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'Simple' Hancock amendment spawned complex state finances

This article first appeared in the St. Louis Beacon, April 8, 2011 - When Missouri voters were considering the amendment that would bear his name, Springfield businessman Mel Hancock said the concept behind his effort was easy to understand:

The amount of revenue raised by the state should be limited, and voters should have the final say on whether they pay higher taxes.

"The whole thing is so simple, so rational and so realistic," Hancock told a Post-Dispatch reporter in October 1980, "a lot of people don't understand it."

More than 30 years after it won voter approval and was enshrined in the Missouri Constitution, the Hancock amendment has proved to be far more complex than he or many others ever envisioned.

Here is the legacy that Hancock has wrought:

  • numerous court cases
  • a failed attempt to win statewide approval for a sequel
  • a compromise that put more limits on how much tax revenue lawmakers could raise on their own
  • refunds that kicked in during good times
  • tax cuts that helped avoid future refunds
  • legislative workarounds that led to creative financing

Meanwhile, recessions have wrecked a lot of best-laid plans on how to fund state government.
No one can quantify the effect of the Hancock amendment on the revenue raised by the state or any of its jurisdictions -- school districts, municipalities and all the other taxing bodies that rely on public funds to keep operating. The numbers are too complex, and there's no way to figure in all the possible tax proposals that may have been considered, then abandoned because they had no hope of winning voter approval.

But the broader effects of Hancock are easier to outline.

"Missouri is different because of this," says Terry Jones, political science professor at the University of Missouri-St. Louis and longtime observer of state government.

"It shifted state responsibility to the local level for many social and community needs, created more earmarked taxes, took flexibility away from the state legislature and helped spur the use of tax credits. We are a different state because of Hancock."

Those aren't the changes that Mel Hancock foresaw in 1980. Now 81 years old and back in southwest Missouri after serving four terms in Congress, he says that the amendment made sense when it passed and it fits right in with the enthusiasm for limited government that has bubbled up again today.

But he's not too happy about how the legislation that bears his name has been treated over the years.

"Elected officials have done a real good job of figuring out how not to abide by the amendment," Hancock said in a recent telephone interview. "They never did try to implement it. They started out saying they were going to try to get around it, and that's what they've done.

"It was a good idea in 1980, and it would be an even better one now if elected officials would abide by it. The state of Wisconsin probably wishes it had done it in 1980. It wouldn't have the problems it has today."

From California to Missouri

The impetus for trying to limit taxes and spending in Missouri came from the place where so many American ideas originate: California.

There, at the end of the 1970s, when the nation's economy was beset by stagflation -- double-digit price increases coupled with stagnant growth -- a property tax revolt sparked the passage of Proposition 13, which rolled back taxes and restricted future increases.

Similar measures made their way to the ballot in several other states in the next few years, including Missouri. Leading a group called the Taxpayers Survival Association, Mel Hancock had tried but failed to get lawmakers to limit taxation. So he wrote his own amendment, borrowing largely from one passed in Michigan, that tied growth in state revenue to growth in personal income for residents of Missouri.

You can read more about the history of the Hancock amendment on the Missouri secretary of state's website.

Despite little support from officials and institutions in the state, and challenges by critics who complained it was poorly worded, the amendment won 55 percent of the vote in November 1980 and became part of the Missouri Constitution.

The amendment includes a mathematical formula that limits annual Missouri tax revenue to no more than 5.6395 percent of the total personal income of its residents. If the state exceeds the limit, it must refund the money, as it did several times in the last half of the 1990s -- totaling nearly $1 billion -- when the economy was going strong.

It also prevents the state from imposing on local governments any new responsibilities without providing the money needed to carry them out, and it bars local governments from levying or increasing any taxes without voter approval.

As soon as the amendment took effect, it was subject to court challenges and to efforts by lawmakers to devise ways around its restrictions. So long as personal income grew, the Hancock lid rose as well, so the state budget was able to increase. The Missouri Supreme Court ruled that taxes approved after the amendment passed in 1980 were not subject to the lid; neither were ones passed by a vote of the people. So those rulings gave state officials a little more wiggle room.

But it was not enough to contain the anger felt by Hancock -- then in Congress -- and his supporters in 1993, when Gov. Mel Carnahan led a drive shortly after he took office to raise money for education by pushing through a $310 million tax increase -- the largest in state history. It kept the state below the limit, but Hancock felt it violated the spirit of his amendment, so he proposed a second one, usually dubbed Hancock II.

The new limitation effort would have expanded the revenue lid to cover far more than the original amendment did -- restoring, in Hancock's view, what he had intended to do with his first proposal but what had been subverted by lawmakers and the courts ever since.

A broad coalition of politicians and civic organizations banded together to block Hancock II, painting a dire, almost apocalyptic vision of what would happen to Missouri's budget and the services the state provides if the new amendment were to pass. Their arguments prevailed; Hancock II was drubbed at the polls in November 1994, winning less than 32 percent of the vote.

But though his amendment lost, the spirit of Hancock's goal to limit Missouri revenue has lived on. In the wake of the tax increase for schools and the loss for Hancock II, Carnahan and the Missouri Farm Bureau proposed and won passage of another amendment, one that limits tax increases without voter approval.

At the time that amendment passed, in April 1996, it required a popular vote for any tax hike above $50 million; since then, using the formula in the amendment, that threshold has nearly doubled.

So together, the two Mels -- Hancock and Carnahan -- helped put into place limits on how much tax revenue Missouri could raise. Ever since then, resistance to increasing taxes has grown as well, to the point that few in Jefferson City are willing to embrace or even discuss such a notion.

Sign of the Times

How much opposition is there in the General Assembly to tax hikes today? A sign posted outside the office of House Budget Committee Chairman Ryan Silvey, R-Kansas City, at the start of the current legislative session gives a pretty good idea.

"Welcome to the House Budget Office!" it proclaims cheerily.

"Please ask yourself the following:

"1. Am I here to ask the chairman for more money than last year? (If yes, proceed to question 2)

"2. Have you lost your mind?"

How wacky is the notion that the state needs more money? Tax collections have ticked upward this year, compared with last year, but Missouri remains in a budget hole, even after hundreds of millions of dollars in budget cuts since the economy went off the cliff in 2008. Since the state must have a balanced budget every year, reductions in state workers and services were inevitable.

The Great Recession was a major cause of the state's bad financial shape, of course. But the impact could have been less if lawmakers, seeing how Hancock refunds were triggered by over-the-limit tax collections in the late 1990s, had not responded to what proved to be a temporary situation with a permanent solution -- tax cuts.

"We kind of burned the candle at both ends," says Jim Moody, a former state budget director whose negative analysis of the Hancock II amendment played a big role in its defeat.

"We had tax credits and tax cuts at the same time, so we went from dramatically over the limit to where we are dramatically under it now. In retrospect, with regard to tax cuts, we should have just kept refunding. I think there was a lack of understanding of the tax structure, and people voting to cut taxes didn't realize all the dynamics that were happening. In fact, the tech and dot-com bubble was just that -- a bubble."

Steve Ehlmann, a Republican legislative leader in the 1990s who went on to become a judge and is now St. Charles County executive, said some of the cuts were made so that money went not to people who paid the most taxes, as the refund process required, but went to what he called "people at the middle of the spectrum."

"I've heard that we didn't have to cut as much as we did, and I'll take credit for cutting more than we had to," he said. "Republicans in the Senate, and I was their leader, wanted to cut more than the governor did. We ended up in the middle. Some people said we shouldn't do more than what the governor wanted, that one day we would want that money back. We were interested in downsizing government."

Still, Ehlmann said, the legislative approach pleased both sides of the aisle.

"We were getting more money because people in the private sector were making more money. People of both parties were happy. Conservatives could say we didn't raise your taxes, and liberals could say we have more money, how do you want to spend it? It was an easy time to be in the legislature."

Tough Times

Those easy days are long gone. Missouri is so far under the revenue limit of the Hancock amendment that many people call its ceiling irrelevant.

"At a practical level," says Ed Robb, a longtime professor at the University of Missouri-Columbia who later served in the legislature and is now presiding commissioner of Boone County, "the Hancock amendment is a point in history. It can't have any influence in the future."

To some people, that situation is reason enough to consider repealing it, as part of an in-depth analysis and restructuring of the state's tax system as a whole. But any thoughts that Hancock could be repealed are met with skepticism.

Ehlmann sees no reason the amendment should disappear.

"I'm not in favor of doing anything to Hancock," he said. "It's not keeping us from raising taxes now, if a majority up there wants to. I don't think they want to, and I don't think the people want them to."

"In the current political environment in Jefferson City," adds Robert Cropf, head of the department of public policy studies at Saint Louis University, "I don't think it would go.

"The Republican Party has driven itself into a corner in the last 30 years, in Missouri and nationally. It has become the party of low taxes, on the way to no taxes. Obviously, there is going to have to be some limit. You can't have no taxes. But if you ask conservatives, they might say that in a perfect world, there would be no taxes."

Still, says Tom Kruckemeyer, chief economist for the Missouri Budget Project who spent most of his career working for the state on budget issues, tough times remain.

"As money from the federal stimulus dissipates," he says, "the state has major budget challenges as far as the eye can see, even if revenue picks up, as it has. The desire to keep cutting taxes and erode the tax base is going to make it difficult."

Given that climate, many see the anti-tax, anti-government stance that has characterized the recent strident debate in many state capitals as a more intense, 21st-century version of what Mel Hancock sparked 30 years ago.

"To a certain extent," says Moody, "I would characterize Congressman Hancock as maybe one of the original tea party guys. He was a populist with a populist message, and it obviously resonated enough with the voters to pass the limitation. But I think the state as a whole is more conservative now than it was at that time."

Has Hancock worked? Has Missouri benefited from the revenue limits it imposed? Ehlmann says it depends on how you look at things.

"Is the glass half-full or half-empty?" he asked. "Compared to Texas, it hasn't worked. Compared to Michigan, it has. We've not had the growth of Dallas-Fort Worth, but we're much better off than Detroit or Cleveland or Buffalo."

And whenever you read about protests at state capitals where lawmakers are trying to get a handle on runaway budgets -- and budget deficits -- Mel Hancock wants you to remember what he helped start more than 30 years ago.

"I'm glad that we have a system of government that allows an individual like me to do what we ended up doing," he says. I wish we could have made it a little bit stronger, but if we had made it stronger I think the Missouri Supreme Court would have declared it unconstitutional.

"Today, I don't think there's quite as much resistance and concern as in 1980. I think we were a little premature; we were a little ahead of what was happening. I think that when anybody takes a look at what we attempted to do in 1980 in Missouri and what's happened in all the other states, there are lot of people in other states that would like to have something like the so-called Hancock amendment."