Political Hay

Taxpayers in Trouble

Colorado votes tomorrow on whether to declare the state's Taxpayer Bill of Rights a dead letter.

By 10.30.05

Tomorrow voters of Colorado will decide the fate of the state's Taxpayer Bill of Rights (TABOR), the most restrictive, and hence effective, limit on state government spending in the nation. Many individuals and groups in Colorado, including GOP Governor Bill Owens, maintain that TABOR is putting far too much pressure on state expenditures. One could argue their complaint is reasonable. Their solution, Referendum C, is not.

TABOR, passed by Colorado voters in 1992, limits annual growth for portions of the state budget to increases in inflation and population growth. Any surplus must be sent back to the voters in the form of tax rebate checks. However, TABOR also has a "ratchet down" effect that, in part, is causing some of the current consternation. Whenever state revenues decline, the lower revenues become the new TABOR "baseline" to which inflation and population growth are added to determine the new spending limit for Colorado's state budget. If the state experiences a small decline in revenue, this is not much of a problem. But since 2001 Colorado has been hit by a recession, a sluggish tourist ski season due to 9/11, and a reeling agricultural sector hit by a severe drought. This resulted in a 13% decline in state revenues over two years, and a much lower baseline due to TABOR. Now, it would seem reasonable to ask Colorado voters to suspend TABOR until the portion of the state budget that is subject to TABOR returned to its 2001 level. It might also be reasonable to ask voters to fix TABOR so that there were limits on how low the baseline could fall. Unfortunately, Referendum C does neither of these things.

Referendum C permits the state legislature to spend any surpluses over the next five years that result from TABOR on education, health care, and road construction. That means that for the next five years taxpayers in Colorado would receive no rebates. It also means that the state legislature could spend money in the next five years in amounts above what would be required to meet the 2001 level of spending. According to most estimates, that would result in an additional $3.7 billion in spending.

Nor does Referendum C fix some of the other problems that are putting strains on the Colorado budget. In 2004, the Colorado legislature passed bills that granted "enterprise status" to Colorado colleges and universities and the Petroleum Storage Tank Fund, thereby exempting them from TABOR. However, it also removed their funding from the TABOR portion of the state budget, resulting in another lowering of the TABOR limit and less money for other items in the budget. There appear to be no plans to repeal those bills.

In 2000, Colorado voters passed Amendment 23, which mandated that education spending must grow by inflation plus 1% of what was spent in the previous year's budget. Amendment 23 permitted budget surpluses to be used to fund it. But when the surpluses dried up in the recession, Amendment 23 had the effect of crowding out other items in the budget. In fairness, Colorado law only allows for changes in TABOR to be put on the ballot in an odd numbered year. Yet there doesn't seem to be any effort to put a measure on next year's ballot that would suspend Amendment 23.

The fact that Referendum C does not really fix any of the problems that led to the current mess suggests that the intent behind it is to undermine TABOR. That perception is reinforced by three other factors.

First, Referendum C has a sister measure, Referendum D. Referendum D (which is contingent on C passing) permits the state to borrow an additional $1.5 billion to spend on roads, health-care, and education. Ten percent of the money the state receives from Referendum C will be used to pay back the bonds. The remainder would be paid back by some other revenue source -- perhaps with another measure to suspend TABOR?

Second, the coalition that supports Referendums C & D is huge, and reads like a who's who of those who love to spend other people's money: American Federation of Federal, State, County & Municipal Employees, Colorado Education Association, Colorado Association of Public Employees, Colorado Bar Association, Colorado Association of Realtors and the Colorado Democrats. A Nexis search revealed that other groups in the coalition also opposed TABOR in 1992, including Colorado Ski Country USA, Colorado Municipal League, and Colorado Municipal Bond Dealers Association.

Finally, Referendum C changes the TABOR spending limit. It takes the highest amount of revenue in any of the fiscal years from 2005-06 to 2010-11, and sets it as the new TABOR limit. Each year after that the limit will increase by inflation and population growth, regardless of whether revenue declines. Thus, it is possible that revenues would almost always fall below the TABOR limit, meaning that the state legislature could spend every last red cent in perpetuity and Colorado taxpayers would never again see a tax rebate.

What are the chances that Colorado voters will, in effect, "gut" TABOR? No poll has yet shown Referendum C receiving more than 50% support, although a recent Rocky Mountain News poll had it winning by 49-46%. Plus, many of the supporters of Referendum C, such as unions, have better machinery for turning out the vote. On the positive side, a Mason-Dixon poll taken at the same time showed a margin of 47-44% in favor, but over half of the undecideds were Republicans.

At present, it could go either way. Here's hoping it goes in favor of Colorado taxpayers.

David Hogberg is a senior research analyst at the Capital Research Center. He also hosts his own website, Hog Haven.

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