As it applies to state government, Tim Eyman’s Initiative 1033 is an understandable response to a 31 percent surge in spending during the last economic boom. That binge was unsustainable, and it forced deeper, more painful budget cuts last year than should have been necessary.
Like most initiatives, though, I-1033 is a blunt instrument that overreaches, creating likely consequences that would actually discourage prudent financial stewardship and positive economic development, especially at the local level. We recommend voting no.
I-1033 would limit annual revenue increases in state, county and city government general funds to a formula that combines inflation and population growth. School districts, fire districts, water districts and the like are exempt. Any revenue increases above the formula would have to be used to lower property taxes across the board the following year. Eyman says he’s giving government a long-term incentive to cut taxes proactively.
That sounds reasonable until you consider the up-and-down cycle of the economy and its effect on tax revenues. The current downturn has drastically reduced sales-tax and business-tax revenues, forcing some local governments to cut important services and lay off staff. I-1033 would use 2009 as its budget baseline, keeping those services from being fully restored as the economy rebounds.
It would also create disincentives for local governments to act wisely. Some of the best job-creating commercial developments are the product of partnerships between business and local governments — with private interests investing in plant and equipment and government providing some infrastructure improvements and basic services like police and fire protection. The local government’s investment is repaid in tax revenue produced by new economic activity, which also benefits parks, road maintenance, and other local services.
Under I-1033, much or most of that new revenue would instead go to lower property taxes. Governments wouldn’t be able to afford entering into such partnerships, so they wouldn’t materialize. That helps explain why local chambers of commerce, whose members would receive much of the measure’s property-tax relief, oppose I-1033.
I-1033’s inflation-plus-population cap doesn’t reflect the true cost of government, which includes expenses that outpace inflation rates, such as health care and construction costs. Plus, local governments already are under strict limits regarding tax increases.
Eyman wants to provide a counterbalance to what he considers government’s insatiable appetite for taxing and spending. With state government, recent history shows he has a point.
But cities and counties aren’t in the same boat. Voters elect local representatives to handle their money prudently and provide the services they need and want. To do so, in good times and bad, those officials need flexibility that I-1033 would take away.