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Tuesday, July 7, 2009

Initiative 1033 would dramatically limit state and local spending starting in 2010. It is particularly troubling that this initiative comes during a time of economic recession when revenue is especially low. The spending cap imposed by 1033 would be based on the previous year’s revenue with a flawed formula for annual increases using population growth plus inflation.

It would also be tough to recover from future economic downturns. According to the 1033 proposal, if revenue drops below the spending limit in a given year, the following year’s limit is based on the lower number. The state, county, or city permanently loses that spending capacity.

To illustrate this point, imagine a scenario in which the spending limit grows according to the 1033 formula over a period of three years. In the fourth year, the economy falters and revenue falls below the limit at the beginning of the three year period. Then it starts to grow again, but starting at the lower rate. As the graph below shows, the limit is permanently lower. Short of a voter-approved tax increase, revenue cannot catch up to previous levels.

In our current economic climate, the state anticipates raising $1.04 billion more revenue in 2011 than it did in the previous year. If 1033 is passed by voters this November, we would only be able to use $471 million. The other $571 million would be required to go to a property tax cut in 2011-13.

To view a comprehensive slideshow about 1033, please click here.

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