UPDATE 2-Voters limit U.S. state tax hikes, budget battles

* Measure to create income tax fails in Washington state

* Colorado’s budget ‘Armageddon’ ballot measures fail

* Billions of dollars of education debt approved
(Adds reaction)

By Lisa Lambert

WASHINGTON, Nov 3 (BestGrowthStock) – Voters in many U.S. states on
Tuesday made clear their distaste for tax hikes, voting to
limit how their states may raise revenue and changing how some
budget decisions are made.

Still, voters worked to preserve education funding,
approving billions of dollars in public debt for schools.

“I’m not surprised by that given the political period we’re
in,” said Scott Pattison, executive director of the National
Association of State Budget Officers. He added that voters were
affected by a rough economy and low trust of government.

“We’re still in a very scarce resource environment for
states, so they’re going to have make tough choices,” he said,
referring to how states will handle limits on tax hikes.
“They’ve already done a lot of cutting. Will they continue to
cut?”

The economic recession that began in 2007 has kept states
scrambling to balance their budgets even though it officially
ended last summer. All states except Vermont must finish their
fiscal years with balanced budgets, and for two years
legislators have slashed spending and raised taxes to wipe out
deficits.

“Though there were fewer voter-driven measures on the
ballot this year, the electorate took strong stands on fiscal
issues,” said Jennie Drage Bowser, who follows ballot measures
for the National Conference of State Legislatures. “In some
cases, though, the messages were mixed.”

According to the Brookings Institution, there were nearly
100 statewide and 450 local tax measures on Tuesday’s ballots.

Most notably, a measure establishing an income tax in
Washington failed. The initiative would have levied the tax on
individuals making more than $200,000 a year and couples
earning more than $400,000 a year.

Washington then went a step further — tax increases now
require a two-thirds super-majority vote in the legislature or
a statewide ballot.

California voters said “No” to making marijuana legal and
taxing its sales, as well as to raising fees for visiting state
parks and eliminating corporate tax breaks.

For a FACTBOX on ballot measures, please see
ID:nN03282785

Voters in Montana barred new taxation on property transfers
or sales, while Massachusetts voters repealed a sales tax on
alcohol. Indiana cemented its statutory property tax cap in the
state constitution, and Missouri added limits to property taxes
and city income taxes to the constitution.

Some curbs on taxes, though, did not win over voters.

Three proposed constitutional amendments in Colorado that
would have radically limited how the state taxes and borrows
failed. Dubbed “Armageddon on Colorado Ballots” by the Denver
Post’s editorial page, the measures would have cut the state
income tax rate, banned future state borrowing, required voter
approval for local government borrowing and cut other taxes.

Massachusetts also rejected a drastic tax cut, voting down
a measure to reduce the state sales tax to 3 percent from 6.25
percent, which would have cost the state $2.5 billion.

Virginia Republican Governor Bob McDonnell said the
elections, which swept Republicans into office at the state and
national levels, showed “the American people want limited
government, less spending, a focus on job creation and fiscal
responsibility.”

For more on U.S. state legislative elections, please see
(ID:nN03284357: )

Many measures that succeeded on Tuesday also reined in
government by changing states’ budget processes.

Tracy Gordon, a visiting fellow at Brookings, said that by
rejecting some tax measures while embracing others, voters did
not coalesce around a single fix to state fiscal problems.

“My sense is that voters want state budget problems fixed
but they don’t want to be involved specifically in how it’s
done. They want to set ground rules,” she said, adding that
voters want to “tell governors what’s off limits.”

In California, where the government regularly deadlocks over
passing a budget, voters agreed to change the legislative vote
requirement necessary to pass a budget from two-thirds to a
simple majority. The Golden State now also requires lawmakers
to forfeit pay if they fail to pass a budget bill by June 15.

Hawaiians agreed to issue tax rebates when the state runs a
surplus, while North Dakotans approved creating a reserve from
taxes collected on extraction. South Carolina, Oklahoma, and
Virginia all voted to expand their rainy-day funds.

The municipal bond market will likely feel reassured by the
strong reserves, said Municipal Market Data Analyst Daniel
Berger, even though those states are not deemed risky credits.

“That means they have one way to balance their budgets if
called upon,” Berger said.

Half of the nearly $16 billion in bond ballot measures in
Tuesday’s elections were dedicated to schools, according to the
Bond Buyer. More than 10 percent was for financing colleges and
other educational purposes.

Many major education bond measures totaling more than $2.2
billion were approved by voters in California.

Voters in Alaska passed nearly $1 billion of debt, with
$397.2 million going to building schools, libraries and
research facilities. Two Texas school districts also passed
sizable bond issues, with San Antonio School District voters
approving $515 million in debt and Katy School District voters
approving $459.8 million.
(Additional reporting by Karen Pierog in Chicago, Edith Honan
in New York and Jim Christie in San Francisco; Editing by Dan
Grebler)

UPDATE 2-Voters limit U.S. state tax hikes, budget battles