Lost in discussion about Gov. Brewer’s FY11-12 budget proposal is the fact that she proposes to control future state spending by limiting revenue (and expenditure) growth to an ongoing 10-year rolling average.  While we would prefer a limit based on the state’s population and inflation, this is a positive foray into controlling future state spending with a couple of important caveats.

First, the spending limit needs to be constitutional.  The constitution, in fact, already has a spending limit, although it is so high that its meaningless.  After all, if the current limit didn’t control spending when revenues jumped 50% over a three-year period, it will never control spending.  Arizona needs a constitutional limit with the appropriate flexibility to allow a legislature to override the limit with a supermajority vote.

Second, the governor’s proposal would direct any “surplus” (revenues that exceed the spending limit) in the following manner:

  1. Debt reduction
  2. Rollover reduction (another form of debt)
  3. Filling the Rainy Day Fund
  4. One-time capital projects
  5. Tax rebates

To begin with, how state revenues are appropriated are decisions that should be left to the legislature, period.  Having the constitution yet again direct where appropriations go is partially what got us into this mess to begin with.  However, because the first three priorities can reach an end point (debt can be paid off, for example), there is a compelling argument to take care of those items first, as long as it doesn’t encourage new debt.

Items number 4 and 5, however, should be left to the legislature.  There should be no requirement enshrined in the constitution (assuming the limit were constitutional) that one-time capital projects be funded at all, let alone in favor of reducing taxes.  Again, prioritizing spending is the job of the legislature.

Finally, when it comes to reducing taxes, rebates are the worst way.  Sending checks to people who have already worked to earn their after-tax dollars is better than a kick in the shin, but it does nothing for economic growth nor does it provide any incentive to work to earn that next after-tax dollar.

The legislature should be able to decide whether to give rebates, reduce tax rates across-the-board, or spend it on one-time capital projects.  A robust debate would ensue and frankly, that’s ok.

So while improvements to a new state spending limit can and should be made, Governor Brewer deserves credit for intending to leave a solid fiscal reform as part of her legacy.