Colorado’s state House and Senate have sent a major tax increase to the voters for a decision by passing House Bill 1194, which will place an override of the state’s Taxpayers’ Bill of Rights (TABOR) on ballots statewide this fall.
Sponsored by Speaker of the House Andrew Romanoff (D-Denver), the bill asks voters to allow state government to keep all excess tax revenue that otherwise would be rebated to taxpayers over the next five years. It is estimated this TABOR override will cost taxpayers $3.1 billion. Because there is no cap on the tax increase, however, the actual amount could be higher.
The bill passed the state House on April 19 with all 35 Democrat state representatives voting in favor. Six Republicans joined them, while 22 Republican representatives voted against the bill. In the state Senate, all 18 Democrats voted in favor, joined by eight Republicans, with nine GOP senators opposed.
On March 17, the Democrats had picked up an endorsement from Republican Gov. Bill Owens, who by law may not veto or sign the bill because it is a legislative referral to the ballot.
Cost Far Exceeds Shortfall
The bill’s $3.1 billion cost is nearly three times higher than the estimated $800 million shortfall in the general fund over five years predicted by state budget experts.
Colorado voters passed the Taxpayers’ Bill of Rights in a citizens’ ballot initiative in 1992. TABOR limits the growth of government spending for all levels of government to the state’s rate of population growth plus inflation. Because of TABOR’s success in warding off large budget deficits, it was labeled the “Gold Standard” of tax and expenditure limitation laws by the Wall Street Journal in a February 28, 2005 editorial.
Missing from HB 1194 are any measures to promote efficiencies in state government advocated by some Republican legislators.
The Independence Institute, a free-market think tank in Colorado, published in February 2005 its “Priority Colorado” report, suggesting more than $600 million in annual savings. Suggestions include selling 120 vacant state properties and nearly $330 million worth of receivables, allowing for competitive sourcing of government services, changes in mandatory sentencing, and procurement reform.
Amendment 23 Major Culprit
Most notably, HB 1194 makes no adjustment to Amendment 23, which has squeezed Colorado’s general fund budget. Amendment 23, passed by voters in 2000, is an unfunded mandate requiring the general fund expenditure for K-12 education to increase by more than the rate of inflation each year for a decade. After that, K-12 education spending must rise annually by at least the rate of inflation.
The spending increases required by Amendment 23 must occur regardless of the condition of the state’s economy or budget. During the recent economic downturn, the unfunded mandate was a major factor in squeezing other line items in the general fund, including corrections, health care, and higher education.
Owens Reneged on Tax Pledge
Owens signed “no tax” pledges with Americans for Tax Reform and the Colorado Union of Taxpayers, and both organizations say his endorsement of HB 1194 means he has broken his pledge.
While legislators have focused on the general fund, taxpayer advocates have noted the ballooning size of Colorado’s overall budget. The general fund represents less than half of the state’s total budget. Even during the past several years of recession, Colorado’s total budget continued to climb.
The state’s most recent budget, more than $15 billion, is at an all-time high. It has increases in every line item, including health care, roads, and corrections, and a 25 percent increase for higher education.
State Saved from Big Cuts
TABOR defenders note that in the late 1990s, while the national economy was surging, most states enjoyed a bonanza of revenue and used it for massive outlays of spending. That did not happen in Colorado, where TABOR required those excess tax revenues to be refunded to taxpayers. About $3.2 billion was returned over a five-year period, the equivalent of $800 for every man, woman, and child in the state.
After the recession struck in 2001, Colorado took a relatively small hit to its budget because TABOR had helped keep state spending in check during the boom years. Many other states, including California, found themselves with huge shortfalls, forcing them to make much larger budget cuts than Colorado had to make.
Jon Caldara ([email protected]) is president of the Independence Institute, based in Golden, Colorado.