Colorado Stalls on TABOR, School Funding

Published June 1, 2004

The Colorado state legislature closed its general session on May 5 without addressing a growing conflict between two provisions of the state constitution.

The conflict is caused by the interaction of the Taxpayers Bill of Rights (TABOR) Amendment to the state constitution, which ratchets down revenue and spending, and Amendment 23, an education measure approved by voters in November 2000 that ratchets up spending.

“Because no bill emerged from the 120-day regular session of the Colorado General Assembly, Gov. Bill Owens (R) is likely to call lawmakers back into a special session to resolve the conflicts,” said Tripp Baltz of the Bureau of National Affairs on May 7.

Revenue Neutrality Is Key
To pass muster with Colorado voters, who will have the final say on which, if any, reforms are adopted, the state legislature would do well to pursue proposals that are revenue-neutral and thus do not significantly increase the state’s tax burden. The TABOR Amendment requires voter approval for any tax increase, and Coloradans have rejected several legislative attempts to increase taxes since TABOR was passed.

More than a dozen proposals to reform the conflicting constitutional amendments have already come from the legislature and the private sector. Some of these attempt to satisfy the revenue neutrality condition, while others do not.

The flaw in some of these proposals is that they replace the TABOR limit with an alternative limit. The TABOR Amendment–the most stringent tax and spending limit in the country–limits the growth in revenue the state can keep and spend to the sum of inflation and population growth.

When the economy is growing and revenue exceeds the limit, TABOR allows some of that revenue to be set aside in a rainy day fund. When the economy slows, the TABOR revenue limit is suspended so money can be transferred from the rainy day fund to the general fund to offset the revenue shortfall.

Replacing the TABOR limit with alternative limits would result in a less-effective constraint on the growth of government and a significant increase in the tax burden. For example, HCR-1010, proposed by Representative Brad Young (R-Baca), would impose a revenue limit equal to 6 percent of personal income. Between now and 2009, that limit would never constrain the growth of revenue and would result in an increased tax burden of more than $1.5 billion.

A proposal offered by the Campaign for Colorado Coalition calls for an even weaker limit, equal to 6.39 percent of personal income. The Bell Policy Center has proposed a limit based on the rate of growth of personal income; it also would be ineffective in constraining the growth of government.

Some proposals that purport to preserve the TABOR limit would in fact weaken it. HCR-1001, proposed by Representative Andrew Romanoff (D-Denver), would keep the limit defined as inflation and population growth, but would apply that growth rate to the previous revenue limit rather than to actual revenue. When revenue growth slows or declines, the limit would continue to increase. With such a disconnect between actual revenue and the revenue limit, it may take many years before revenue catches up to the ever-growing limit.

The Romanoff measure also would increase the tax burden in excess of $1.5 billion between now and 2009. In a future recession, the limit could become completely ineffective in constraining the growth of government.

Florida introduced a similar tax and spending limit at the beginning of the recession in the early 1990s. Revenues fell, while the limit continued to increase. The Florida limit never has constrained state revenue and spending, and it never will.

Cut Spending
Proposals that address only the TABOR Amendment are missing an important part of the reform equation. Addressing the conflict between TABOR and Amendment 23 will also require substantive reductions in spending for K-12 education.

Among other things, Amendment 23 mandates that per-pupil funding for public schools and total state funding for special-purpose education programs increase by at least the rate of inflation plus one percentage point for FY 2001-02 through FY 2010-11, and by at least the rate of inflation thereafter.

That mandate and others in Amendment 23 mean K-12 education spending is growing as a share of the state budget. That increased spending for education comes at the expense of other state programs. Spending cuts are concentrated in a few other state programs, such as higher education, prisons, and social welfare, because the legislature has discretion over less than one-third of the state budget.

Some legislative reform proposals, such as SCR-001 by Senator Ron Tupa (D-Boulder), would modify TABOR but require no changes in Amendment 23. Other proposals, such as Romanoff’s HCR-1001, call for modest temporary reductions in education spending but do not significantly change the spending mandates of Amendment 23 in the long run. The proposal by Senator John Andrews (R-Arapahoe) in SCR-012 calls for significant reductions in K-12 education spending, but again not in the long run.

At a minimum, any time revenue falls below the TABOR limit, the spending mandated by Amendment 23 should be suspended. The TABOR limit is also suspended in such situations; the reductions in spending for K-12 education can offset the increased spending that results from suspension of the TABOR limit, thus achieving revenue neutrality.

An alternative reform, likely to be more effective but less politically practical, would be to eliminate Amendment 23 entirely. No interest group should have such a privileged position in the state budget. Like any other interest group, the education lobby should be required to defend proposed expenditures for K-12 education, and the legislature should have the discretion to allocate spending among all competing interests.

Barry Poulson is a senior fellow in economic policy at the Independence Institute and professor of economics at the University of Colorado. His email address is [email protected].