Taxpayer's bill of rights could fix fiscal wrongs.

• Position: ECONOMIC OUTLOOK - Interview

The state faces a projected billion-dollar budget deficit for the fiscal year that starts in July. A report by Barry Poulson argues that a taxpayer's bill of rights would prevent such shortfalls. Poulson is an economics professor at the University of Colorado at Boulder and wrote the report for the Washington, D.C.-based Americans for Prosperity Foundation, a conservative think tank with a North Carolina office.

[ILLUSTRATION OMITTED]

BNC: What is a taxpayer's bill of rights?

Poulson: It is an amendment to a state constitution that limits the growth in state revenue and spending to the growth of population plus inflation, ensures revenue above this amount is returned to taxpayers and requires voter approval for tax increases or weakening of the amendment's limits.

How would it limit spending?

In 2003-2004, North Carolina had 1.2% population growth and 1.7% inflation, which adds up to 2.9%. That's the rate of growth permitted for revenue and spending in that year. If the actual revenue goes over the limit, refund the difference to taxpayers.

Why not a statutory limit on spending?

When you have a statutory limit, legislators can repeal it or change it because they passed it. A constitutional amendment is more binding because it requires legislators to go to a vote of the people if they want to spend more than the limit. That's a pretty high hurdle.

What about economic fluctuations?

The criticism of the amendment as it exists in Colorado is that it ratchets down revenue the state can spend in a recession. When you start recovering from a recession, growth in revenue will exceed the limit, so the state will have to rebate surplus revenue to taxpayers even though revenue hasn't recovered to pre-recession levels.

What's the solution?

I link the taxpayer bill of rights to an emergency fund and a budget-stabilization fund. If you go through a period of prosperity like North Carolina did in the 1990s and you have this limit in place, you're generating surplus revenue. Instead of returning the surplus to taxpayers, you allocate a portion to an emergency fund and a budget-stabilization fund. An emergency would be something unforeseen in the way of natural disasters or terrorist attacks. The legislature would have to declare an emergency, then spend the money for a specific event. The budget-stabilization fund is to help the state stabilize the budget over the business cycle. When you have a recession and a revenue shortfall, you can transfer money...