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PLAIN ECONOMIC SENSE
For release after March 1, 1999
Column 370
Iowa's Constitutional Amendment Proposals Compared to Current Laws
By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities
Recently, I was asked by leaders representing more than 20 statewide organizations to analyze the constitutional amendment proposals that Iowa voters will consider this summer. The proposals will be placed on the ballot for a special statewide election on June 29.
In a nutshell, the recently passed Senate Joint Resolution 1 (SJR1) places two constitutional amendment proposals before the voters. The first proposal would add a general fund expenditure limit to the Constitution that would allow the General Assembly to expend only 99 percent of the revenue conference estimate. The second proposal would require a 60 percent super majority of all members from each house in the General Assembly to increase state income taxes, to increase state sales or use taxes and to increase any new state taxes.
A yes vote for each proposal implies that the voter favors adding the proposed amendments to the Iowa Constitution.
A no vote for each proposal implies that the voter favors continuation of the current statutory spending limits and voting rules without changing the Iowa Constitution.
Are the proposed amendments the same as current state statutes? No. A provision by provision comparison shows several substantive differences. First, there are no provisions in current Iowa laws or legislative experience for requiring the 60 percent super majority vote of the General Assembly for passing state tax increases.
Second, the proposed constitutional process for accessing the "rainy day" funds created by the 99 percent expenditure limit is different from the current process in Iowa laws. The current law requires a 60 percent majority vote of the members of both houses to access cash reserves when they fall below 3 percent of estimated revenue. The constitutional amendment proposal is more restrictive and requires a 60 percent majority vote of the members of both houses to access the surplus funds when they fall below 10 percent of estimated revenue.
The constitutional amendment proposal does not require declaration of an emergency as required in the Iowa Code. The constitutional amendment proposal does not require the governor's signature to access the surplus funds as currently required in the Iowa Code. The constitutional amendment proposal requires that an identified surplus can only be transferred to the adjusted revenue estimate for the following fiscal year. In contrast, the current Iowa Code is less restrictive and allows identified surpluses to be transferred to the adjusted revenue estimate for the current fiscal year, if the legislature is faced with an emergency.
What Has Been Iowa's Experience in Using the Proposed Concepts? After two special legislative sessions in 1992, a package of measures was passed to eliminate the state's $409 million Generally Accepted Accounting Procedures (GAAP) deficit. The 99 percent appropriations rule, a set of "rainy day" funds and a 1 percent statewide sales and use tax increase have been included in the Iowa Code since then.
Iowa's strong financial position is more attributable to enactment of the sales and use tax increase than the 99 percent expenditure rule. If the 1 percent sales tax had not been implemented along with the 99 percent spending rule, Iowa would have collected about $1.7 billion less in state tax revenues during the past six years. If the one percent surplus allocation under the 99 percent spending rule represented the total amount for paying off the GAAP deficit and filling the rainy day funds, Iowa would have filled the Cash Reserve Fund, but would still be paying off the GAAP deficit and would not yet have accumulated any funds in the Iowa Economic Emergency Fund. Under this scenario, the $500 million in state tax reductions experienced in recent years would likely have been out of the question.
Another important point in analyzing Iowa's experiences with the 99 percent spending rule is that the U.S. has experienced economic growth during the entire period that Iowa's deficit reduction laws have been in effect. The current economic expansion is the second longest of the 20th century and began before the state deficit reduction laws took effect. Therefore, there has been no experience for the "rainy day" funds and 99 percent expenditure provisions under any circumstances other than robust economic conditions.
Increasing the uncertainty during future recessions is the devolution of federal programs. State and local units of government have since acquired new economic stabilization responsibilities. As a result, state and local revenues and expenditures are likely to experience greater variations during future recessions than those in the past.
Finally, Iowa's experience with a 60 percent voting rule has been limited to selected public bond elections for local units of government. While public bond elections represent a political process that is different from the General Assembly, recent assessments of school facilities have suggested that health and safety violations may remain unaddressed as a consequence. Data on school bond votes for the period of 1981 to 1998 indicates that roughly half of the bonds (257 out of 522) passed by more than 60 percent approval. One-fourth (135) were defeated by receiving less than 50 percent approval. And, one-fourth (130) were defeated even though they received more than a simple 50 percent majority. Therefore, the outcomes of nearly half of the defeated school bond votes were affected by the difference between a 50 and 60 percent voting requirement.
Edelman is a professor of economics and an extension public policy specialist at Iowa State University.
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