08/01/95 - Backgrounder #11 - Florida's Spending Cap: Will It Work?
by Randall Holcombe August 1, 1995
Executive Summary
Revenue and spending limitations can serve two purposes. They can keep government spending from rising faster than taxpayers would prefer, and they can spread expenditures over the revenue cycle in a way that can mitigate government fiscal crises that tend to occur during recessions.
The revenue limitation that was added to Florida's Constitution by voter approval in November 1994 can help to smooth expenditures over the revenue cycle. It will not slow the long-run growth of Florida's revenues or expenditures when compaired to the trends of revenue and expenditure growth over the past three decades.
Twenty-two other states have some type of cap on government revenues or expenditures. Characteristics of caps in those states vary tremendously. However, the evidence suggests that spending caps in those states have had a relatively small effect in controlling overall government spending.
There are many problems involved in designing an effective cap including how to account for local government expenditures, how capital expenditures should be treated, and how federal revenues and programs mandated by the federal government should be factored into the cap. Any cap is likely to have some loopholes and Florida's cap has so many that it will do very little to reduce the long-run trend in the growth of Florida's state government.
The revenue limitation that was added to the Constitution in November 1994 will help to smooth out expenditures over the revenue cycle, but a limit on appropriations would have been more effective.
A constitutional requirement mandating voter approval before any new state or local taxes or any increase in the rates of existing taxes could take effect would have the potential of keeping government expenditures in line with the desires of the voters and would be complementary to the 1994 amendment limiting revenue growth.
A requirement for voter approval of new taxes need not constrain government from undertaking expenditures that voters believe are worthwhile. Many Florida localities have voted themselves local option sales taxes, illustrating that Floridians will vote to tax themselves when they believe that the tax revenues will be spent wisely.
