Analysis: In Defense of Colorado Taxpayer’s Bill of Rights

Published July 1, 2005

Opponents of Colorado’s Taxpayer’s Bill of Rights (TABOR) are waging a well-coordinated but misleading attack on the state’s reputation. This attack takes the form of a number of rankings and statistics that purport to show TABOR has hurt the state.

These attacks are based on the assumption that if Colorado ranks poorly on measures such as the adequacy of prenatal care and education spending, then the state is failing to adequately care for and educate its citizens, and TABOR must be to blame. A closer look at the attacks shows how wrong they are.

TABOR Cushioned Revenue Declines

The claim: TABOR magnified the effect of the recession on the Colorado budget, forcing more than $1 billion in cuts.

The facts: TABOR allows Colorado revenues to grow at the same rate as population plus inflation, requiring excess revenues to be returned to the taxpayers. When revenue growth dips below the allowed rate, spending must “ratchet down” to the level of revenues, unless tax increases are approved by voters.

Such spending restraint happens not only in Colorado but in every state where revenues decline, as all states except Vermont are constitutionally required to balance their budgets.

In Colorado, though, the impact of the revenue decline was mitigated by TABOR. Where most states spent all or nearly all available revenues, Colorado had to return surplus revenues to the taxpayers in the good years. Thus, the revenue decline in Colorado did not hurt as much because the state was not allowed to spend all the money it collected during the good times. Had Colorado spent all surplus revenues, the budget deficit likely would have been much worse.

TABOR saved Colorado from a more severe revenue shortfall and smoothed Colorado’s spending through the recent economic slowdown. (See Figures 1 and 2.)

Education Spending Squeeze

Critics also overlook the role that mandated spending increases played in worsening Colorado’s deficit. Amendment 23, passed by voters in 2000, requires the state to increase education spending by the rate of population growth plus 1 percent every year from 2001-2011–regardless of whether the state’s revenues increase. Amendment 23 carves out a special source of funds for education–7.2 percent of personal income tax revenues–and places those funds in a special education trust.

Amendment 23 puts a major squeeze on other parts of Colorado’s budget, like higher education, which are funded from the part of the budget still subject to the limits of TABOR.

TABOR allows state lawmakers to spend above and beyond its limits if the voters approve. The voters can even approve statutory tax increases to raise revenues above and beyond Colorado’s current revenue stream. All lawmakers are required to do is ask permission to raise taxes.

Reserve Funds Exist

The claim: Because TABOR required very large tax refunds in the boom years, the state was unable to put money into a rainy day fund or make other investments that could have eased the budget crisis when it arrived.

The facts: TABOR did not stop Colorado from saving money in a rainy day fund. Colorado already has several reserve funds at its disposal, including a statutory reserve equal to 4 percent of appropriations, to be used in case of revenue shortfalls (though the money has to be replaced in the future). Lawmakers spent a large portion of this reserve on capital construction in the 1990s, an unsustainable course of action during a revenue shortfall.

TABOR also requires the state to set aside an emergency reserve fund, to be used in case of natural disasters. Finally, TABOR allows Colorado lawmakers to ask the voters to allow the government to keep surplus revenues for a rainy day fund.

Health Issues Misstated

The claim: Colorado ranks 48th in prenatal care.

The facts: Colorado ranks as the 13th healthiest state in the country, according to a 2004 survey conducted by United Health Foundation. Prenatal care was one of 18 measures used to compile the total ranking–and it was the only measure on which Colorado was cited for needing improvement. In every other area of health measured by the rankings–obesity, smoking, crime, disease, poverty, etc.–Colorado ranked in the upper or middle tier of all states.

If you accept these rankings as adequate measures of a state’s health, then Colorado is a healthy state. Furthermore, nothing indicates TABOR caused the low ranking on prenatal care, or that a low ranking means Colorado is failing to provide adequate prenatal care.

The claim: The share of low-income individuals enrolled in Medicaid is lower in Colorado than in all but five other states.

The facts: To the extent that the level of Medicaid enrollment and payment per enrollee connote high-quality health care (and there are serious questions about whether that is true), Colorado compares favorably to other states.

Colorado had the second-fastest increase in Medicaid recipients (45 percent) of any Rocky Mountain state between 1996 and 2001. Colorado’s increase in Medicaid recipients was also well above the national average of 27 percent. Colorado’s payment per Medicaid recipient was third among Rocky Mountain states in 1990 ($2,705) but rose to first among Rocky Mountain states in 2001 ($4,969).

Health Insurance Unaffected

The claim: The percentage of low-income Colorado children who lack health insurance rose from 15 percent in 1991-92 to 27 percent in 2002-03.

The facts: Studies by the Centers for Medicare and Medicaid Services (CMS) and the Kaiser Commission have concluded the rise in the number of uninsured children has nothing to do with tax and spending restrictions in TABOR. CMS attributes the increase to the fact that employers are dropping their coverage. The Kaiser Commission says many children are uninsured simply because their parents are not aware they are eligible for Medicaid coverage.

K-12 Teachers Well-Paid

The claim: Colorado teachers earn less than the national average wage and are paid poorly relative to the private sector.

The facts: Colorado ranked 22nd in average teacher salary in 2003, with salaries up 5 percent from 2002. Colorado also had the highest average instructional salary of any state in the Rocky Mountain region during 2003-04. Colorado teachers are not underpaid by any reasonable standard.

The claim: Colorado ranks 47th in K-12 education spending as a share of personal income.

The facts: In a study by the National Education Association (NEA) on 19 different measures of school spending, Colorado ranked 27th. The measure of education spending as a share of personal income is only one of those 19 rankings, which include measures such as education spending per student enrolled and per-capita education spending.

Moreover, the amount a state spends does not guarantee a quality education. Research by the American Legislative Exchange Council (ALEC) shows there is virtually no correlation between how much a state spends on education and the scores achieved by its students on standardized tests.

Colorado Strong by Many Measures

Contrary to the assertions of its opponents, the Taxpayer’s Bill of Rights has not decimated Colorado. In other measures of fiscal standing, not mentioned by the opponents of TABOR, Colorado compares very favorably to other states.

Colorado’s per-capita tax burden is the 10th lowest in the nation. The state has the eighth friendliest business-tax climate (the highest ranking of any state with a sales tax and a corporate and personal income tax), and it ranks as the state with the second-highest level of economic freedom.

It is highly misleading to say Colorado is a sub-standard state based on selectively cited statistics and national rankings, and even more inaccurate to blame the Taxpayer’s Bill of Rights for any perceived inadequacies.

Chris Atkins ([email protected]) is staff attorney at The Tax Foundation.

For more information …

The full text of the March 2005 report on which this article is based, “An Analysis of Misleading Attacks on Colorado’s Taxpayer’s Bill of Rights,” is available online at