Printed on 1/13/14

TABOR: A Formula for Limited Government

Home / The Issues
The Colorado legislature faces massive budget cuts, education in Colorado lags the nation, immunization rates are despicable, and TABOR is the reason for the mayhem. Or so the opponents of the Taxpayers Bill of Rights (TABOR) would like you to believe. But what is the truth? When the economy suffered a downturn in the early 2000s, politicians who were used to funding their wish lists felt the pinch along with Colorados citizens. However, because of the Taxpayers Bill of Rights, the legislature did not actually have to cut spending. The only thing that was cut was the rate of increase. If TABOR had not been put in place in 1992, the deficit in 2002 would have been $928.5 million more; resulting in an actual funding cut (Atkins). The truth is that TABOR has served the people of Colorado well. Despite the fact that the overall state budget was still growing each year, the legislature asked the people of Colorado for permission to revoke the revenue limitations in TABOR for five years through Referendum C. Referendum C was unconstitutional because it permanently raised the spending limits of TABOR through a statutory measure and because it revoked the revenue limitations for five years; under TABOR the voters may approve a suspension of the revenue limitations for up to four years. The budgeting problems are compounded by Amendment 23 which mandates annual spending increases on K-12 education beyond reasonable limits. These increases are not related to quality education and they ignore the fiscal realities that the legislature faces every year. TABOR requires the legislature to exercise prudent spending habits. Opponents of TABOR argue that legislators should be trusted to spend taxpayers money as they see fit. But the Taxpayers Bill of Rights was enacted precisely because the taxpayers of Colorado want government to be limited to its proper role and size, a concept most legislators fail to grasp. The solution for Colorados budget challenges is to protect the Taxpayers Bill of Rights and remove unnecessary spending mandates that taxpayers cannot afford. There must be more flexibility in how revenue can be spent, especially during recessions.
Douglas Bruce is famed as the mastermind and architect of TABOR. In fact, opponents of TABOR often refer to dismantling the Amendment as DeBrucing the Colorado Constitution. Bruce commented; If you believe in limited government you realize you can't have limited government with unlimited taxes. Simply put, TABOR imposes limits on government; both in how fast it can increase and by requiring it to prioritize spending and to cut out ineffectual programs during lean economic times. John Andrews, former Colorado Senate President, states that the purpose of TABOR is to protect taxpayers by formulas to restrain the growth of government. TABOR is a vital part of the Colorado constitution because it gives voters the opportunity to give permission for any new or increased taxes or debt (Andrews). The opening language of TABOR itself states that its purpose is to restrain the growth of government (CO Const., art. X, sec. 20, subsec. 1). It contains a requirement that all tax, spending, and debt increases be approved by a vote of the people of Colorado and it limits the annual growth of general fund revenue to inflation plus population growth. Any excess revenues are to be refunded to the people of Colorado. TABOR works through limiting the amount of revenue the general assembly is allowed to keep each year. The budget from the previous year is used as a base for calculating the current years limit. TABOR requires the state government to abide within the same economic realities the people of Colorado must live by.
In 2000 the voters mandated annual K-12 education spending increases by passing Amendment 23. The Amendment, now Article IX, Section 17 of the Colorado Constitution, requires that K-12 per pupil funding increase by at least inflation plus one percent for ten years and by an amount set by the Colorado General Assembly of no less than inflation in every fiscal year following. The Amendment also includes a maintenance of effort requirement for the general fund. This requires that the amount of funding from the general fund increase by a minimum of 5% each year. These spending mandates insulate education from the evaluation of efficiency required by TABOR for all areas of the budget. Simply increasing funding for schools does not result in a higher quality education for students. Studies have shown that student performance is not directly linked to government funding (Klein). Amendment 23 serves to undermine TABOR by attempting to monopolize a large portion of the budget during economically difficult years. This imbalance in the budget creates a problem for the legislature because they are constitutionally mandated to increase K-12 education funding regardless of what the actual budget is for the year. The only escape hatch is a provision that allows the maintenance of effort clause to be suspended if personal income growth does not exceed 4.5%. None-the-less, per pupil funding is still required to increase, rendering this escape hatch virtually meaningless. In addition to the fact that funding cannot be reassessed, 4.5% is so small that even the severe recession the nation currently faces has not yet brought Colorados personal income growth down into this range. K-12 education is an important part of the services the state provides, but it should not be so over-reaching that it crowds out other necessary services such as transportation and higher education.
The Taxpayers Bill of Rights forces government to limit growth during economic booms and reduces the impact of recessions on the state budget. In addition, the budget is not allowed to automatically rebound to pre-recession spending. This results in the ratio between services provided by the public sector normally decreasing in proportion to those provided by the private sector. This is what the opponents of TABOR call the ratchet effect. Even though they intend it to be a negative attribute of TABOR, it is in fact TABORs strongest method of limiting the growth of government (Lundberg).
Increasing the private sector does not deteriorate the proper role of government. The private sector, and as a result the economy, is encouraged by some of the same measures that cut government spending. When contract bidding is done correctly it forces competition between companies. When companies compete for business, they provide the highest possible service at the lowest possible price. These are win-win situations for the taxpayers of Colorado. Not only does government spending decrease while quality of service increases, taxpayers also receive the added benefit of jobs and economic stimulation from added business for Colorado companies.
Allowing taxpayers to vote on tax increases is intuitive. Citizens not only pay for government but they also are the beneficiaries of the services provided by it. By choosing to limit the degree to which the state government can tax its citizens, the citizens of Colorado also chose to decrease the amount of services the government is capable of providing. During the campaign for TABOR in 1992, Douglas Bruce asked the voters a simple question; Who should decide how much government we can afford --- we the people who earn the money or the politicians who want to spend it? The citizens of Colorado understood that the government should not control how much of their hard-earned money goes to the state. This question addresses the heart of the issue. Afford is the key word. Government cannot provide services for taxpayers who cannot afford those services. This is because government is funded by taxpayers. Government services and programs are not free, they have simply been pre-paid in taxes.
Opponents of TABOR bring up many issues they believe are problems caused by TABOR. According to the Center on Budget and Policy Priorities, TABOR is a formula for decline (Bradley and Lyons 1). They claim that under TABOR the state of Colorado has fallen to the bottom of the bucket in education funding, public health, medical insurance coverage, and overall public services. TABOR is to blame for teachers salary cuts, Colorados ranking as 50th in the nation for on-time vaccination rates, and nearly last in low-income Medicaid coverage. Even Amendment 23, which is not limited by TABOR, failed to right the supposed sinking ship of K-12 education funding in Colorado. In 2001 teacher salaries fell to 50th in the nation, per-pupil funding dropped to $809 below the national average, and K-12 funding fell to 49th in the nation (Bradley and Lyons 5).
According to Bradley and Lyons, higher education funding has also suffered greatly under the strain TABOR imposes on the state budget. The business community has expressed concerns that Colorado will no longer be able to produce educated workers capable of successfully filling the needs required by Colorado companies. Public colleges and universities all across Colorado have cut back on employees and seen faculty members leave in favor of better salaries. The President of the University of Colorado asserted that public higher education funding would not exist in 2015 without the passage of Referendum C in 2005 (Brown qtd. in Bradley and Lyons 5).
Spending restrictions caused the state of Colorado to rank 50th in the nation in fully vaccinated children in 2005 (Colorado Health Institute qtd. in Bradley and Lyons 10). Between 2001 and 2002 Colorado was forced to temporarily lift requirements for full vaccinations because the state did not have a large enough budget (Bradley and Lyons 10). They assert that public health is under duress because of a lack of health care funding in the state of Colorado.
The accusations levied by Bradley and Lyons in their report from the Center on Budget and Policy Priorities are typical of the anti-TABOR movement. They present facts and figures and appeal to emotion with gripping tales of sick children, dirty classrooms, teachers buying classroom supplies using their own meager personal salaries, and a future of an uneducated populace incapable of filling meaningful roles in the workplace. Is TABOR truly an unreasonable set of ill thought out, arbitrary restrictions on government designed to put a stranglehold on the state of Colorado and destroy everything from the economy to poor children without vaccinations? The answer is a resounding no. Although the arguments put forth can sound convincing on the surface, a closer examination of the facts reveals a very different world.
Chris Atkins addresses almost all of these concerns in one comprehensive paper An Analysis of Misleading Attacks on Colorados Taxpayer Bill of Rights. First, the premise is that TABOR causes a lack in funding due to stringent spending limitations. Atkins states that TABOR actually saved the state of Colorado from $1 billion dollars in budgetary cuts that would have occurred in 2002 (see Chart 2). Colorado brought in $8.9 billion but was only allowed to spend $7.9 billion due to TABOR. Because TABOR required the excess $1 billion to be
refunded to taxpayers, the state did not have a real deficit when the economy went into a recession, the deficit of $196.4 million was only a cut in growth, not in actual spending.
Senator Kevin Lundberg asserts that those who claim that Colorado is 48th in the nation in higher education funding decide to selectively choose their facts in such a way that it has very little relationship to reality. Using only one indicator, such as funding as a share of personal income, is not a solid basis for claiming that the higher education system in Colorado is of a poor quality. Funding based on personal income is a biased rating because it simply compares, dollar for dollar, how much money is spent on higher education for every $1,000 in total personal income in the state. Colorado has a fairly high personal income level because it has a well-educated populace with good jobs. A state can actually rate lower on higher education funding than a state that spends far less, provided that the other state has less personal income. In addition to manipulating numbers such as funding per $1,000 in personal income, there are other ways to misconstrue the facts about higher education funding. Senator Lundberg points out that states use different methods to calculate state government support for higher education. Texas, for example, includes all tuition contributed by students in their state funding formula. This is because students first pay the state, which then pays the institution. Colorado actually rates 2nd in the nation in staff per 10,000 students and 12th in staff per 10,000 in population for higher education institutions (Atkins). TABOR does not limit higher education funding because TABOR does not limit funding for any program. TABOR only sets a base for the legislature to start with. Higher education funding has suffered during the time during which TABOR has been in effect, but it is not due to TABOR. The problem is a combination of Amendment 23 and a legislature that does not set higher education as a funding priority. Amendment 23 mandates an increasingly larger portion of education finding to be sent to K-12 funding each year. The irony is that the constitutional amendment that requires education funding for K-12 results in fewer dollars available for higher education funding each year
Contrary to the claim that Colorado boasts severely underpaid teachers with inadequate means to education Colorado children, the state is actually ranked 22nd in K-12 teacher salaries and 27th in school funding (Atkins). Average Colorado K-12 teacher salaries also increased 5% from 2002 to 2003. Colorado high school students are ranked very well compared to other states on standardized tests; 19th on the SAT and 13th on the NAEP (Atkins). Funding does not correlate to quality. This is demonstrated by the fact that in the District of Columbia, which ranks 2nd in per pupil school funding, students rank last on the ACT, NAEP, and SAT (Atkins). Not only is education in Colorado not suffering from a lack of funding, Amendment 23 requires education to be funded independently of the TABOR limits. This means regardless of the actual budget, funding for K-12 education is required to always increase.
The accusation that Colorado ranks 50th in on-time vaccination rates is simply not true. During 2004-2005 there was a national shortage of the vaccination for diphtheria, tetanus, and pertussis (DTaP) (Allison et al.). However during that time pediatrics simply prioritized vaccinations for children with high risk factors. Since that one time event, vaccinations in Colorado have rebounded to normal levels. There have been no reports of health problems resulting from the national shortage. Vaccinations in Colorado are a voluntary decision made by each childs parents so comparing vaccination rates to a 100% ideal is inaccurate.
The root of the disagreement lies in the premise with which the authors start. Bradley and Lyons state that TABOR prevents local governments from raising property tax rates without voter approval and gives control of their own revenue to the taxpayers (6). Douglas Bruce addressed this fundamental issue when he raised the question of whose money is it? If the taxpayers are merely pawns in the grasp of the larger purpose of state government, then the government should have the power to tax without limitation. However, if the people of Colorado possess personal liberty and individual responsibility, then they should wield the power to decide how much government they can afford (Bruce).
Economist Barry Poulson states that TABOR is the most stringent tax and spending limit in the country. Some have called for replacing the TABOR limit with a number based on personal income growth (Poulson). However, because income taxes are assessed based on federal taxable income levels, a limit on general fund growth based on personal income is no ceiling at all. Therefore reassigning the limit on how much revenue the state can spend would essentially eliminate the revenue retention limitations. TABOR is the best system that can be implemented for Colorado because it limits how much government can spend and smoothes out economic ups and downs.
Senator Kevin Lundberg has proposed several solutions for the problems Colorado faces. The basic problem we have is that the constitution requires spending that we cannot afford. Amendment 23 drives K-12 education funding at an unsustainable rate. The first part of the solution Senator Lundberg proposes for fixing the budget crunch caused by Amendment 23 is to decrease the amount of funding needed by K-12 education through educational tax credits. One way to decrease the cost of the education system is to decrease the number of students enrolled. Senator Lundberg has introduced several bills to encourage private education through educational tax credits. These credits would help provide students with a higher quality education, smaller classroom sizes, and a broad range of educational opportunities. The state saves money because educational tax credits on a per pupil basis cost less than full funding in the public school system.
Amendment 23s 1% addition to the annual formula of inflation growth for per pupil funding each year will sunset in FY 2010-2011. In addition, the maintenance of effort requirement within Amendment 23 will also sunset in FY 2010-2011. The removal of these two sections will provide some relief from the strain Amendment 23 puts on the budget each year. However, this amendment will still stress expenditures and continue to insulate education from objective evaluations of quality and performance. Amendment 23 should be amended to include a provision for the legislature to reset spending levels during revenue shortfalls. Senator Lundberg also proposes increasing the priority for higher education funding in a revision of Amendment 23. The Amendment should also include a ceiling of 5% on the mandated per pupil inflation adjustments. This requirement would not put a limit on how much the state can fund education, merely on the minimum amount they are required to increase education funding each year.
In addition, Senator Lundberg has repeatedly proposed a rainy day fund to help prepare for recession years. His rainy day fund proposals would have worked within the limits of TABOR and the constraints of the budget. Setting aside money for later would smooth out recessionary budgets even more. He has also introduced legislation to ease the growth of Medicaid caseload expenditures. Between fixing Amendment 23, limiting Medicaid expenditures, and creating a rainy day fund, Senator Lundberg has a comprehensive plan for Colorados budgetary problems.
In summary, the Taxpayers Bill of Rights is a formula for limited government in Colorado. It allows taxpayers a maximum amount of freedom while still granting the state government a reasonable means of providing necessary services. Amendment 23 is unreasonable in the manner in which it increases funding for K-12 education regardless of the overall budget. Educational tax credits would significantly decrease the demand for state funding in K-12 education. Some of the worst sections of Amendment 23 will sunset in this coming fiscal year. However, it still needs to be amended to allow the legislature to reevaluate funding when necessary. K-12 education is important, but it should not crowd out other necessary services. The Taxpayers Bill of Rights gives Colorado an advantage over other states. It is best when taxpayers keep more of their money and government provides only those services which are necessary.

< Back to The Issues

"2011 Taxpayer Champion"
- Colorado Union of Taxpayers