The growing popularity of state ballot initiatives has some viewing these “direct to voter” efforts as a victory for democracy. At the same time, however, they can carry massive hidden costs that make many of them financially damaging to the citizens they are supposed to help.
The once-great state of California has been the poster child for the direct democracy process. Last year alone, Golden State voters were asked to vote on thirteen different state ballot propositions covering a range of issues, from taxation of commercial and industrial properties to voting rights to policies governing dialysis clinics.
What working parent has the time to learn about industrial property rights or dialysis clinics? They don’t, which is why these initiatives frequently become the target of expensive campaigns. These campaigns distill complicated issues into hashtag mottos and bumper sticker phrases that can carry the day. Increasingly, it is becoming a cottage industry — a cottage industry that deals with issues that matter little, if at all, to voters. The political consultant class in places like Sacramento and Washington, D.C. gets richer off these initiatives at the expense of taxpayers.
Three of the eight most expensive ballot campaigns in California’s history occurred in 2020 alone. A staggering $224 million was spent on campaigns related to California’s Proposition 22, which asked voters whether app-based transportation and delivery drivers should be treated as independent contractors.
While there certainly may be some instances when a state’s voters could benefit from a ballot proposition, these “direct to voter” initiatives can also introduce significant uncertainties into the marketplace that may ultimately damage a state’s economic performance.
A new study by the American Action Forum (AAF) found that a high volume of ballot initiatives can contribute to a reduction in a state’s economic performance. This included lower levels of gross state product, employment, and income levels.
The AAF study analyzed the volume and frequency of state ballot initiatives over nineteen years. It concluded there was a “statistically significant correlation” between these propositions and the creation of economic uncertainty. As a result, the analysis suggested that states “may have an economic interest in limiting the number and frequency of such initiatives.”
In particular, AAF’s economists, including the well-respected Doug Holtz-Eakin, found that states should be particularly cautious about the number of initiatives that could impact economic factors such as taxation or employment budgets. Naturally, these are the most likely to introduce economic uncertainty for employers and companies.
Take a look at last year’s Ballot Measure 1 in Alaska, which asked voters whether it should increase taxes on certain oil production fields in the state’s North Slope region. Despite voters rejecting the measure by a significant margin, there is already talk from the environmental activists who sponsored the measure about revisiting the issue.
Perpetual public policy conflicts eventually will cause companies to look to other, more stable locations to conduct their business. Even states with a strong pro-business reputation may be susceptible to this problem. In 2019, Texas put ten statewide ballot measures in front of voters. This year, the state has certified another eight new initiatives that will appear on Texas ballots. The Austin political consultant class is drooling with delight.
While it may seem wise or politically expedient to give voters a greater say in state policies, state policymakers should think carefully about the frequency and content of their ballot initiatives. Like most things in this world, they come at a cost. States like Alaska and Texas should watch and learn so they can make sure they don’t end up like our friends in California.
