not prevent legislators from funding important projects or enacting valuable new legislation, it simply forces them to do what every family in the state already does—prioritize. The honest and open discussion that resulted would cut millions of dollars in wasteful and duplicative programs to make way for worthy new programs. The most appealing part of strengthening the Copeland Cap is the economic stability it provides during economic downturns because of its ability to capitalize on the surplus revenue generated in good times. Currently, when a surplus occurs, legislators often vote to ignore the Copeland Cap so they can spend it freely. In the rare cases in which the Copeland Cap is not overridden and the surplus survives the legislators, the governor commonly exhausts the excess while the legislators are out of session and powerless to prevent such action—as Governor Bredesen did last summer with his TennCare safety net expenditures. Under an effective version of the Copeland Cap, surplus revenues would finance a rainy day fund equal to a predetermined portion of the state budget. This rainy day fund would then be used to top off the budget in case of a shortfall in revenue collections. This ensures that tax increases or budget cuts would be unnecessary to make ends meet in tough economic times. After fully funding the rainy day account, legislators could then begin returning surplus amounts to taxpayers—after all, a surplus is nothing more than an overpayment for the services the public receives from the government. The fairest and simplest method of returning taxpayers’ money to them is by reducing the state sales tax on groceries until Tennessee’s rightfully maligned food tax is eliminated. Sound too good to be true? If Tennessee had enacted this strengthened version of the Copeland Cap when Bredesen took office just three years ago, there would be no state sales tax on groceries in Tennessee today. Legislators owe it to hard working Tennesseans to spend every tax dollar carefully. Strengthening the Copeland Cap would ensure that there would be no other option. Further, over the course of just a few short years, Tennessee’s families would be free from the second highest grocery tax in the nation without resorting to an income tax or cutting a single dime from existing state programs. Drew Johnson is the president of the Tennessee Center for Policy Research.