What is the simplest explanation of the ratchet effect?

[JAbuchan08]

I'm not understanding this all. I understand the consequences, but I don't understand WHY it works this way.

[pointsoflight]

1. Here's my understanding....

TABOR limits the increase in spending from one year to the next to a very small percentage of the current budget. Although that may sound reasonable, the problem is that TABOR doesn't include any provisions that limit the size of budget cuts during tough times or allow for a recovery to those cuts when things get better. When you have a recession and the budget dramatically shrinks, you can't ramp the budget back up when you come out of the recession. Your tied to a small percentage increase that's calculated based on the current, deflated, recessionary budget.

The net result is that cuts which were forced by a recession essentially become permanent. Doesn't matter how severe the cuts were to the state's health, and doesn't matter how healthy the economy has become.

Here's an analogy that I like. Imagine you have a job in which you make $60K per year. Your company gets hit hard by a recession, so you're asked to take a pay cut to $45K. You dramatically cut your spending given the pay cut. Now the recession ends and your pay goes back up to $60K. The TABOR ratchet effect is equivalent to a mandate which says that despite your income returning to $60K, you're only allowed to spend what your $45K salary allowed.

[politicat]

2. self-delete

[Damien]

3. Dillion lake (sp?)

Before the draught a few years back, the lake was full. When we had a draught, it was very low. When it the draught ended, the lake refilled. Had the lake been regulated by TABOR, however, we would only have allowed the lake to refill 1% beyond what it was in the draught year rather than filling back up.

Our economy is like the lake -- we don't let the state recover after recession.

[Robb]

4. Bingo

Instead of basing next year's limits on the drought year previous, Ref C says the baseline is the best of the previous 5 years -- in this case, financially, last year.

[MissMarple]

5. Because Bruce is a mean spirited,manipulative, anti government ass hole.

Don't tell anyone I actually said that. ;)