Beginning in the 1970s, voters across the United States began revolting against excessive taxation and, by way of direct democracy or heavy pressure on their respective state legislatures, they achieved some success by enacting new laws.
These laws aimed at enforcing fiscal restraint are sometimes referred to as TELs, or “tax and expenditure limitations.” According to the Tax Policy Center, as of 2020, 33 states had at least one kind of TEL.
TELs come in many forms. They include direct limitations on specific taxes, limitations on increases in government spending, vote threshold requirements or a combination of all three. It is no surprise that TELs imposed by voters directly, either through constitutional amendments or by statutory initiatives, are usually more restrictive than TELs enacted by legislative bodies.
Although America has always had laws limiting governments’ power to impose taxes, the sea change came in 1978 with the passage of California’s own Proposition 13. That set off a nationwide push for TELs.
Just one year after Proposition 13, California voters approved another TEL called the Gann Spending Limit. Its approach was very different from the direct tax limitations imposed by Prop. 13. The intent of the Gann Limit was to cap the growth of government spending, adjusted only for increases in population and inflation. It sought to accomplish this by establishing a spending limit based on 1978-79 spending, determining what appropriations would be subject to the limit, estimating “proceeds of taxes” from all state sources, and then subtracting certain exclusions.
Yes, it’s complicated. And it doesn’t get any less complicated when one considers that the Gann spending limit was substantially weakened by Proposition 98 in 1988 and Proposition 111 in 1990, which carved out exceptions for education and transportation spending, respectively, as well as substituting a far more generous inflation factor. Ironically, after Gann was weakened, most public finance observers assumed that California would never bump up against the limit again. We assumed incorrectly.
To read the entire column, please click here.
