The Responsible State Budget Revolution Across the U.S.

The late, great economist Milton Friedman said, " The real problem is government spending."
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I believe this to be true as spending comes before taxes or regulations. In fact, if people didn't form a government or politicians didn’t create new programs, then there would be no need for government spending and no need for taxes. And if there was no government spending nor taxes to fund spending then there would be no one to create or enforce regulations. While this might sound like a utopian paradise, there are essential limited roles for government outlined in constitutions and laws. Of course, most governments are doing much more than providing limited roles which preserve life, liberty, and the pursuit of happiness. This is why I have long been working diligently to get a strong fiscal rule of a spending limit enacted in all states and at the federal level promptly under my calling to let people prosper, as effectively limiting government supports more liberty and therefore more opportunities to flourish.

Fortunately, there have been multiple state think tanks that have championed this sound budgeting approach through what they've called either the Responsible, Conservative, or Sustainable State Budget.

I started this approach a decade ago with my colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget which started in 2013. The approach is a fiscal rule based on an appropriations limit that covers as much of the budget as possible, ideally the entire budget, with a maximum growth rate based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it.

While there are other measures to use for the growth limit, this metric provides the best reasonable measure of the average taxpayer's ability to pay for government spending without excessively crowding out their productive activities. It is important to look at it from the taxpayer’s perspective rather than the appropriator’s view given taxpayers fund every dollar that appropriators redistribute from the private sector. Population growth plus inflation is also a stable metric reducing uncertainty for taxpayers (and appropriators) and essentially freezes inflation-adjusted per capita government spending over time.

​The research in this space is also clear that the best fiscal rule is a spending limit using the rate of population growth plus inflation, not gross state product, personal income, or other growth rates. Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation to smooth out the increased volatility. And this rate should be a ceiling and not a target as governments should be appropriating less than this limit, ideally freezing or cutting government spending at all levels of government to provide more room for tax relief, less regulation, and more money in taxpayers' pockets.

Figure 1 shows how the growth in Texas’ biennial budget was not only cut in half after the creation of the Conservative Texas Budget in 2014 that first influenced the 2015 Legislature when crafting the 2016-17 budget along with changes in the state’s governor and lieutenant governor. And the 5.2% average growth rate of appropriations was been well below the 9.4% average rate of population growth plus inflation over the latter period.

​And this approach was mostly put into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in the constitution. The bill improved the limit to cover all general revenue, base the growth limit on population growth and inflation, and raise the vote to three-fifths of both chambers to exceed it. There are improvements that could be made to SB 1336, such as adding it to the constitution and improving the growth rate to population growth plus inflation instead of population growth times inflation calculated by (1+pop)*(1+inf). But this stronger limit is likely the strongest in the nation as historically the gold standard for a spending limit of the Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years. 

From June 2019 to May 2020, I took a hiatus from state policy work to serve my country as the associate director for economic policy at the White House's Office of Management and Budget. There I learned much about the federal budget, the appropriations process, and the economic assumptions which are used to provide the upcoming 10-year budget projections. In the President's FY 2021 budget, we found $4.6 trillion in fiscal savings and I was able to include the need for a fiscal rule which rarely happens.

When I returned to the Texas Public Policy Foundation in May 2020, as I wanted to get back to a place with some sense of freedom during the COVID-19 pandemic and to be closer to family, I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to me working with many fantastic people who are trying to restrain government spending in their states.

​My hope is that if we can get enough state think tanks to promote this budgeting approach, get this approach put into the state's constitution and statute, and use it to limit local government spending as well, there will be plenty of momentum to provide sustainable, substantial tax relief and eventually impose a fiscal rule of a spending limit on the federal budget.

This is an uphill battle but I believe it is necessary to preserve liberty and provide more opportunities to let people prosper.

Here are the states (in alphabetical order) and state think tanks which I'm working with in some capacity or will be soon along with information on how this process is going in that state, which I will update periodically. 

1. Americans for Tax Reform will soon release a map with every state's Sustainable Budget based on this approach.
2. Alaska: Alaska Policy Forum recently released its third Responsible Alaska Budget, with the first two not being successful.
3. Colorado: Independence Institute will likely release its first Responsible Colorado Budget this year or next.
4. Florida: James Madison Institute will soon release its first Conservative Florida Budget.
5. Iowa: Iowans for Tax Relief Foundation recently released its third Conservative Iowa Budget, with the first two being mostly successful. 
6. Kansas: Kansas Policy Institute recently released its second Responsible Kansas Budget, with the first one not successful.
7. Louisiana: Pelican Institute will soon release its first Responsible Louisiana Budget.
8. Michigan: Mackinac Center recently released its second Sustainable Michigan Budget, with the first one not being successful.
9. Mississippi: Mississippi Center for Public Policy recently released its first Responsible Mississippi Budget. 
10. Montana: Frontier Institute released one successful Conservative Montana Budget and one report on unfinished Responsible Local budgets. 
11. South Carolina: South Carolina Policy Council recently released its first South Carolina Conservative Budget.
12. Tennessee: Beacon Center recently released its second Conservative Tennessee Budget, with the first one being successful. 
13. Texas: Texas Public Policy Foundation recently released its fifth Conservative Texas Budget, with the first four being mostly successful, and the recent release of Responsible Local Budgets. 

If you're interested in doing this in your state, please reach out to me. 

P.S. Good write-up on this issue here by Dan Mitchell at International Liberty.​