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January 14, 2005

Governor Owens's Budget Solution

During the meeting with the Governor yesterday, the first, biggest, baddest issue of all came up quickly, and didn't go away for quite a while: the budget. I came in very skeptical of a plan that looked a lot like surrender, especially from a governor whom I've criticized for not providing much executive leadership on the issue last year. I came out at least willing to consider the idea, and certainly with a better understanding of it.

Essentially, there are two parts to the budget problem - 1) this year and 2) every year after that. Part 2) may be solved by a one-time increase of the TABOR base, approved by the voters in November. Up until now, TABOR's only impact has been to prevent the legislature from walking away with more of the state's money without having to ask for it. (Why is it that the Left values every individual right except property rights?) The governor's proposal, borrowing heavily from something the Tsar has proposed, would reduce the state income tax to 4.5%, while raising the baseline limits on TABOR spending.

TABOR uses a formula that says that state spending can only increase, year-over-year, by inflation plus population growth. This year, that's 0% + 1.5%. The governor want to up that to 3.5% or 4% this once, but it also increases the baseline for the out years. And further tinkering, or even going back on the tax cut, would also require voter approval.

Since this won't show up on the ballot until November, we also need to to something about this year's budget. The large wealth transfer tobacco settlement coming our way is somewhat uncertain, and scheduled to be paid over a number of years. Governor Owens wants to securitize this income stream. Essentially, it means to sell the rights to that income to a third party for a lump sum. They build an annual interest rate into that payment, which is why it's not just the total of all the expected payments. At that point, the state's out of the loop. If people stop smoking, and the tobacco money disappears, that's the risk that the government is selling, and the third party is buying.

Of course, this would yield much, much more money than even a Democrat-controlled legislature could spend in one year. So after we patch up this year's mess, we would take the rest and put it into a rainy-day fund.

That's the plan, as I understand it. Analysis to follow.

Posted by joshuasharf at January 14, 2005 08:29 AM | TrackBack
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