NCPA - National Center for Policy Analysis

States Surpluses Spent Or Rebated To Taxpayers

February 22, 1999

Their coffers overflowing with estimated reserves of more than $30 billion at the end of 1998, states have three basic options for disposing of the money: they can deposit it in a rainy-day fund, they can return it to taxpayers in the form of rebates or rate cuts, or they can spend it on new or expanded programs.

Many state legislators are deciding to spend the money, to the consternation of fiscal conservatives.

  • At more than 8 percent of annual general fund expenditures, average state reserves are well above the 5 percent level Wall Street analysts recommend.
  • State general fund spending increased 3.9 percent after inflation in fiscal 1998 and 3.8 percent in fiscal 1999, according to the National Association of State Budget Officers.
  • Over the last four years, states have spent about two- thirds of their surplus revenues, reports the Cato Institute's Stephen Moore.
  • Nevertheless, 36 states cut taxes last year and 32 states are expected to debate cuts this year.

Colorado may have the most stringent tax and spending limit in the country. In 1992, voters there passed the Taxpayers Bill of Rights -- which limits revenue growth to the rate of inflation plus the rate of population growth. All excess revenues must be refunded to taxpayers, unless the voters approve additional spending.

Last year, Colorado collected $563 million above the revenue limit. Although then-Governor Roy Romer wanted to spend the money, voters said no. So the surplus will be rebated this year.

In addition to Colorado, the top candidates for sizable tax cuts include Florida, Michigan, Minnesota and Texas.

Source: Aaron Steelman, "States' Cup Also Runneth Over," Investor's Business Daily, February 22, 1999.


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