Pulling the taxpayer's sword from the stone: the appropriation requirement of Missouri's Hancock Amendment.

• Author: Bremer, Jonathan G.

1. Introduction

   On November 4, 1980, Missouri voters approved the Hancock Amendment (Hancock) to Missouri's Constitution. (1) Hancock addressed voter concerns as to whether state and local governments could keep their taxing and spending in check. (2) The amendment contains two principle aspects. First, Hancock limits state and local governments in their ability to increase taxation, revenue, and spending without voter approval. (3) Second, Hancock prohibits the state from imposing "unfunded mandates" upon its political subdivisions--closing a loophole that would otherwise allow the state to circumvent its duty not to raise taxes or spending above a certain level without a vote of the people. (4) According to Hancock, new state mandates require that a "state appropriation is made and disbursed to pay the county or other political subdivision for any increased costs." (5) This "appropriation requirement" is the focus of this Law Summary.

   As one of, if not the most, fiscally conservative states in the nation, the history and future of Missouri's Hancock Amendment--arguably the most restrictive tax and expenditure limitation in the nation--is critical to understand, not only for Missourians, but for many other Americans, as our state and national elected representatives consider how, if at all, to approach spiraling deficits in the wake of the 2008 financial crisis.

   Part II of this Summary will briefly trace the history of self-imposed fiscal restraints among the various states. Missouri's unique tradition of fiscal conservatism and the birth of Hancock will be part of the historical discussion, which also includes a description of the Hancock's key provisions and how the courts have interpreted Hancock's provisions over time. Part III will focus on the 2004 case of Brooks v. State that appears to open the door for avoidance of the seemingly unambiguous Hancock appropriation requirement. This Part will also describe the pending case of Turner v. School District of Clayton, which may bring this question of interpretation before the Supreme Court of Missouri. Part IV provides two examples of recently proposed and enacted legislation that could violate the Hancock appropriation requirement in an effort to show the potential broad reach of the provision. It also suggests that the Supreme Court of Missouri has become increasingly deferential to the legislature in Hancock cases. Lastly, it applies the interpretive methods used by the court in Hancock cases to the appropriations requirement and concludes that regardless of method, the court is likely to uphold the provision's broad reach. This section ends with a policy-based argument supporting such a holding.

2. Legal Background

   1. A Brief History of Self-Imposed Fiscal Discipline Among the States

      unlike the federal government, states have developed tools promoting fiscal responsibility. (6) Most state constitutions, for example, place limits on spending (7) and borrowing. (8) Almost all states have balanced budget requirements, (9) and most have some restrictions on taxation. (10) These tools were often developed in response to serious economic crises. (11) While generally effective following such crises, state and local governments characteristically find ways to evade self-imposed limitations in the long run through either subsequent legislative action or judicial interpretations. (12) As one scholar points out, an important lesson to be learned from state fiscal devices is the "enormous gap" between the language of such provisions and actual practice of state and local governments today. (13) The history of two state fiscal controls public purpose requirements and state debt limitations--highlights this phenomenon. (14)

      During the 1820s and 1830s, public support for private enterprises was widespread. (15) After the Erie Canal opened in 1825, New York's economy boomed. (16) other states supported their own large-scale infrastructure projects in order to remain competitive. (17) States invested heavily in private companies, providing grants, loans, and other forms of assistance, often with borrowed money. (18) Mismanagement, waste, and overbuilding were common. (19) When the economy crashed following the Panic of 1837, private firms struggled to repay state loans, and massive infrastructure projects generated less revenue for states than expected. (20) As a result, nine states defaulted on interest payments and four states disclaimed all or part of their debts. (21) A wave of state constitutional amendments soon followed. (22) States added debt limitations of various forms (23) and required state expenditures and lending to be for "public purpose[s]," thereby restricting state and/or local governments in their ability to provide financial support for private endeavors. (24) These requirements initially applied only to state governments, allowing states to circumvent them by assisting private firms through local governments. (25) Waste, overbuilding, and economic crisis ensued all over again, leading to further constitutional amendments applying public purpose requirements to local governments. (26)

      Today, the vast majority of state constitutions contain debt limitations and public purpose requirements, (27) but few have practical significance. Courts broadened the definition of "public purpose" in the 1930s as state efforts to stimulate the economy became more popular in the wake of the Great Depression. (28) By the end of the 20th century, courts in nearly all states had upheld some form of an economic development program directly assisting private firms. (29) State constitutional debt limitations encountered a similar fate. over time, states developed creative ways to avoid incurring debt directly, while achieving the same purpose indirectly. (30) As of 1996, creative "non-debt debts" accounted for almost three-quarters of total state debt and two-thirds of total local debt. (31)

      Increasing tax burdens (32) and historic stagflation set the stage for different kinds of state fiscal reforms in the mid-to-late 1970s and early 1980s. (33) The reforms arose, in part, because existing public purpose requirements failed to constrain government expenditures and limit tax burdens on state citizens. (34) In 1976, New Jersey adopted a statute fixing total state expenditures to per capita personal income. (35) This statute became known as the first tax and expenditure limit (TEL). (36) Two years later, Californians approved Proposition 13, a grassroots ballot measure amending the state's constitution to address soaring property taxes (resulting from inflation) and to restrict future tax increases of all types. (37) This voter-led movement had a "catalytic effect" and spread across the country. (38) By 1986, twenty states, including Missouri, had adopted TELs. (39) By 2003, more than half of the states' constitutions had either substantive or procedural limits on state and local taxation or spending. (40)

      But, as with public purpose requirements and debt limitations, states have found ways to circumvent TEL restrictions. (41) For example, the proliferation of state and local tax limitations through TEL provisions coincided with an "explosion" of "non-tax taxes" (e.g., fees and user charges). (42) This dramatic increase is due in part to a desire to evade TEL restrictions, although other factors contributed to it as well. (43)

      TELs have raised fundamental questions. In addition to kicking off the "tax revolt," the passage of Proposition 13 in 1978 ushered in an "era of popular distrust in representative government." (44) Instead of allowing legislators to make fiscal decisions, most TELs put this responsibility in the hands of voters. (45) TEL proponents consider this an important check on shortsighted politicians looking to purchase votes with tax dollars. (46) opponents of TELs counter that such measures hamstring state governments, foreclosing legislative options. (47)

   2. Missouri Traditions and the Hancock Amendment

      Missourians distrusted politicians with taxpayer money long before Californians sparked a new era of government cynicism in 1978. (48) The Missouri constitution from 1875 to 1945 was "best understood as a fiscal document aimed at controlling the vices of post-Civil War Missouri government." (49) Missouri's current (1945) constitution, as of 1991, was the nation's fourth longest state constitution, with 39,300 words. (50) By 2005, it had close to 65,000 words. (51) A typical reason for such a lengthy state constitution is "'continuing popular distrust of the state legislature, based on past abuses, which results in detailed restrictions on governmental activity.'" (52) Fiscal conservatism in Missouri has endured through most of the state's history, regardless of which political party is in power. (53)

      Unsurprisingly, Missouri's TEL, the Hancock Amendment, is among the nation's most restrictive. (54) It is a "true TEL," providing "both tax and expenditure limitations." (55) Its "principal clause" is section 16. (56) This section provides that "direct voter approval" is required should "[p]roperty taxes and other local taxes and state taxation and spending" exceed limitations established in following sections of the amendment. (57) It also prohibits the state "from shifting the tax burden to counties and other political subdivisions" or from requiring them to undertake "new or expanded activities" without "full state financing." (58) The section concludes by saying that "implementation of this section is specified in sections 17 through 24." (59)

      Section 18 establishes limits on state taxation and spending. (60) It prohibits the general assembly from imposing "taxes of any kind which, together with all other revenues of the state, federal funds excluded," exceeding an amount established by formula. (61) This formula takes into account personal income of Missouri, among other things. (62) Should this limit be exceeded, taxpayers receive refunds, (63)...