Changes to Spending Limit Provisions Adopted by the 2005 Legislature (SSB 6078)

The 2005 Legislature adopted important changes to the expenditure limit that will affect the development of the General Fund-State (GF-S) budget for the 2007-09 Biennium. These changes, all of which were included in SSB 6078, also affect non-general fund budgets.

The principal changes to the spending limit specified in Initiative 601 include:

• Funds included in the expenditure limit
• Fiscal growth factor
• Votes required to increase revenues
• Deposits to the Emergency Reserve Account
• "Two Way Street" provision
• State Expenditure Limit Committee

Funds included in the expenditure limit

• Currently, the I-601 expenditure limit pertains only to the General Fund-State.
• The expenditure limit in SB 6078 includes the General Fund-State and related funds or 'near-general fund' funds beginning with the 2007-09 Biennium. Those related funds are the Health Services Account, Violence Reduction and Drug Enforcement Account, the Public Safety and Education Account, the Water Quality Account, and the Student Achievement Account.

Fiscal growth factor

• Under the existing I-601 expenditure limit, the expenditure limit growth factor is defined as the three-year average of population growth plus inflation.
• For the 2007-09 Biennium, the fiscal growth factor is changed to the average growth in state personal income for the prior ten fiscal years in SB 6078.

Votes required to increase revenues

• Previously, a two-thirds vote in both houses of the legislature was required to raise revenue or pass a revenue neutral tax shift.
• SB 6078 changed the requirement to a simple majority vote to raise revenue or pass a revenue neutral tax shift.
• The change in votes required to increase revenues became effective immediately upon the legislation becoming law, April 18, 2005.

Deposits to the Emergency Reserve Account

• Currently, General Fund-State revenue in excess of expenditure limit is transferred to the Emergency Reserve Fund.
• The new legislation transfers only General Fund-State revenue when the revenue in the limited accounts exceeds the expenditure limit starting with the 2007-09 Biennium. The amount transferred is proportional to the General Fund-State share of all limited account expenditures.

"Two Way Street" provision

• The existing expenditure limit reduces the limit if the cost of a program is moved out of General Fund-State or if money is moved out of General Fund-State. The expenditure limit is increased if the cost of a program or money is moved into General Fund-State.
• Starting July 1, 2007, SB 6078 eliminates the "two way street" option by reducing the expenditure limit if the cost of a program or money is moved out of General Fund-State or a related fund. The expenditure limit is increased if both the cost of a program and ongoing revenue for the program is shifted to General Fund-State or a related fund.

State Expenditure Limit Committee

• At this time, the State Expenditure Limit Committee is comprised of the Director of the Office of Financial Management, the Attorney General, and the chairs of Senate Ways and Means and House Appropriations Committees. Three votes are needed for action.
• SB 6078 adds the ranking minority members of Senate Ways and Means and House Appropriations Committees to the State Expenditure Limit Committee. Four votes are needed for action.

The change to majority vote for increasing revenues took effect April 18, 2005. Changing to the new growth factor, adding related Funds to expenditure limit, and the expenditure limit committee changes start July 1, 2007.