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States may rue costly ballot issues

Fri., Oct. 24, 2008

Before the financial crisis unfolded, voters and officials in states across the nation placed proposals on their November ballots that would slash taxes and spend millions of dollars on new programs.

The measures include plans for a high-speed rail line in California, highway construction in Colorado and a Massachusetts referendum on ending the state income tax.

But now that the economy is faltering, many of those ideas are beginning to look too expensive. And if they are approved, lawmakers might have to make deep cuts to transportation, education and health care – and take on huge amounts of new debt.

“Some of these could be disastrous if they happen. … It could throw government into a tizzy, because there’s not a plan for what to do next,” said Donald Boyd, a senior fellow at the Rockefeller Institute of Government.

Unlike the federal government, all 50 states must operate with balanced budgets. So some governors are already laying off employees and making budget cuts to offset the effects of declining sales, real-estate and income taxes.

Oregon’s situation is typical of the changing conditions: The ballot includes proposals that could cost as much as $2.9 billion, but now the state is preparing for a $500 million shortfall.

Many ballot initiatives reflect assumptions that no longer apply after recent turmoil in the stock and credit markets.

In Montana, which is seeking permission to invest in the stock market, voter information pamphlets say that “aggregate stock values are expected to appreciate, while bond values do not.”

California’s cost estimates for proposals such as the high-speed rail project and funding for alternative fuels are based on a 5 percent interest rate, which is much lower than what the state is likely to pay.

Other ballot questions are worrisome because they involve cutting taxes:

•Massachusetts voters will decide whether to eliminate the state income tax, which generates 40 percent of state revenue. If that measure passes, lawmakers would be forced to take immediate action such as raising other taxes or cutting services.

•North Dakota voters will consider a proposal to cut personal income taxes in half and reduce corporate income taxes by 15 percent.

•In Maine, voters could reverse the Legislature’s decision to fund an existing health care program by collecting about $41 million in taxes on beverages and health insurance claims.


 

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