November 3, 2010 / 10:12 AM / in 7 years

Voters limit state tax hikes, budget battles

WASHINGTON (Reuters) - Voters in many states on Tuesday made clear their distaste for tax hikes, voting to limit how their states may raise revenue and changing how some budget decisions are made.

Still, voters worked to preserve education funding, approving billions of dollars in public debt for schools.

“I‘m not surprised by that given the political period we’re in,” said Scott Pattison, executive director of the National Association of State Budget Officers. He added that voters were affected by a rough economy and low trust of government.

“We’re still in a very scarce resource environment for states, so they’re going to have make tough choices,” he said, referring to how states will handle limits on tax hikes. “They’ve already done a lot of cutting. Will they continue to cut?”

The economic recession that began in 2007 has kept states scrambling to balance their budgets even though it officially ended last summer. All states except Vermont must finish their fiscal years with balanced budgets, and for two years legislators have slashed spending and raised taxes to wipe out deficits.

“Though there were fewer voter-driven measures on the ballot this year, the electorate took strong stands on fiscal issues,” said Jennie Drage Bowser, who follows ballot measures for the National Conference of State Legislatures. “In some cases, though, the messages were mixed.”

According to the Brookings Institution, there were nearly 100 statewide and 450 local tax measures on Tuesday’s ballots.

Most notably, a measure establishing an income tax in Washington failed. The initiative would have levied the tax on individuals making more than $200,000 a year and couples earning more than $400,000 a year.

Washington then went a step further -- tax increases now require a two-thirds super-majority vote in the legislature or a statewide ballot.

California voters said “No” to making marijuana legal and taxing its sales, as well as to raising fees for visiting state parks and eliminating corporate tax breaks.

Voters in Montana barred new taxation on property transfers or sales, while Massachusetts voters repealed a sales tax on alcohol. Indiana cemented its statutory property tax cap in the state constitution, and Missouri added limits to property taxes and city income taxes to the constitution.

Some curbs on taxes, though, did not win over voters.

Three proposed constitutional amendments in Colorado that would have radically limited how the state taxes and borrows failed. Dubbed “Armageddon on Colorado Ballots” by the Denver Post’s editorial page, the measures would have cut the state income tax rate, banned future state borrowing, required voter approval for local government borrowing and cut other taxes.

Massachusetts also rejected a drastic tax cut, voting down a measure to reduce the state sales tax to 3 percent from 6.25 percent, which would have cost the state $2.5 billion.

Virginia Republican Governor Bob McDonnell said the elections, which swept Republicans into office at the state and national levels, showed “the American people want limited government, less spending, a focus on job creation and fiscal responsibility.”

For more on U.S. state legislative elections, please see

Many measures that succeeded on Tuesday also reined in government by changing states’ budget processes.

Tracy Gordon, a visiting fellow at Brookings, said that by rejecting some tax measures while embracing others, voters did not coalesce around a single fix to state fiscal problems.

“My sense is that voters want state budget problems fixed but they don’t want to be involved specifically in how it’s done. They want to set ground rules,” she said, adding that voters want to “tell governors what’s off limits.”

In California, where the government regularly deadlocks over passing a budget, voters agreed to change the legislative vote requirement necessary to pass a budget from two-thirds to a simple majority. The Golden State now also requires lawmakers to forfeit pay if they fail to pass a budget bill by June 15.

Hawaiians agreed to issue tax rebates when the state runs a surplus, while North Dakotans approved creating a reserve from taxes collected on extraction. South Carolina, Oklahoma, and Virginia all voted to expand their rainy-day funds.

The municipal bond market will likely feel reassured by the strong reserves, said Municipal Market Data Analyst Daniel Berger, even though those states are not deemed risky credits.

“That means they have one way to balance their budgets if called upon,” Berger said.

Half of the nearly $16 billion in bond ballot measures in Tuesday’s elections were dedicated to schools, according to the Bond Buyer. More than 10 percent was for financing colleges and other educational purposes.

Many major education bond measures totaling more than $2.2 billion were approved by voters in California.

Voters in Alaska passed nearly $1 billion of debt, with $397.2 million going to building schools, libraries and research facilities. Two Texas school districts also passed sizable bond issues, with San Antonio School District voters approving $515 million in debt and Katy School District voters approving $459.8 million.

Additional reporting by Karen Pierog in Chicago, Edith Honan in New York and Jim Christie in San Francisco; Editing by Dan Grebler

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