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by Free Market Duck

Are Idaho's "Rainy Day Funds" unconstitutional?
(Aug 19, 2006)

Boise, ID – Gov Risch, like his predecessor Gov Kempthorne, wants to stash $100 million of the current $219 million tax surplus into what he calls a "rainy day" fund for future public education spending.  And Idaho expects to receive another $200 million tax surplus on top of this for fiscal year ending June 30, 2007.  But there is no provision in the Idaho Constitution for any government individual or agency to collect and retain extra tax money beyond that which was budgeted for the current fiscal year except in cases of a declared war or a majority (or 2/3 super-majority) vote of the voters in Article VIII - PUBLIC INDEBTEDNESS AND SUBSIDIES.

   The question is:  by what authority does the Governor of Idaho collect and save surplus tax money to spend over multiple future years, or beyond this fiscal year, without voter authorization as specified by Idaho's Constitution?  (Remember, in the hierarchy of law, lower level statutes do not supersede the supreme law of the land, the Idaho and U.S. Constitutions.)

   To answer this, we must review Article VIII, Sections 1 and 3, of the Idaho Constitution.

   Art VIII, Sect 1 says that the state legislature shall not create multi-year debts except for war or for a single object of work, which must be pre-specified and paid off within 20 years, principal and interest.  But, this Section says, no debt can be incurred without a majority vote of the voters at a general election “in the same manner as amendments to this constitution are published.”  This section does not apply to "ordinary operating expenses" or those debts that will be paid off by the end of the fiscal year.  (Hold onto your pants while I show you that there is no difference between incurring a multi-year debt and retaining surplus tax money to be spent in future years, i.e., to be spent not within the current fiscal year, hence the euphemism, “rainy day fund.”)

   Art VIII, Sect 3 says that “no county, city, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds (2/3)” of the voters at an election held for that purpose.  In short, no state agencies, including school boards and districts, shall incur multi-year debts IN ANY MANNER (which includes tax surpluses) OR FOR ANY PURPOSE (which means future problems for which “rainy day funds” are created) without a 2/3-majority vote of the voters.  Period.

   Under any definition of taxpayer debt or liability, a tax surplus that is not given back to the taxpayers is, de facto, the creation or incurring and obtaining, of future multi-year debt from the taxpayers in the same manner as if the state sold bonds to incur future multi-year debt.  The Idaho Constitution does not differentiate how the debt or future tax money was obtained (whether through a bond issue or surplus tax money from either sloppy budgeting or unforeseen economic circumstances).  In fact, it says no debt “in any manner or for any purpose” shall be incurred.  Surplus tax money does not supersede the provisions of Article VIII, Sections 1 and 3, of the Idaho Constitution’s clause.  In fact, I can conceive of many clever scenarios in which Idaho politicians and agencies could PURPOSELY OVER-TAX its citizens in order to PURPOSELY OBTAIN SURPLUS TAX MONEY ahead of time to spend for future years in an effort to PURPOSELY pull off an end run around the deficit limitations of the Idaho Constitution.  Are politicians doing this today?  Who knows?  That’s why we need to invoke Article VIII against the Gov’s “rainy day fund” idea.

   Let’s briefly analyze why "rainy day funds" are unconstitutional under Article VIII, Sections 1 and 3 of the Idaho Constitution.

   Are "rainy day funds" ordinary operating expenses?  If, by “ordinary operating expenses,” one means will the purpose of the “rainy day funds” be for the same expenses but not enough tax money will be collected in some future year, then the answer is a convoluted yes that circumvents the entire meaning of Article VIII (so we might as well throw Art VIII away) because we could then GROSSLY OVER BUDGET every current expense in Idaho, collect it as surplus tax money and then claim it’s for future “ordinary operating expenses.”  Under this definition, all multi-year deficits would be legal.  But that’s not the intent of Article VIII.  So the real answer is no, “rainy day funds” are funds that at the time of their collection are above and beyond ordinary operating expenses and, in fact, are for imaginary purposes.  By definition, “rainy day funds” from surplus tax money are for extra-ordinary events and this category should be taken care of at the time of the tax collection shortage, within the same fiscal year, not five years ahead of time for some imaginary economic problem.  Idaho is not a private corporation running on a profit and loss accounting basis.  It cannot collect and invest tax money for future projects except as specified by the provisions of Article VIII.  State governments cannot legally print money or issue credit and thus cannot perpetually run on deficits.

   Are "rainy day funds" expended before the end of the current fiscal year?  No, they are, by definition, to be retained and spent for future year expenses.  They were not budgeted for the current fiscal year.  Are "rainy day funds" collected due to a declaration of war?  No, they are a tax surplus obtained either on purpose by clever politicians trying to get around the Constitution, or by sloppy legislative budgeting, or by economic accident.  The Idaho Constitution does not say, “Oh well, if the surplus tax money was actually an unforeseen economic accident then the Governor gets to keep it, or invest it in pork belly futures at 90% margin, or stash it away into a fixed CD at 5% interest, or slip it into a “rainy day fund” for his favorite lollipops which may be public education, road improvements, mass transit trolley cars, or whatever strikes his fancy on any given day.”

   Currently, ex-Gov Kempthorne’s $3 billion GARVEE Highway Plan expenditures are unconstitutional since they have not been approved by a majority vote of the voters in a general election as specified by Art 8, Sect 1, of the Idaho Constitution.  The fake rent-purchase of the Ada County Courthouse by the Ada County Commissioners and The Friends of the Ada County Judicial System, Inc. was unconstitutional since it was not pre-approved by a 2/3-majority vote of the voters as specified by Art 8, Sect 3, of the Idaho Constitution.  The $136 million University Place fiasco was a direct result of the unconstitutional Ada County Courthouse debacle.  And now, Gov Risch’s $100 million “rainy day fund” tax surplus for future public education expenditures is not constitutional as specified by Art 8, Sects 1 and 3, of the Idaho Constitution unless it is put onto the November ballot for a vote of the people.

   In short, the intention of Article VIII of the Idaho Constitution is to not go into multi-year debt (a deficit) or spend taxpayer money beyond that which was budgeted and collected within one fiscal year (a surplus or deficit) without specific approval of the voters.  Perpetual “rainy day funds” are not legal.

   Therefore, a tax surplus, no matter how it was obtained (since we can’t prove whether it was through purposeful malfeasance or economic accident) must fall under the same provisions of Article VIII of the Idaho Constitution, which means, quod erat demonstrandum, that the Governor’s so-called “rainy day funds” for public education or any other future expenditures are unconstitutional. Surplus tax money MUST, by law, be returned to the citizens of Idaho or approved as per the provisions of Article VIII, Sections 1 and 3, of the Idaho Constitution.  Otherwise, as the Idaho Constitution says, any violations of Article VIII are not true liabilities of the citizens of Idaho, are null and void, and those who perpetrate this fraud should be duly prosecuted. – FM Duck

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