An analysis by Maurice Emmer
I interviewed a couple of Republican members of the Colorado General
Assembly (GA) about two particular bills that made it through the GA this
year. My interest was in the aspects of these bills that affect the Taxpayer
Bill of Rights (TABOR) and property taxes. Findings from those interviews
and a review of the bills are below for your information.
Background of TABOR
Colorado is unique because it has a constitutional limit on the growth of
state and local government spending. Recently enacted legislation is only
the most recent attack on these limits and an attempt to fuel government
growth.
The Taxpayer Bill of Rights (TABOR) was added to the Colorado
Constitution in 1992 by citizens’ initiative. As originally adopted, TABOR
limited spending by the state and local governments. The “TABOR cap” is
the spending limit for a particular government unit (e.g., state, county) for
a particular year. The TABOR cap is a formulary amount originating with
the revenues when TABOR was adopted by the citizens, adjusted for
inflation and population growth in subsequent years.
INCREASES IN TABOR CAP
In 2005 the original TABOR cap was increased by Referendum C (Ref C).
The Ref C TABOR cap is established by reference to (higher) spending in
certain years after 2005, rather than (lower) spending in 1992 when
TABOR was adopted. The Ref C cap in 2023 is $3.3 billion higher than the
original TABOR cap would have been this year. This means that Ref C
permitted the state to spend $3.3 billion more in 2023 than under original
TABOR.
The growth of the new spending cap under SB 23-303 would accelerate
over time faster than the original (1992) TABOR cap or the (2005) Ref C
cap. Why? This is the heart of SB 23-303, camouflaged in page after page
of detail about other stuff.
GROWTH OF ORIGINAL TABOR CAP
The original TABOR cap was permitted to grow in proportion to inflation
and the growth of state population.
GROWTH OF REF C CAP
Ref C retained the formula for growth of the spending cap based on
inflation and population. It increased the base spending from which
growth was permitted (changed from 1992 spending as a base to spending
in the highest of certain years after 2005).
SB 23-303/PROP HH CAP ADJUSTMENT
SB 23-303 would change the formula for annually increasing the spending
cap. Instead of basing increases on inflation and population, it would
add one percentage point to the inflation rate, guaranteeing that
the spending cap would increase faster than inflation. Moreover,
the percentage increase (inflation plus one percent plus population growth)
for each year would be applied to the previous year’s cap. This would
create a compounding effect that would accelerate the growth of the spending cap.
Staff of the Joint Budget Committee of the General Assembly has projected
the amounts of the spending caps under (1) original TABOR, (2) Ref C, and
(3) SB 23-303/Prop HH. This comparison is contained in the spreadsheet
that can be found here. The spreadsheet includes a graph illustrating
the trend under which the Ref C and SB 23-303/Prop HH increases in the
spending cap exceed the original TABOR caps. The spreadsheet provided by the Joint Budget Committee staff has been augmented by projections of the effect on TABOR refunds (they would be eliminated in a few years).
To summarize the data in the spreadsheet, the SB 23-303/Prop HH
increase would be small in 2024 but would grow exponentially under an
accelerating formula built into SB 23-303. By 2032, the new cap under SB
23-303/Prop HH would be $27.1 billion instead of $20.1 billion under
original TABOR ($24.8 billion under the Ref C cap now in place). TABOR
refunds would decline by 85 percent in 2032.
DISPOSITION OF EXCESS REVENUES OVER TABOR CAP
The distribution of annual state revenues (primarily from income and sales
taxes) above the TABOR cap is controversial. Some say in past years the
GA already has enacted legislation that illegally raids the excess. The
current method of disbursing the excess is as follows:
- To local governments to compensate for certain property tax exemptions.
2. To local taxing units to compensate for certain reductions in assessed property tax valuations.
3. To the citizens. (editor’s note: there are also programs that use the TABOR refund mechanism, ostensibly to refund to the citizens, but in reality they divert some of the funds to special programs where only a limited number of citizens enjoy the benefits of the TABOR refunds.)
The citizens’ portion informally is referred to as “TABOR refunds.” Neither TABOR nor any other provision of the Colorado Constitution specifies how the TABOR refunds are to be allocated among qualified recipients. The method is determined by statute enacted by the GA. In most prior years the TABOR refunds were distributed based on a formula tied to but not directly proportional to income. For the 2021-2022 fiscal year the GA changed the allocation to provide uniform (equal) refund amounts to all recipients regardless of income. The rationale was that people needed extra money because of the Covid pandemic. The average TABOR refund in 2022 was $750 for each qualified recipient regardless of how much income tax he paid or whether he paid any income tax at all.
TWO 2023 BILLS AFFECTING TABOR REFUNDS
HB 23-1311 requires the TABOR refund amounts for the fiscal year ending in 2023 to be equal in amount for all qualified recipients, as they were in 2022. It is effective for one year. The provision is contingent on voters’ approving proposition HH in November, 2023. This bill, HB 23-1311, is referred to by some as “extortion” to entice voters to approve Proposition HH (Prop HH indirectly results in uniform TABOR refunds through the contingency of HB 23-1311’s relying on approval of Prop HH). Proposition HH is created by SB 23-303, explained below.
SB 23-303
This is the bill that would change the formula for increasing the TABOR spending cap by adding one percentage point to the inflation factor every year. It is a long, complex bill consuming 47 pages. Here are explained only some parts that affect the intersection of property taxes and TABOR refunds.
NO TIME ALLOWED FOR DEBATE
This bill was introduced only a few days before the end of the 2023 GA session. Debate was prohibited by the dominant Democrat super-majority. The provisions explained here will become effective only if voters approve Proposition HH.
THE BILL IS NOT PROPERTY TAX RELIEF AS ADVERTISED
The bill contains many complex provisions relating to property taxes. The only real property owned by most Coloradans is their residence. The bill would temporarily reduce one factor in computing residential property taxes by only four percent. If property values continue rising, the bill would not reduce residential property tax bills because the rise in values will swamp this tiny adjustment.
As a condition for this tiny adjustment, the bill would require passage of Prop HH, which, as explained below, eventually will eliminate TABOR refunds. And it would eliminate TABOR refunds for everyone, not just residential property owners. Forty percent of Coloradans rent their homes. They wouldn’t receive even the tiny property tax adjustment for residential owners.
THE BILL’S EFFECT IS TO ELIMINATE TABOR REFUNDS AND REALLOCATE THE REFUNDS TO STATE SPENDING
It is explained above that SB 23-303/Prop HH would greatly reduce and eventually eliminate TABOR refunds, which averaged $750 per recipient in 2022.
This would happen because of the raising of the spending cap resulting from increasing the inflation adjustment. But there is another insidious effect. Proposition HH would further reduce TABOR refunds by allocating some of the excess over the TABOR cap to school funding and other uses that now must be funded from the state’s general fund. The transfer of money from TABOR refunds to what are now general fund items would not reduce general fund spending. Overall state spending would increase by that amount. The increase could be traced to the reduction of TABOR refunds. In effect, the proposition would constitute a new tax by taking away TABOR refunds and using the money for what are now general fund obligations.
PROP HH (NOT TO BE CONFUSED WITH PREPARATION H) COULD BECOME PERMANENT
Proposition HH on its face would be in effect for ten years. From experience one can expect it would become permanent. Ask yourself, if politicians have been able to grab the TABOR refunds to spend on their pet projects, would they give up that power in ten years?
CONCLUSION
Prop HH is an end-run around TABOR’s spending cap. It is a raid on TABOR refunds so the state can spend them instead of taxpayers. Prop HH eventually would end TABOR refunds for everyone in exchange for a tiny property tax benefit to homeowners. Forty percent of Coloradans rent. They would receive no benefit but would lose their TABOR refunds.
-Maurice Emmer May 16, 2023
