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Freedom's Phoenix

Restore Fiscal Sanity by Ending 'Home Rule'

December 7, 2009
 by Bennett Kalafut


Article 9, Section 20 of the Arizona Constitution provides a recipe for preventing runaway spending growth in good times and tax increases during recessions, with a caveat: Voters need to let it do its work.

This narrative that should be familiar to residents of many Arizona cities:  During the "construction boom" earlier this decade, city governments increased spending, out of proportion with population growth, without raising tax rates.  When the housing market collapsed and the recession of 2008-2009 set in, both tax increases and spending cuts were proposed and enacted.  Cuts were not made to new programs first, but were instead spread thinly across all municipal programs and services.

From a certain perspective, this pattern makes sense.  During times when increasing property values and prosperity drive up revenues, city councilors can increase spending without raising tax rates.  They're able to please various constituencies ("special interests", but in sum the "special interests" is us!) and buy marginal votes by spending the excess in the public treasury on niceties far beyond the governmental functions of government, without paying the political price for tax increases.

When an economic downturn causes revenues to decrease, ending this new spending can lose for a city councilor the votes of the bought-off constituency; it is better to appear even-handed by cutting everything.  (Starving necessary or broadly-used programs of needed funding also builds support for tax increases.)  The remaining shortfalls are often small and can be covered by new taxes, often levied on nonvoters or made so diffuse as to be difficult to fight.  For example, earlier this year in Tucson, the City Council initially proposed a double tax on renters (who vote less than homeowners), but changed the plan to small increases on many taxes and fees following two city council meetings packed with protesters.

It's very unlikely that city councilors are self-consciously following this pattern, and it's possible that the informal "calculus of self-interest" above doesn't describe motives accurately.   Whether or not doing so buys votes, it might simply feel good to spend the taxpayer money on niceties.  The pattern nevertheless exists and is harmful, and it ought to be stopped by imposing spending restrictions on municipalities.

Arizona voters already did that.  In the 1978 general election--the same year that California passed its "Proposition 13" tax limitations-- Article 9 of the Arizona Constitution was amended to establish an Economic Estimates Commission and limit tax and spending growth in several areas.  Article 9 Section 20 of the Arizona Constitution requires that municipal spending limits be set by scaling 1979-1980 by population growth and cost of living increases, as determined by the Economic Estimates Commission.  What could be called the "scope" of municipal spending is thus limited to 1979-1980 levels; new spending can only occur if offset by cuts to or efficiency increases in old programs.

However, municipalities can and usually do avoid this restriction.   Article 9 Section 20 allows for override elections in which voters approve a specific expenditure in excess of the limit, usually equal to projected tax revenue.   These override elections are often billed as "home rule" elections even though that term has no legal import in Arizona.  Once a municipality overrides its spending limitations, it usually does so in perpetuity; "home rule" elections are rarely seriously contested.  Over seventy Arizona cities and towns are not operating under Article 9 Section 20 limitations.

As part of a broader tax revolt--spontaneously, without any organized campaign, and with but one newspaper guest opinion suggesting to do so--in last month's general election, Tucsonans voted down Proposition 400, their Article 9 Section 20 override.  The ongoing recession made this very easy by bringing the projected budget within 1% of the constitutional limit.  The City Council will have to cut spending by 1% next fiscal year; weighing the political consequences of a spending cut against a tax increase is no longer an option.

Voter memory is short.  When prosperity returns again, the rationale for the limit may not be apparent and Tucsonans might find ourselves back on the boom-bust cycle of frivolous spending, irresponsible cuts, and poorly-timed tax increases.  It will be important to "write history", to consciously tie Article 9 Section 20 to the 2009 funding cuts, the manufactured "crisis" over a 1% revenue shortfall, and the rent tax proposal.  Although defeat of Proposition 400 was not the result of any organized movement, a local movement will have to develop to keep the spending limit in place.  It would be better still if, taking inspiration from the results of Tucson's 2009 election, a statewide effort or movement to make Article 9 Section 20 of our constitution work were to emerge.

Opponents to spending cuts like to speak as though eliminating programs or scaling back funding will bring about Third World conditions.  The law itself suggests a rebuttal: was the city Third World in 1980, and if not, what has changed?  "Home Rule" override elections provide a near-perfect framework for proponents of long-term fiscal responsibility.  Moreover, the recession is not local to Tucson; it has brought many municipalities' revenue very close to the Article 9 Section 20 spending limitations.  The absolute figures--usually millions of dollars--sound intimidating in either case, so proponents of spending always cite the absolute figures, but a 1% spending cut is easier to sell than a 5% or 10% spending cut.

The restoration of Article 9 Section 20 spending limits in Tucson won by barely over a thousand votes and may have been a fluke; those living elsewhere cannot count on spontaneous voter sentiment to impose fiscal responsibility.  However, if fiscal responsibility proponents form committees, familiarize themselves with the numbers, and identify areas where spending cuts can be responsibly made, in the next few years other cities and towns can also remove themselves from the governmental boom-bust cycle.

Related Content:

Congress Approves Another Reckless Spending Bill - Austin Raynor
Taxpayer Funded Campaigns Hurt Third Parties - Jim Iannuzo
The Phoenix Coyotes Ask Glendale Taxpayers for a Bailout - Jim Iannuzo

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Sheilah in Aurora , on 12/17/2009 at 11:47am, said:

What a great idea! My greatest wish is that we could end home rule in Colorado. There is so much corruption in my city and no oversight. It is frustrating when our local politicians violate Colorado law and no one will investigate! What is the point of having laws if the local governments can violate them?

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Indeed it is a bleak time for people dleniag in sales. But on the other hand, it is actually getting harder to keep up expenditure to its previous high amounts. This is due to the unstable nature of the economy and the decreasing income in the world. Due to volatility, workers are now more willing to accept pay cuts in the face of recession than to face a widespread retrenchment. Like the recent layoff by the Bank of America, it was inevitable as bankers are high earners and in the face of such uncertainty and slow moving cash, banks cannot afford to keep up the high pay given to their employees. Lay-offs will become more common if the economy does not pick up and this will further cause expenditure to fall.

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