Are the revenue caps being proposed in Texas an improvement on the Colorado law?
1. How does a yearly ceiling on local government revenue affect its operation? Revenue caps assume that growth in the need for services is steady from year-to-year. In fact, local revenues and service needs often spike above or below proposed revenue limits. These spikes are caused by numerous factors such as local growth spurts, declining local or regional economies, receipt of – or reduction in – federal grants, and natural disasters or homeland security breaches. For local governments, these spikes are magnified because of the small revenue base local governments have in comparison to the state. In fact, the smaller the local jurisdiction, the larger the spike is likely to be. In years when local revenues are less than revenue cap limits, future revenues may be permanently reduced. The “ratchet down” effect occurs when an economic down cycle creates lower tax levies which also permanently reduces future allowed levies. The current revenue cap allows voters to “rollback” the tax rate
