Taxpayer’s Bill of Rights Faces Fine-Tuning in Colorado

Published August 1, 2004

A tug-of-war is underway in Colorado pitting the Taxpayer’s Bill of Rights (TABOR) against state spending on education. Many analysts are pulling hard for TABOR, touting its virtues and urging state policymakers to keep the spending limitation bill in place.

“During the 1990s, Colorado’s Taxpayer’s Bill of Rights (TABOR) was America’s most successful spending limit,” said Michael New, an adjunct scholar at the Cato Institute.

“However, recent fiscal shortfalls have put pressure on the limit,” New noted. “Legislators are currently trying to weaken the limit by employing a strategy that was used to undermine California’s own spending limit during the early 1990s. Colorado residents should take notice, because California’s subsequent fiscal nightmare reveals the perils of weakening effective fiscal limits.”

According to New, the dynamics have changed in recent years. “In 2000, the education lobby succeeded in passing Amendment 23. This law established a constitutional mandate for education spending. It required that education spending increase faster than TABOR’s expenditure limit. This means that, over time, a progressively larger share of Colorado’s budget would have to be devoted to education.”

The conflict between TABOR and Amendment 23 has come to a head. “Shortly after Amendment 23 was enacted,” said New, “Colorado, like many other states, encountered a budgetary shortfall. During the budget crunch, these education spending mandates resulted in some unpopular spending reductions elsewhere. This has sparked intensive efforts to reform TABOR [now].”

New concluded, “Now, most legislators dislike tight fiscal limits. Colorado legislators have proven to be no exception. They have repeatedly tried to enact initiatives that would allow them to spend in excess of the TABOR limit. While some efforts to relax the TABOR limits at the local level have been successful, TABOR opponents have enjoyed little success in statewide elections.”

Scholars Agree on Value of Limits

Jon Caldara, president of the Golden, Colorado-based Independence Institute, wrote in the April 25 issue of the Denver Post, “To hear the chorus of tiny little violins and their grating, one-note symphony of ‘TABOR Must Be Changed,’ you’d think that Colorado’s Taxpayer’s Bill of Rights causes acne.

“But no matter how well-financed and well-publicized their whining is,” Caldara continued, “it will be a hard sell persuading Coloradoans to alter the nation’s most successful tax and expenditure limitation law.

“We have seen TABOR return around $800 of surplus tax revenue to every man, woman, and child. That’s $3,200 per family of four. We also have seen TABOR save Colorado’s fiscal fanny,” he continued.

“During the [late1990s],” Caldara noted, “excess tax revenue in Colorado was returned to taxpayers. In other states, like California, the excess tax money went into expanding government budgets. So when the economy slowed, deficits soared, government nearly went bankrupt, and a governor was recalled.”

Thanks to TABOR, Colorado avoided that fate.

Concerns over “Ratchet Effect”

“TABOR was enacted in 1992 but was not triggered until 1997,” said University of Colorado Professor Barry Poulson. “Over the following three years TABOR generated $3.25 billion in surplus revenue that was returned to taxpayers in tax rebates and tax cuts.

“Since 2000, actual revenues have been below the TABOR limit,” Poulson noted, “so it has not been a binding constraint on revenue and spending. Colorado relies heavily on the income tax, so income tax revenues tend to increase more rapidly than income in periods of expansion and contract more than income in periods of recession. The flaw in TABOR that we are currently addressing is the ratchet-down effect. A variety of factors influence the federal dollars received by the state; TABOR has had little impact on those funds.”

“You’re going to hear a lot of yapping in the coming months about the so-called ratchet effect of TABOR, that spending levels will never be allowed to reach the higher, pre-recession levels,” said Caldara. “But of course they can, and within the existing TABOR law. All the state has to do to keep that excess money is–now get ready for this–ask us for permission.

“But lawmakers here are hobbled in their efforts to set priorities because Amendment 23 locks in the largest line item,” said Caldara. “Even in times of recession, Amendment 23 requires K-12 education spending to increase above the rate of inflation, without any way to fund it except cutting other budgets like higher education.

“It’s interesting that Amendment 23’s authors originally planned to include a large tax increase to pay for their spending mandate but pulled it when their polling showed it wouldn’t pass,” Caldara noted. “So instead, they promised that Amendment 23 would work within the limits of TABOR, which had been on the books for years.

“So now they’re trying to blame TABOR and get you to vote away all your future tax refunds instead of addressing the real budget mess they made with Amendment 23.”

Lew Uhler, president of the National Tax Limitation Committee, places TABOR in perspective. “TABOR has been a boon to Colorado, helping to spur its economy while returning $3+ billion to taxpayers over the last several years. TABOR is not perfect, so some modifications” may be justified.

Caldara disagreed. “In the decade since TABOR’s passage in 1992, the size of state government has grown by a whopping 64 percent,” he wrote. “Government is hardly withering away.

“Don’t buy the snake oil again,” he urged. “Leave TABOR alone.”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].