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Prepared for the April, 2009
meeting of the Southwest Political
Science Association. Denver, CO
Just One Thing After Another:
Layers of Policy and Colorado’s Fiscal Train Wreck
John A. Straayer
Department of Political Science
Colorado State University
This is a story about Colorado, a story of the substantial dismantling of a
governing apparatus capable of establishing policy direction and budget priorities, a story
of a decision-making style which our founders would surely have viewed with dismay. It
is the story of a state in which fiscal policy is piled upon fiscal policy in a process largely
driven by the uncoordinated pursuit of special advantage by an assortment of interests,
and the flow of economic circumstances, rather than self-conscious choices made by
elected institutional authorities. The piling of law upon law has by definition altered
policy, but it has also had extraordinary institutional consequences.
If there is a current policy theory in the academic literature which comes close to
fitting Colorado, it would be that offered by Professors Christopher McGrory Klyza and
David Sousa in their analysis of national environmental policy development over the past
several decades. Klyza and Sousa write, “New laws affecting the management of public
lands and wildlife were layered atop existing statutes and agency practices. . .” (p. l.) and,
environmental policy in the United States “will likely continue to be a mix of train
wrecks and next generation success stories.” (p. 309). They note that environmental
policy is made in a framework created by earlier policies which were made in their own
particular framework resulting in the “layering of contradictory policy commitments”,
(p.3, 8-9) and generating “frustration on all sides”. (p. 11).
This layering of policy upon policy in a manner which leads to a train wreck
comes close to fitting the manufacture of fiscal policy in Colorado. Given the current
state of Colorado’s policy and politics, however, “next generation success stories” are
questionable.
There is also a tale of a cocktail party at which an academic historian sauntered up
to Henry Ford with what he presumed to be a very deep and terribly important
disciplinary question: “Mr. Ford, the Professor asked in serious fashion—“what, exactly,
is ‘history’?” Ford thought about it for a spell, and then answered: “well, professor,
history is just one damn thing after another.” Quite inadvertently, Mr. Ford may have hit
upon an insightful policy theory.
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Both the sophisticated perspective developed by Professors Klyza and Sousa, and
Mr. Ford’s quip, fit well with contemporary public policy formation in the State of
Colorado which, more and more, is “just one damn thing after another” enroute to “a
train wreck.” Some choices are made by elected officials. The most consequential
choices are not. New policy is made by new political actors year after year. New
policies are often responses to earlier policy, but not always. In the process, the
institutions which might otherwise be able to steer a course for the state have been
neutered and now no policy is made which can predict long-term results; it’s simply not
possible to do so.
To some extent, public policy is always produced in incremental fashion,
responding to shifts in pubic opinion, heavily flavored by the successes of special
interests, and replete with unanticipated consequences. And sometimes shifts in public
opinion, stunning events or the emergence of new leadership pushes policy in radically
new directions. 9-11 did this, as did the great depression of the 1930’s, and the 2008-09
financial unraveling is doing this too. But usually we can identify institutions and
processes of a fairly enduring nature, and long-standing policy directions which persist
absent sudden and unexpected change. There is generally some measure of continuity
with respect to decision making institutions and the deciders.
Through employment of Colorado’s initiative process, albeit with some help from
Colorado’s legislature, a long string of groups, operating in varying political and
economic circumstances, have collectively created a budgetary arrangement which (1)
leaves elected authorities without the capacity to establish and pursue state-wide
priorities with any sense of continuity by depriving them of required authority and
resources and (2) stimulates the continuous flow of proposals for ever more modifications
of law designed to dodge, or by-pass, choices made earlier. Actions taken to change
policy, have impacts upon institutions as well and, in turn, stimulate efforts to change
policy even more….and on and on it goes.
Currently, Colorado operates with multiple and conflicting constitutional
provisions which restrict both revenues, appropriations and spending, while requiring
expenditures. Such provisions apply to the state as a whole, and to local governments.
One measure limits annual revenue growth to the level of the prior year plus additional
increments for inflation and population growth, or to student population increases in the
school districts and real property value growth in other local jurisdictions. Another limits
state general fund appropriation increases to six percent over the prior year. Still another
requires new spending in the single largest government sector, the K-12 schools, in an
amount equal to the prior year plus inflation and student population growth. And the
combination of federal and state policy, plus political reality, drive growth in spending
for Medicaid and Corrections. The legislature may reduce taxes, and it has. The
legislature may not raise taxes or extend those which expire. Only voters can do so and
the Colorado voters have proven to be tax averse while endowed with a healthy public
service appetite.
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Colorado’s Direct Democracy
Like a couple dozen other states, most of them situated west of the Mississippi
River, Colorado adopted direct democracy procedures roughly one hundred years ago, in
the midst of the “progressive” era. This was a time of extensive political corruption
fueled in large measure by the vast accumulation of unregulated private wealth. The
initiative process, along with the recall, was designed to provide citizens with a safety
valve, a mechanism to bypass corrupt or unresponsive officials and institutions,
legislatures most notably. The first direct democracy state was South Dakota which
adopted the mechanism in 1898, but by 1914 a total of eighteen states had done so with
Colorado placing provisions for the initiative, referendum and recall in the state
constitution in 1912.
Colorado’s direct democracy provisions are arguably among the most citizenfriendly in the nation. To place a measure on the ballot citizens must gather the
signatures of registered voters in a number equal to five percent of the vote total for
Secretary of State in the immediate preceding election. They are permitted to employ
paid signature gathers, the signature hunters themselves need not be registered voters, and
there are no geographical distribution requirements for the signatures. In 2008, roughly
85,000 signatures would qualify a measure for the fall election ballot.
The use of the initiative process has been extensive in Colorado, and has
accelerated in recent years. The state trails only Oregon and California is the number of
initiatives which have faced voters; as of 2008 Oregon’s total was 350, it was 325 in
California and 210 in Colorado. From the inception of direct democracy in 1912 to 1970,
49% of all initiated measures appeared on the ballot. The other 51% have faced the
voters since 1970, with 17% of the 210 total appearing in just the past eight years. Direct
democracy in Colorado has become an increasingly inviting industry.
Ballot measures in Colorado have addressed a wide range of issues over the
decades, from election reform, land use and schools, to such social matters as abortion
and gay marriage. But the largest single category has been measures addressing taxes,
tax policy and related fiscal matters. Back in 1914, and again in 1920 and 1922, voters
faced and approved proposals to spend to pay for roads. In 1934 they approved fees on
chain stores, then repealed the tax in 1938. In 1944, a measure to provide old age
pensions was approved, then altered in 1956. So use of the initiative and referendum to
tinker with state money is not new. What is new, is the use of the process, the initiative
mostly, to pass measures which substantively alter fiscal policy and, and with it, the
budget process itself.
The years since 1978 when California voters approved their “proposition 13”,
which severely limited increases in property taxes, have witnessed a growing anti-tax and
anti-government political element in the states and the enactment of various tax and
spending limitations. And so it has been in Colorado. Over the past two and one-half
decades voters have approved both citizen initiated and legislatively proposed measures
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which have produced an extraordinarily complicated fiscal policy, one which is broadly
viewed as seriously dysfunctional.
An assortment of constitutional and statutory provisions now places the state in a
situation where, as the immediate past-House Speaker described it, the state is “driving
with one foot on the brake and one foot on the gas.” Some laws require spending. Others
restrict both revenues and spending. No single policy did this and the multiple measures
which have collectively created the current state of affairs came about as a result of no
singular vision. As Henry Ford said, it has been “just one damn thing after another”, and
as America’s founders, fond of representative government as they were, might have
added, “what the hell are you doing”?
One Foot on the Brake*
There have been four major limitations on the ability of the state government to
collect revenues and to spend; three remain today. Two of them designed to restrict
appropriations and, thus, spending were enacted by the legislature itself. The first was
adopted in 1977 and was known by it’s now deceased author, Democratic State Senator
James Kadlecek. The “Kadlecek Amendment”, which was statutory and thus subject to
legislative suspension or modification, stipulated that annual state general fund
appropriations could not exceed the level of the prior year by more than seven percent. It
did not impact revenues and did not apply to capital expenditures.
In 1990, the legislature, at the behest of Republican State Senator Mike Bird and
Republican House member Steve Arveschoug, successfully sponsored another statutory
measure, this one dropping the annual allowable general fund appropriation increase to
just six percent. Again, this measure did not impact capital spending and, initially, was
subject to legislative change.
The other two limiting measures are constitutional, not statutory, and thus upon
adoption they were, and remain, beyond the reach of the legislature. The first, called the
Gallagher Amendment after its senate sponsor, Democrat Dennis Gallagher, was a
referred measure. The second, the “Taxpayers Bill of Rights” (TABOR), was an initiated
proposal sponsored and pushed by Douglas Bruce, a Colorado Springs resident who
moved to Colorado from southern California and brought with him antipathy toward
government and experience in California’s anti-tax/anti-government wars.
The Gallagher Amendment was adopted by the voters in 1982, not long after
California’s adoption of Proposition #13 and, like the California measure, was a reaction
to displeasure with the property tax. Colorado had long experienced extreme county-tocounty variability in County Assessor approaches to valuing property, a practice which
skewed the tax burden across the state. And as was the situation in California, there was
resistance to a rising residential property tax burden which was, in turn, a product of
rising property values.
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The primary purpose of the Amendment was to put a lid on residential property
taxes. At the same time, it equalized assessments state-wide. Gallagher established a
state-wide ratio between revenues from residential property taxes and those from
commercial properties. The ratio was 45% from residential and 55% from commercial.
It also set an assessment rate of 29% of market value for commercial properties, and an
initial rate of 21% of market value for residences. The value of properties was to be
assessed every two years and so as to maintain the 45-55 percent ratio, (adjusted a bit for
new construction and oil/gas extraction values), the assessment rate on residential
properties could float. That is, should growth in the value of residential properties exceed
that for those on the commercial side, state-wide, the 21% percent of market value
assessment rate for residences could decline.
And decline it did. As the aggregate value of new residential property ran ahead
of commercial value increases year after year, by 2008
Colorado home-owners saw
their domiciles assessed at seven percent of market value. It was and is a very good tax
situation for homeowners, but not at all good for businesses which carry the greater
burden by far, or for local governments which, after 1992, suffered revenue losses.
From the adoption of Gallagher in 1982 until passage of the TABOR revenuelimiting constitutional amendment in 1992, local governments could maintain a fairly
constant in-flow of property tax revenue, or even increase it when needed. As the
assessment rate on residences declined, they could simply increase the mill levy to
compensate for the assessment reduction and keep tax revenue levels neutral. Or, they
could increase the levy if so authorized by state law or run a ballot measure if the law
required. Gallagher then was, in effect, of limited concern to local governments, or the
state for that matter, where tax revenue flows were concerned.
But then came another major fiscal measure, the Taxpayers Bill of Rights
(TABOR) in 1992. TABOR created its own independent set of impacts on government
but, in addition, altered the way in which Gallagher affected both local governments and
the state. TABOR was a lengthy and complicated measure with a variety of provisions,
but the major ones were to require public votes in any jurisdiction which wanted to raise
a tax, institute a new one or continue one which expired. TABOR simply took from
government its authority to raise taxes. Governments, both the locals and the state, were
free to cut taxes, but they could not create new ones.
TABOR also set limits on the revenue which governments could collect and keep.
For the state, the limit each year was the number from the previous year, plus percentage
increases for inflation and population growth. For the schools districts it was the prior
year plus inflation plus student head-count increases. And for other local governments, it
was the prior year, plus inflation, plus the value of growth in new properties.
One way to characterize TABOR’s institutional impact is to say that it virtually
replaced government finance and appropriations committees with finance committees
composed of every registered voter within a jurisdiction—the state, a school district, a
city, a county or a special district. With respect to the single most central power of
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government, the power to lay and collect taxes, TABOR eliminated representative
government.
As noted above, TABOR also changed the impact of the Gallagher Amendment.
By requiring a popular vote to adjust tax rates or tax revenues upward, TABOR
compromised the ability of local governments to adjust mill levies in accordance with
downward trending residential assessment rates. One effect of this was that local
authorities, being leery of going to the ballot with tax measures, simply saw their
revenues decline relative to what would have been the case absent TABOR. And when
that happened in school districts whose mill levies were further depressed by a provision
in the state’s School Finance Act, the state burden for funding the K-12 schools grew.
Colorado’s constitution and School Finance Act set the level of the overall state
government financial responsibility for the schools. Thus, as the Gallagher/TABOR
interaction along with School Finance Act strictures on district mill levies reduced the
local share, the state share grew. Where once local government tax collections
constituted 60% of the total K-12 budgets, by 2008 it was below 40% thus creating a
growing financial load for the state which was also, thanks to TABOR, under pressure
caused by the revenue limit.
TABOR contained a number of additional provisions, including government
authority to hold tax-related elections in odd years as well as even numbered years, a
requirement for reserves, and the ability of the state to declare as “enterprises”,
departments of the state whose budgetary reliance on state appropriations was ten percent
or less. We will note later how these provisions have impacted the state. It will suffice to
say at this point that, together, Gallagher and TABOR, along with the still-operational
six-percent annual appropriations increase limit, have transposed Colorado’s system of
representative government into something quite different. No longer do elected officials
control state and local financing.
Two political maneuvers by the General Assembly which track back to TABOR
have further complicated Colorado’s fiscal situation and limited legislative influence on
state and local finances and, thus, public policy. For several years after the 1992
adoption of TABOR, state revenues exceeded the TABOR limit, requiring taxpayer
refunds. To many legislators it made little sense to collect money and then give it back.
So during the sessions of 1999, 2000 and 2001, the General Assembly enacted a series of
tax cuts, most notably with reductions in the state sales and income taxes. Of course,
while the lawmakers had the authority to make cuts, TABOR barred them from reversing
the reductions. When the 2001 recession hit, the state’s fiscal problems were all the more
severe given the tax cuts. And over the course of the next decade these tax cuts cost the
state over a billion dollars in revenue, a figure which grows with time.
Then on the heals of TABOR, the General Assembly also chose to ask the voters
to extend the “single-subject” rule, which applies to legislative bills, to future ballot
measures as well. Lawmakers discovered upon TABOR’s passage that it was a multifaceted and complicated measure, containing “sleeper” provisions about which many,
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perhaps most, voters were unaware. To prevent this from happing again, a single-subject
measure was referred to the voters in 1994, and passed easily. This single-subject
measure has turned out to be a problem rather than a solution, however, for now
untangling the multiple constitutional provisions which lie at the core of the states fiscal
policy and fiscal problems can only be done one item at a time.
The limits embedded in these multiple statutory and constitutional measures have,
thus, put the “brake” on state and local government in several ways. Revenues are
limited, as are appropriations. And the authority to manage the fiscal system, at both the
local and state levels, has been largely stripped from elected officials and resides instead
in “finance committees of millions.”
Other Foot on the Gas
While Gallagher, TABOR and the six percent annual appropriations growth limit
keep a foot on the revenue and spending brakes, both political and legal factors drive the
state in the opposite direction. State Medicaid spending is growing and is in large part
driven by federal policy and case load. The Corrections budget is growing too, and for
both legal and political reasons it is difficult to control. Existing sentencing policies and
a general increase in crime continue to expand the prison population, and any efforts to
ease up on criminal law carry political risk. Further, any changes made now have a
delayed impact on the prisoner population and corrections costs.
Beyond the continuing and inescapable budgetary pressures from Medicaid and
Corrections, voters in 2000 adopted a constitutional measure known as Amendment #23.
This provision drives the cost of the K-12 school system, which is the single largest slice
of the state budget. The amendment was placed on the 2000 ballot through the initiative
process by a consortium of groups including teachers, school administrators, school
boards, parents and other traditional supporters of elementary and secondary education.
It passed by a 53-47 percent margin.
Circumstances were just right in 2000 for the passage of Amendment #23. With
the TABOR cap on state revenues, an a generally good economy, the state was collecting
more money than allowed under TABOR, and thus issuing tax rebates in the form of
sales tax credits. Further, an assortment of comparative studies demonstrated that in the
preceding decades, funding for the schools had steadily declined relative to support in
other states, historical Colorado funding levels and state wealth as measured by personal
income. Amendment #23 was written so as to capture some of the TABOR revenue
overage, thus not impacting spending in other programmatic areas—at least that was the
case in 2000 when the measure passed.
Amendment #23 fixes the required level of K-12 spending growth in the state
constitution. Each year, the General Assembly is required to set funding at the level of
the prior year, plus an increase for student population growth and, for a decade ending in
2010, another one percent designed to compensate for perceived funding shortages over
years and decades prior to year 2000. The amendment contained several other
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provisions, such as the establishment of an “education fund” filled with a small fraction
of annual state income tax revenues.
The net result of the combination of Medicaid, Corrections and Amendment #23
has been to lock into the annual budget process, political and legal requirements for
spending, requirements which consume somewhere between seventy and eighty percent
of available state General Fund revenues. Essentially, spending decisions with respect to
most of the General Fund budget are beyond the control of the legislature.
Although financially small by comparison to Amendment #23, or even Medicaid
and Corrections, another constitutional provision locks up proceeds from state sponsored
gambling operations for a variety of parks, trails and open space programs, and keeps
legislative hands off the money completely. When state-sponsored gambling was
initially developed in 1980, revenues were divided among a capital construction fund, a
conservation fund and city and county out-door and recreation projects. But over the
span of a decade, and through an initiated measure, the parks, trails and open-space
advocates succeeded in passing a constitutional measure which effectively locked up all
the gambling money for their preferred programs. The revenues are distributed by a
board, known as GO-CO (Great Outdoors Colorado), with the legislature dealt
completely out of the picture.
Crash-Time
Each of the measures described above, those which restrict revenues and spending
and those which demand increases in spending, came into public law within its own
particular political and economic circumstances. Never were the consequences of all of
them, or any of them, assessed against the others. Collectively, however, they frame the
fiscal policy of the state and its budget process. The results of making policy in this
fashion first became painfully clear in 2001 when the nation, and Colorado, entered a
fairly deep economic recession.
As the recession hit, General Fund revenues declined, falling from $6.64 billion in
2001-02 to $5.73 billion the following year, a decline of fourteen percent. Much of the
decline was in income tax revenue, which fell from $4.18 billion in 2001-02 to $3.41
billion in 2003-04. General Fund revenues didn’t climb back above the 2001-02 number
until five years later, in 2006-07.
This enormous loss of revenue had three important impacts. First, as the revenue
total declined, so too did the level of allowable state revenue in subsequent years. Recall
that for any one year, the TABOR Amendment pegged the amount of allowable revenue
at the level of the prior year plus adjustments for inflation and population growth. Thus,
the most the state could collect and spend was forever “ratcheted” down. Second, insofar
as appropriations fell in tandem with revenue decreases, the total in allowable
appropriations in the out-years fell as well. And third, with the state short on money,
program areas which were either legally or politically unprotected took the brunt of the
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budgetary hits. With the K-12 schools and both Medicaid and Corrections protected, the
cuts came in higher education, transportation and health care.
It is here where a parade of efforts began, each designed to provide a partial
escape from the fiscal policy box which Gallagher, TABOR, Amendment #23, the six
percent limit and other measures had created. Some were successful and some were not.
When successful, they added further complications to the already muddled policy and
budgeting process.
Repair Work—Patches and Evasions
2002-2004-Cash Fund Raids, Recessions and Fees In the recessionary years
from 2002-03 through 2003-04, the legislature essentially raided scores of cash funds.
This was done both because of a desire to minimize damage to programs which severe
budget cuts would create, and to keep the appropriation level from falling and thus
creating a reduced base for future years. There were over seventy transfers from roughly
53 funds. They ranged from a tobacco litigation settlement cash fund to funds of
unclaimed property and major medical insurance. Collectively the transfers totaled
around one and one half billion dollars. Unsurprisingly, the transfers drew criticism from
groups which had stakes in the funds. Lawsuits challenging the actions followed as well,
but the courts upheld the legislature’s authority to move the money.
Even with the transfer of well over a billion dollars into the General Fund, budget
cuts ensued, described euphemistically as “expenditure reductions.” For fiscal year
2002-03 the reductions totaled $537 million with $201 million more the following year.
As each reduction required a change in statute, 69 bills were run in 2003 alone. To
partially counter these reductions, a few bills were run to create “revenue enhancements”.
Collectively they raised just $2.3 million. Examples include one allowing simulcasting
of dog races and another set a tax amnesty period for scofflaws.
Additionally, from 2002-2004, the legislature enacted 37 measures authorizing
increases in dozens of fees and created many more. New fees and fee increases, unlike
new taxes, are not subject to the TABOR-required state-wide popular votes.
Collectively, these maneuvers raised $69 million dollars which cushioned the impact of
the budget cuts and bolstered the appropriations total on which future allowable increases
would be based. But even with all these efforts to shore up the General Fund, total
allowable appropriations were lower in 2004-05 than in 2002-03.
2003--Gamble for Tourism. Among the budgetary casualties of the economic
downturn of 2001 was funding to promote tourism. To many legislators and citizens
alike, those from the skiing and summer recreation regions of the state especially, this
was penny-wise and pound-foolish. But with money tight, an assortment of groups
gathered the requisite number of signatures to place on the ballot a measure to raise funds
through expanding gambling.
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The proposal, constitutional amendment #33, would have established video
lottery at horse and dog tracks and in casinos. Revenues would be used to promote
tourism, and also provide more money for parks and open space programs in GO-CO, the
Great Colorado Outdoors Program which, by way of earlier and successful initiated
constitutional ballot measures, had already locked up most of the state’s gambling
revenues by keeping the money legally out of the hands of the legislature.
Like so many measures which were to follow, Amendment #33 also contained a
TABOR and appropriations limit dodge. It stipulated that the new revenues would be
exempt from existing state and local spending and revenue limits. The measure failed,
but made clear the increasingly popular strategy of exempting new revenue from existing
revenue or spending limitations, and forbidding the legislature from using new money to
supplant existing appropriations
in whatever policy sector the ballot measure promoters were pumping.
2003--Fix Gallagher? The Gallagher Amendment, we’ll recall, required a
continued state-wide balance in property tax collections as between residential and
commercial properties. With residential growth outpacing commercial growth, and with
TABOR (2002) now requiring popular votes on mill levy increases, local government
revenues were suffering and more and more of the cost of funding K-12 education was
shifting to the state which was, itself, cash-strapped. Further, Gallagher continued to be a
tax burden for businesses.
In this context the legislature referred to the voters a proposed constitutional
measure which would have frozen residential assessment rates at eight percent of market
value (up from the then current 7.96%). This would help local governments and release
some of the budgetary pressure on the state. It would also end the shift of the property
tax burden to non-residential property owners.
As modest as the Gallagher “fix” seemed, it lost with a 71 percent negative
popular state-wide vote. Colorado home-owners liked their low property tax burden, the
consequences for business, local government and the state not withstanding.
2004--Smoke for Health. With money tight for virtually every state program, a
coalition of health providers and health advocates placed on the ballot a measure (#35) to
constitutionally increase taxes on cigarettes and other tobacco products, and direct the
revenues to health care services, tobacco education and anti-smoking programs. It also
provided that no existing funding for such activities were to be reduced and replaced with
the new money.
In a political environment wherein health is good and smoking is not, the proposal
passed. It stipulated that none of the new revenue would be subject to any existing
spending limits.
2004--A Money Laundry. Under TABOR, college and university tuition was
counted as “state revenue”. In years when state tax revenues were sufficient to reach or
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exceed the TABOR limits, additional tuition receipts, whether from expanded enrollment
or increased rates, were simply rolled into the pool of excess revenues which were then
rebated to taxpayers as tax credits. In addition, extra tuition receipts had the effect of
displacing General Fund tax revenues which could otherwise have been retained and
spent on other state programs.
But the lengthy and complicated TABOR measure also contained a provision
whereby the state could declare an agency to be an “enterprise” if less than ten percent of
its total revenues were derived from direct state appropriations. The first agency to be
declared an “enterprise” was Fish and Game which is largely funded by hunting and
fishing license fees. Prior to gaining enterprise status, the agency couldn’t raise fees as in
good revenue years extra collections simply added to the state surplus. When made an
“enterprise”, Fish and Game license income no longer counted as state General Fund
revenue. This released the agency to hike its fees and made additional room for tax
revenues under TABOR’s revenue cap.
It occurred to legislators that with some ingenuity this enterprise provision in
TABOR could be employed as a loop-hole in higher education financing. Thus in 2004 a
bill was passed creating that is now called the “College Opportunity Fund” (COF), which
basically functions as a money laundry. Rather than making appropriations to colleges
and universities directly, the state sends its higher education allocation to a state agency,
the Colorado Student Loan Program, and establishes a per-student dollar figure as a
voucher. Students then select a school, notify the agency of their choice, and the agency
funnels the student voucher to the school in the form of a “purchase” of a product—a
product being some schooling. The vouchers are for resident undergraduates; for
graduate education and other institutional costs, the state sends money as “fees for
service.”
The result of this scheme is to artificially drive direct state appropriations to
colleges and universities below ten percent of their revenue total, thus qualifying them for
“enterprise” status. This designation then frees them to raise tuition and at the same time
clear out room under the state’s TABOR revenue cap for additional general tax revenues.
Of course, while it works as intended during good revenue years, the extra room under
the cap is of little consequence in economic downturns.
2005--Referenda “C” and “D”. In spite of the fiscal adjustments made with the
cash fund transfers, initiation of more fees and creation of the higher education money
laundry, the state found itself on the brink of a financial cliff in 2004 and 2005. With the
economy recovering some, there was promise of improved revenues, but as the base had
declined during the recessionary downturn, the depressed levels of both allowable
receipts and appropriations promised further deep, even draconian, reductions in funding
for higher education, health care programs and transportation. Perversely, the state
would simultaneously be making major cuts and refunding hundreds of millions of tax
revenues.
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Several efforts in the 2004 and 2005 legislative sessions to fabricate a ballot
measure asking voters to release the TABOR cap failed. But following these failures, a
bi-partisan coalition of legislators and business and professional groups launched a
petition drive to place an initiated measure on the 2005 fall ballot asking voters to
approve a five year “time out” on the TABOR revenue limit, and stipulate that henceforth
when state revenues fell, the highest prior revenue year would constitute the floor for
future calculations of the cap. This was known as Referendum “C”. A companion
measure, Referendum “D”, asked that above a certain level, new tax receipts would be
employed for highway projects.
Referendum “C” passed by a 52-48 percent margin, but “D” narrowly failed. It
was hard-fought with the Republican governor, Republican moderates, the business
community and most Democrats in support, and the larger slice of the Republican party
along with an assortment of general anti-tax/anti-government groups in opposition.
Indeed, the campaign put another wedge in preexisting divisions in the Republican party.
Passage of “C” allowed the state to keep all the money collected through existing
tax law and do so for a period of five years. No additional taxes were enacted and the six
percent per year appropriation increase limit remained in place. For three years after
2005 state revenues improved significantly with the result that rather than imposing
further budget reductions, the state was able to provide some new money for higher
education and other state programs, and resources beyond the six percent General Fund
increase were funneled into transportation and other capital expenditures.
But Referendum “C” expires in 2010 and then the TABOR revenue lid goes back
on. In the 2008 election voters were given the option of altering the constitution to
alleviate the contradiction between TABOR which limits revenue and Amendment #23
which drives pending, but they voted the measure down. This will be discussed shortly,
but suffice to say at this point that defeat of that measure leaves a major question mark
for Colorado’s fiscal future.
2007--Stop the Mill Levy Slide. The basic law which drives funding for the K-12
schools is called the “School Finance Act.” It was originally passed in 1988 and was
designed to equalize funding for schools districts across the state. It is passed in amended
form each year. In 1994, two years following passage of TABOR, the act was changed to
include a provision requiring school districts to reduce the mill levy so as to reduce
property tax revenues when the existing levy generated more money than the district
could keep under TABOR’s cap. Other local governments could give the money back in
a form of temporary mill levy reductions, but under the School Finance Act the schools
had to lower the mill levy and once lowered they stayed lowered as per the Finance Act
requirement.
Between the 1992 enactment of TABOR and 2007, 175 of the states 178 school
districts had passed what are called “de-Brucing” measures which allow the district to
keep and spend revenues in excess of the TABOR limit, in a given year. Still, the mill
levy had to be dropped to reduce the prospects of it occurring again the following year.
13
Thus in spite of local voter approval of erasing the TABOR revenue lid, the Finance Act
drove the mill levy rates lower and lower. And the lower they went—more so and faster
in growing jurisdictions—the greater became the state share of total school funding costs.
In addition, variance in district to district levies grew with the richest districts enjoying
the lowest levies.
Pressed to do so by newly elected Democratic Governor Bill Ritter, and in the
context of state budgetary pressures, the legislature amended the Public School Finance
Act in 2007 to freeze school district mill levy rates in the 175 districts which had voted to
erase the TABOR revenue cap. This was fully in keeping with the TABOR provision for
voter overrides of the revenue lid, and it did away with the statutory School Finance Act
requirement to lower the mill levy, voter approval of “de-Brucing” notwithstanding.
The impetus for this action is clear. The state operates in a fiscal vise composed
of TABOR, Amendment #23, the six-percent annual appropriation increase limit and
growing costs in corrections and Medicaid. Funding for transportation, higher education
and other programs is in short supply. The local school district mill levy freeze would
stop the decline in the local share of school costs and would even increase it as aggregate
property values grew. And as a consequence, the state share of school funding would
drop and more money would be available for other state activities.
Colorado’s anti-tax and anti-government elements attacked the mill levy freeze
with a vengeance, just as they have for years promoted revenue and spending limits and
fought efforts to find revenue to support most any public programs. A law suit was filed
claiming that the mill levy freeze constituted a tax increase and should, thus, have been
put on the ballot for a state-wide vote. The state supreme court let the matter lie until
March of 2009 when, in the context of growing public concern over the decisional delay,
the court validated the legislative action saying that since voters approved the TABOR
override, the change to the School Finance Act passed constitutional muster. Democrats,
including the governor, applauded the decision; Republicans decried the outcome as a
policy decision by a partisan Democratic court.
2008--Gargantuan Ballot and More of the Same. The struggle to meet perceived
public needs and fund state government in the now fully developed fiscal policy maize,
hit full stride in 2008. The state-wide ballot contained eighteen referred or initiated
measures. Fourteen were initiated, with four of them (all related to business and labor)
withdrawn prior to the election. Of the remaining ten initiated items, five were, by
varying degrees, more patch-work efforts to cope with the fiscal policy tangle.
Carrying the ballot designation Amendment #50, one measure proposed to amend
the state constitution so as to allow several gambling communities to hold elections to
decide whether to liberalize existing table-stakes limits and casino operating hours.
Local voter approval was a foregone conclusion and soon followed. Casinos may stay
open virtually around the clock, new games of roulette and craps are available and the
maximum bet rose from five to one hundred dollars.
14
Clearly, the proponents and beneficiaries of this gambit included the gambling
interests and the locals. But the measure contained a sweetener designed to attract votes
beyond the local communities—a sizeable slice, 78 percent, of the new tax revenues
which the increased flow of gambler money was projected to produce was to be directed
to community colleges after the cost of enforcing the new law was paid. The rest of the
new money was to be divided between the local cities and counties.
Amendment #50 did more, though; it also impacted state fiscal policy, further
reducing legislative control of state finances. One provision stipulated that henceforth,
any increase in the state gambling tax was to be submitted to a state-wide vote; no longer
could the gambling commission or legislature adjust it. Additionally, all new revenue
was to be exempted from existing state and local revenue or spending limitations—
another chip out of TABOR and appropriation increase controls. The Amendment
passed—voters approved of the idea of revenue without taxes.
Amendment #51, a statutory proposal, was a call for help by a segment of the
Colorado public which struggled with problems of developmental disabilities. With state
funds in chronic short supply, an enormous backlog of applications for assistance had
developed. Given the legislatures limited ability to respond, the developmental disability
community initiated a measure which would raise the state sales tax from 2.9 percent to
3.1 percent over a two year stretch, with the funds employed for services in this health
care area.
As with other measures on the 2008 ballot, #51 stipulated that revenues would be
exempted from existing state revenue and spending limits. Unlike Amendment #50, this
one did promise to raise taxes, albeit relatively little, and just one tenth of one percent
beyond the state sales tax level which existed prior to the 2000-01 pre-recession pre-crash
legislative tax-cut binge. The developmental disabilities ballot measure lost.
Following the developmental disability measure, Amendment #52 was an initiated
constitutional proposal to re-direct the expenditure of some of what was presumed to be
additional state severance tax revenues. The new money was to be used for
transportation improvements along Interstate 70. The existing revenue flow was directed
to a number of state and local programs, and this amount, plus inflationary adjustments,
was to continue. But new money, and the presumption was that there would be some,
was to go to transportation rather than follow the existing flow pattern.
Amendment #52 encountered opposition from interests which had long benefited
from the existing state and local programs. It lost, but had it passed, it would have
exempted another slice of state revenue from legislative control and put it on auto-pilot.`
A major initiative came in the form of Amendment #58. Sponsored by the
Governor and a host of higher education and environmental interests, the measure would
have eliminated a gas and oil company tax break. Existing law allowed the companies to
deduct from extraction taxes owed the state, nearly ninety percent of the amount which
they paid in property taxes to local county governments. The overall oil and gas tax
15
burden in Colorado was well below that in the adjoining states of Wyoming and New
Mexico, and Amendment #58 proponents viewed this change in law as fair.
The new state revenues, estimated to be over a billion dollars in the first four
years, would be spent on higher education student scholarships, wildlife habitat,
renewable energy projects, water treatment plants and transportation. The higher
education scholarships would have received the lions share.
Not surprisingly, the oil and gas industry spend lavishly to fight the measure, and
they were joined by some elected officials and business interests who saw the extra tax as
a job-depressing burden on the industry. Amendment #58 failed but, had it passed, the
new revenue would have been exempt from existing revenue and spending limitations—
another chip out of TABOR and the six percent annual appropriations limit.
The most comprehensive money measure of 2008 was proposed constitutional
Amendment #59 which was designed to untangle, to some degree, the existing
constitutional fiscal policy knot. It’s major proponent was the term-limited House
Speaker. Speaker Romanoff was the author of the line, “one foot on the gas, one foot on
the break”. In #59, Romanoff and his cadre of supporters proposed to eliminate both
TABOR’s annual revenue ceiling, and the Amendment #23 requirement for a certain
minimal level of annual growth in K-12 state school funding.
The proposal was a bit complicated, creating a “saving account” in the “education
fund” which #23 originally established, but it essentially returned to the legislature some
measure of budgetary authority. Amendment #59 failed—for the most part, voter
aversion to taxation prevailed, and legislative authority remained marginalized.
2009--Tire Patch for Transportation.
Colorado highways are in bad shape and getting worse by the year. Gas tax
revenues have suffered with the stagnation of the level of the gas tax and more fuel
efficient automobiles. The state of the economy and the fiscal system has for years now
stood in the way of producing revenues anywhere close to the needed level.
Given his repeated promises to do something about transportation, Governor
Ritter and his Democratic legislative colleagues pushed through a revenue raising
measure dubbed FASTER—“Funding Advancement for Surface Transportation and
Economic Recovery”. The measure increased fees on automobile, truck and motorcycle
annual registrations, imposed higher fees on rental cars and opened the door for
consideration of tolling existing roads. The politics of passing the bill was anything but
bipartisan, with Republicans accusing majority party Democrats of failing to engage in
good faith bargaining, and Democrats countering that Republican alternatives raised
precious little money and sought to do little more than divert funds from other General
Fund programs to roads.
16
FASTER passed and will put $160 million into road and bridge repair. Repeated
assessments of the state’s total transportation needs, however, run into the billions.
2009—Tax More to Save Money?
In what may seem counter intuitive, the 2009 General Assembly enacted a new
tax, of roughly three percent of annual revenues, on Colorado Hospitals with the notion
of providing expanded health care coverage for the poor and for children. The plan is to
raise money ($ 600 million annually) to leverage an equal amount from the Federal
government to fund Medicaid. The presumption is that the tax on the hospitals will not
be passed on to patients, but will, when combined with the Federal money, provide funds
to increase Medicaid payments to the hospitals and thus provide services for more poor
adults and children.
This is another policy which has sharply divided the parties. Republicans argue
that the tax will result in additional cost-shifting, with the price of the tax pushed by the
hospitals onto the bills of patients who have insurance. Democrats argue that this will not
occur, since with the additional Federal money, Medicaid reimbursements will be push
enough additional revenue into the institutions as to preclude the need for extra billing of
the insured patients. The scheme enjoys the support of the hospitals and medical
providers, and constituents yet one more example of imaginative desperation budgeting
in the context of a revenue and fiscal policy tight-jacket.
2009--Budget Flexibility through Redefinition.
The six percent limit on annual General Fund appropriation increases, which was
presumably “constitutionalized” upon the adoption of TABOR, had stripped the
legislature of much of its fiscal flexibility. With the cost of corrections, Medicaid and K12 schools growing, funding for other programs, including higher education, were
increasingly squeezed. When revenues came in above six percent over the prior year, but
under the TABOR limit, they were transferred from the General Fund to other pots to
fund transportation and capital development. Any prospect of future inflation in the high
single digits, or more, threatened to wipe out funding for all of state government, save for
the schools, prisons and Medicaid. Even corrections funding could eventually dry up.
In the 2009 session, based upon a legal opinion issued by a former Colorado
Supreme Court Justice, Democratic Senator John Morse and Republican House member
Don Marostica, a member of the Joint Budget Committee, introduced a bill to eliminate
the six percent annual appropriation increase limit (SB 09-228). “Spending”, Morse and
Marostica argued, was not limited by Arveschoug-Bird; only “appropriations” were.
Spending, these two lawmakers and others argued, was limited by the TABOR revenue
cap and thus elimination of the six percent appropriation feature would not increase
spending. TABOR stipulated that no pre-existing spending limits could not be altered
without a vote of the people, but since their bill impacted “appropriations”, not total
spending, it would not “weaken existing limits on revenues or spending”, and need not be
voted upon in a state-wide election.
17
As of April 1, 2009, the measure has passed the Colorado Senate and is pending
in the House. If enacted, the consequence of this measure would be to provide legislative
flexibility in spending revenues up to what TABOR permits. Money which in good
revenue years spilled over into transportation and capital construction could alternatively
be used for other programs such as higher education and health care.
This proposal is the focus of heated and prolonged debate, with the parties sharply
divided. If SB-228, were to pass, it would do nothing to increase state revenue by
restoring legislative fiscal authority. It would simply mean that general fund revenues in
excess of six percent but less than the TABOR limit could flow to programs beyond
transportation and capital construction as required by current law (SB 97-1 and HB 021310). It would only provide sufficient budgetary flexibility to slow the financial
starvation of many programs.
200?—No End in Sight?
Even as this is written, more patches are under construction. One 2009 bill was
intended to double the fee on recycled tires and dedicate the money to university
research. It has been modified following complaints about the disconnect between the
source of the fee and the use of the funds.
As the annual School Finance Act is being written, there are plans to insert a
provision disallowing school districts from going to the voters to lower the school mill
levy. This is deemed necessary so that some districts can not lower theirs, thus obtaining
more in state funds, while other districts do not do so. This follows the 2007 measure
which froze the mill levy in the 174 districts which had “de-bruced”, as reported earlier in
this paper. Thus, there is seemingly a patch needed for the patch which was designed to
patch the School Finance Act which forced mill levies ever lower when revenues
exceeded the TABOR cap.
And in the context of the severe 2009-10 revenue shortfall, the Joint Budget
Committee found itself late in the budget process with a need to cut the 2009-10 budget
by $300 million beyond what had already been eliminated. With virtually no options left,
they reduced the higher education allotment by that number, and set in motion plans to
take $500 million from the semi-public/private workers compensation organization to
back-fill higher education and provide a reserve, a move which immediately proved both
politically controversial and legally questionable.
The struggle to save programs with a continuing assortment of unorthodox
maneuvers has become a daily enterprise. And with each desperate effort, the small
government/anti-tax crowd resists and condemns the action. Unless some comprehensive
action is taken, this is a story, and a paper, which has no ending.
More Bits and Pieces
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The budgetary measures treated above, those which drive spending, restrict
revenues or spending and those designed to somehow “fix the problem”, are the major
but not the only money related ballot items which have faced Colorado voters over the
past few decades. There have been many others, generally limited in scope and probable
consequence, and most of which have failed.
In 1978, 1988, 1990 and 2000, initiated measures proposed to limit revenues
and/or spending in much the same was as does TABOR, although these all failed.
Indeed, all except the 1978 proposal were advanced by Douglas Bruce, TABOR’s prime
mover. The 1986, 1988 and 1990 proposals were, in effect, unsuccessful precursors to
TABOR, in each instance coming closer and closer to securing voter majorities. Bruce’s
2000 measure was much more extreme than any of the others, proposing, in effect, to
eliminate taxes altogether in small increments over many years.
Initiated measures in 1992, 1993, 1994, 2000 and 2001proposed some form of
new tax for causes ranging from health and smoking cessation to the K-12 schools,
science and math grants, tourism promotion and study of a fixed-guideway transportation
system running from Denver’s International Airport to the mountain ski areas. These,
too, all failed.
Still other unsuccessful proposals facing Colorado voters included ones to create a
K-12 school voucher system (1998), withdraw tax-exempt status for certain religious
properties (1996), allow the state to incur multi-year debt to pay for non-state prisons
(1995), allow the Colorado Great Outdoors program to borrow against anticipated
revenues so as to buy open-space land (2001) and permit video lottery games at horse and
dog racing tracks (2003).
There were some victories. In addition to the major successful spending or
limiting measures discussed above, a 1992 vote authorized what was called “T-REX”,
which permitted borrowing against anticipated federal gas tax receipts for a major Denver
interstate expansion project. Successful measures in 1980 and 1988 had authorized statesponsored lottery games followed by an expansion of the games so as to produce revenue
to build more prisons, and then a 2000 vote secured all future funds for out-door
programs. Others created a property tax break for seniors (2000) and expanded it for
veterans and the disabled (2006), and authorized participation in a multi-state lottery
(2001). Each directed revenue to specific purposes, leaving the legislature with no
discretion as to the use of the funds.
A final category of “bits and pieces” has been the continuous flow of legislative
enactments providing tax credits and rebates. Various laws have provided credits for
child care, plastic recycling, low-income housing, long-term care, alternative fuels,
conservation easements and a long list of others. In the aggregate, these credits run into
the hundreds of millions annually, and billions through time. Each, now, has its own
constituency, and putting the process in reverse would be very difficult politically.
What Have We Created?
19
The decades-long parade of enactments, many of the most significant ones
coming by way of citizen initiatives, has left the state without an institutional apparatus
capable of setting anything like an integrated and forward-looking policy direction. The
measures were designed to promote policies, but have had long-lasting impacts on the
institutions as well. Gallagher targeted property tax reform, Amendment #23 was meant
to help the K-12 schools, TABOR and the six percent limit were designed to control
government growth, and so forth. But these and others have altered the way policy is
made, as well as impacting policy itself.
Thus, both the institutional and policy consequences have been significant. On
the institutional side, the state legislature and local governing boards have been stripped
of much of their fiscal authority. Taxes can be reduced or eliminated by elected officials,
but not raised. At the state level, the legislature’s appropriations discretion has been
severely constricted. Spending priorities are largely pre-set by constitutional provisions,
federal requirements, corrections policy and specific-use dedication of gambling taxes,
and partially driven by the ebb and flow of the economy and tax revenue. And in good
revenue years, it’s TABOR. The complex maize of policies push in opposite directions,
both limiting resources and requiring expenditures. Effectively, representative
government is a thing of the past.
The policy consequences are evident in the erosion of state funding in several
areas, most notably in higher education and transportation. With budgetary allocations to
the K-12 schools, Medicaid and corrections virtually beyond the control of the legislature
and governor, higher education and transportation remain major areas of “discretionary”
spending. Over the past two decades, the proportion of the state general fund budget
dedicated to higher education has gone from roughly twenty percent to less than ten
percent and going into the 2009-10 budget cycle there was talk of eliminating public
support for colleges and universities altogether. Colorado ranks in the bottom two of the
fifty states in support for higher education.
State roads and bridges have similarly suffered. A recent report by the Colorado
chapter of the American Society of Civil Engineers gave the state a grade of C+ for its
infrastructure, noting that “Population growth and deferred maintenance are combining to
stress Colorado’s highways, bridges. . . .” And the March 20, 2009 Denver Post reported
that “About half of Colorado’s highway miles are poor, but CDOT is billions short for
repairs”.
An additional policy consequence of the revenue limit-expenditures requirement
squeeze has been the proliferation of fees. As noted earlier in the paper, there was an
explosion of new fees and fee increases following the 2001 recession, and that pattern has
not abated with 41 new fee bills enacted in the 2008 session and over three dozen more in
the 2009 pipe-line. The resultant revenues only marginally compensate for the general
tax revenue losses, but they further complicate the fiscal system and do nothing to restore
legislative fiscal flexibility. They have, however, often further solidified voter irritation
with government and resistance to elimination of current constitutional revenue
restrictions.
20
The national economic collapse and resultant state budgetary problems for the
2008-09 and 2009-10 fiscal years unmasked yet another policy consequence of the
current fiscal knot. First on the legislatures agenda for the 2009 session has been jobcreation, and for that they looked to tax-credits for businesses which created new jobs.
But tax-credits, by their nature, reduce state revenues, and reductions in state revenues in
one year depress the base from which following year calculations are made in
determining the TABOR cap. Thus, if tax credits did indeed lead to new jobs, and the
new jobs led to additional tax revenues, the newly created revenues might well go beyond
allowable revenue and/or appropriations limits.
Both public and private sector leadership routinely express deep concern about
the predicament. Legislators in both parties call for more support for higher education,
transportation and health care. So do business sector leaders who see these areas as
essential to maintenance of a favorable business climate and productive work force. But
with revenues legally limited and most spending legally mandated, state government is
without the capacity to do much of what is broadly viewed as important, even essential.
Can We Fix It?
There are several legal paths out of the current “one foot on the gas, one foot on
the brake” conundrum but none have been politically viable. One is to do what many
local governments have done, and that is to ask the voters to “de-Bruce”. TABOR allows
voter over-rides of revenue limits and many cities, counties and school districts have
received voter permission to spend excess TABOR revenues for specific projects—street
repairs, for example. But save for the 2005 passage of the Referendum “C” five year
suspension of the state revenue limit, there have been no successful efforts to eliminate
the state-level revenue limitation or the six percent annual appropriation increase limit.
A second path is to amend the constitution so as to eliminate, or at least moderate,
conflicts among the provisions which simultaneously limit revenues and demand
spending. Amendment #59, on the 2008 ballot, pushed in that direction as it sought to
largely eliminate the conflict between TABOR’s cap and the rigid spending requirements
of Amendment #23. But the voters rejected the proposal. As noted earlier, there have
been less sweeping efforts to keep some excess TABOR revenue for specific purposes—
math and science projects (2000), and highways and higher education facility
maintenance (1998), for example—but voters rejected these as well.
A third way out of the fiscal box would be to convene a constitutional convention
and rewrite fiscal policy from scratch. This has been discussed from time to time, but has
yet to gain traction. The fear among many groups is that it is not possible to predict the
result. Some interests worry that provisions which are of benefit to them now, might
disappear. Others worry about what might be injected into a new document. This
uncertainty, plus a constitutional procedural calendar which would push the conclusion of
a convention out several years, has precluded such an effort.
21
There may be way to soften the fiscal problem short of a complete overhaul of
fiscal policy or with any tinkering with the state constitution. Over the years, the General
Assembly has enacted dozens of sales tax exemptions and tax credits. Sales tax
exemptions have been statutorily granted to everything from cigarettes to internet access,
aircraft component parts, child care and bull seamen. Their current aggregate value is in
the range of $1.6 billion annually.
Tax credits have similarly reduced revenues which might otherwise have flowed
into the state general fund and thus been available for everything from higher education
to health care and highways. Current value is in the range of $400 million annually.
There are credits for alternative fuels, enterprise zones and conservation easements.
Conservation easements provide credits against otherwise payable state income taxes,
and are transferable. The use of these credits was tightened some during the 2008
legislative session, as audits indicated that they’d been subject to severe abuse and thus
cost the state millions in lost revenue.
Another controversial tax credit came in the form of what are called CAPCOS.
This is system which allowed insurance companies to “loan” the state millions of dollars
and in return receive dollar for dollar tax credits against otherwise payable taxes on the
sale of policies, and claimable any time up to ten years, plus a profit on the “loan”. The
money was made available to organizations created to then loan the money in the form of
venture capital so as to provide starts for new businesses and, presumably, create jobs.
As it turned out, the insurance companies recouped their “loans”, with a profit
having taken zero risk, the CAPCOS spent much of the money on national government
securities so as to create revenues with which to pay the profits to the insurance
companies, and on start-up costs and general administration. A small proportion was
loaned out and few jobs created. In the meantime, tens of millions of dollars which might
otherwise have flowed into the state treasury was sacrificed in the form of tax credits.
The March, 2009 state supreme court decision upholding the mill levy freeze
contains language which leads some to believe that the state could take back these sales
tax exemptions and tax credits so a to generate more revenue and do so without a vote of
the people—so long as overall state revenues do not exceed the TABOR lid of prior
year-plus inflation-plus population growth.
Elimination of some of these tax breaks, which total more than $2 billion per year,
would require major political will, as each one has its own constituency which would
surely fight their elimination. Recouping two billion dollars per year and in the process
irritating scores of groups which now benefit from the tax breaks is not in the cards
politically. And even is some of the exemptions and credits are withdrawn by statute, the
increased tax revenue is likely to be at a level which constitutes another patch rather than
a fulsome fix of fiscal policy
A Next Generation Success Story?—Will it be Fixed?
22
A December, 2008 lead editorial in the Denver Post read, “State still needs to fix
fiscal mess.” One in January, 2009 read, “Moral obligation to fund higher ed.” A
January 2009 letter to the editor, one of many like it, was headed, “TABOR ties state’s
hands on highway funding.” The governor’s 2009 State of the State message stressed
transportation needs and legislators in both parties concurred. The governor also called
for legislation to remove thousands of citizens from the list of the health care non-insured
rolls. Two extensive studies, one by Denver University and the other by the Denver
Metro-Chamber of Commerce, described the policy impact of the state’s dysfunctional
fiscal policy, which is aggravated by term limits, and called for reform.
One might surmise that with almost universal agreement on the need for better
fiscal treatment of higher education, transportation and health programs, there would be a
sufficiently large and robust political force to drive the state to a fiscal policy repair job.
But there are two inter-related political factors which have thus far proven to be
insurmountable barriers to reform.
The first is the success and continuing role of the anti-tax, anti-government forces
in the state. The image of TABOR author Douglas Bruce was significantly tarnished by
his very short (one year) and undignified (behavior which drew institutional censure) stint
in the Colorado House of Representatives, but TABOR itself has come to be viewed quite
broadly as sacrosanct. TABOR places the question of taxes in the hands of the voters,
and arguments to compromise citizen control are a very difficult sell. When political
voices point to TABOR as a problem, other voices quickly take the opposite position and
chastise TABOR critics for not trusting voters and for threatening to deprive them of
future tax refunds. In his 2009 State of the State address, for example, the governor
mentioned a need for TABOR reform. The Republican House Minority Leader was
quick to cite that as a particularly disappointing part of the address.
Additionally, there is the continuing and very public role of the Independence
Institute, a right-leaning anti-tax think tank. Supported in part with funding from the
Coors brewing family, it has had several executive directors, including John Andrews
who later served as the state Senate President and Tom Tancredo of anti-immigration
fame. The current director is Jon Caldara, an energetic, outspoken and ever-visible
government critic. Members of the Institute staff routinely issue policy papers in such
areas as education, transportation and taxation. Institute personnel and their published
products command media attention and help to reinforce the perspective that small and
limited government is good, taxation is not good, and TABOR stands as the public’s
defense against big-government advocates. A Caldara bumper-sticker from one
campaign captures the anti-government perspective—“It’s Your Dough, Just Say No!”
The second, and related, political factor which works against fiscal reform is the
mix of ideology and political ambition within the Republican Party, and the impact which
this has in creating caution on the Democratic side. The ideological part is in keeping
with the general party antipathy toward large government. In 2005, the last legislative
session before Referendum “C”, several efforts were made to place before the voters
23
something to possibly avoid massive program cuts which were on the horizon, and John
Andrews, then Senate President, saw to the death of the last one. In the run-up to the
2006 gubernatorial election, the quest for the Republican nomination turned nasty in a
fight over who was the greatest fiscal tight-wad. Ever since the 2007 mill levy freeze, the
party has been non-stop in its attack on the governor and Democrats over the action.
Almost daily, Republican leaders and legislators express support for the revenue and
spending limits and criticize those who call for change.
This general ideology-based support for the revenue and spending limits is
reinforced by both party and individual ambition. Republicans lost majorities in both
state legislative chambers in 2004 for the first time in over forty years, and their
numerical deficit grew in 2006. In 2006 the governorship shifted back
to the Democratic side as well. Republicans made a net gain of one seat in the 100
member institution in 2008. And everyone is acutely aware of the upcoming redistricting
which will occur in 2011. A major goal of the Republicans, thus, is to capture a majority
in at least one legislative chamber, or take back the governorship so as to have bargaining
power in the 2011 redistricting process. The party is, thus, focused on the 2010 election
and never misses a chance to blast Democrats, most notably for any initiative or even
discussion of loosening revenue and spending limits.
The Republican propensity to be all-time, all-purpose critics also ties to personal
ambition. Several legislators are plotting or considering their own candidacy for 2010,
looking at Congressional seats and the governorship. Their nomination prospects hinge
in part on ensuring that the most active, and most conservative, elements in their party are
with them. Any hint of a willingness to reform fiscal policy and possibly threaten
TABOR can well be political suicide.
When asked why he felt compelled to resist proposals to loosen the revenue and
spending constraints, one up and coming legislator simply said that the hard-liners in the
anti-everything crowd are the ones who lick the stamps, staff the party phone banks, go
door-to-door and write checks. This perspective was reinforced during the 2009 session
when a Republican Joint Budget Committee member agreed to co-sponsor a bill to
eliminate the six percent annual appropriations increase limit. There have been dueling
legal interpretations as to the legislature’s authority to make such a change, and in the
context of the contemporary fiscal problems, there is considerable sentiment to give it a
try. But the Republican co-sponsor was the immediate recipient of a tidal-wave of
condemnation from his party, both within the legislature and beyond. Any action which
deviates from the “cut and cut more” philosophy is politically costly for Republicans.
And what, then, about the Democrats? With precious few Republicans to work
with in reforming fiscal policy, Democrats are largely on their own and expose
themselves to the “big government” critique. A clear example is Republican criticism
and legal action following the 2007 amendment to the School Finance Act, freezing of
the school district mill levy. That action did not raise taxes and was legally based on
voter suspension of the TABOR cap in 175 of the 178 school districts. The act promised
to raise more revenue for the schools, but did not touch the tax rate. Nevertheless, the
24
action provides the platform for characterizing Democrats as runaway spending
specialists and as unwilling to “let the voters decide”.
This Republican anti-tax and attack strategy has, to some degree, intimidated
Democrats. Just as the Republicans want their legislative majority back, the Democrats
are intent on holding the power and this has meant avoiding a frontal attack on TABOR.
There is broad Democratic support for the elimination of the six percent annual general
fund increase limitation, but this is accompanied by privately held worries about the 2010
electoral consequences.
The manner in which the political stars are aligned against extensive fiscal policy
reform was well illustrated in the close vote in 2005 on Referendum “C”, and then again
in the 2008 defeat of Amendment #58 and other ballot measures. Referendum “C” did
little to attack TABOR, and nothing to touch the six percent appropriations limit. The
requirement for voter approval of taxes remained and so did the revenue cap, save for a
five-year period. The Republican governor and most of the business community
supported “C”. So did many moderate Republicans. Yet it passed by the narrow margin
of 52-48 percent. TABOR author Douglas Bruce and the Independent Institutes were
opposed. They were joined by anti-taxers with big advertising budgets from out of the
state. These included the Club for Growth, Grover Norquist and former U.S. House
Majority Leader, Dick Armey.
Given the narrow victory for Referendum “C” in 2005, the defeat of Amendment
#58 and other money measures in 2008, and the continued support of the revenue and
spending limits by the vast majority of Republican leaders, any reform may well require a
major fiscal disaster of major proportions to focus public attention on the connection
between the current muddled fiscal policy and the difficulties in funding colleges and
universities, transportation and health care.
In the meantime, it’s more patchwork as the governor and some legislators push
relentlessly for new fees, seek more federal money, even talk about selling state physical
property. Republicans continue to praise revenue and spending limits, and most (but not
all) Democrats stick to fairly conservative mini-fixes, fearful of potential negative
political consequences administered by the party base. Senate Minority Leader Josh
Penry may have it right when he describes the band-aid approach to budgeting as
eviscerating TABOR “on the installment plan.”
There is one additional and complicating institutional factor which deserves
mention, and that is the impact of legislative term limits. Enacted in 1990, the term limit
law restricts members to eight consecutive years in a chamber. They are free to serve in
the second chamber following those eight years, or lie out for a full term and run again.
These limits have added to the inability of the institution to focus on long-term
goals and policy. Leadership has been weakened. Political ambition has increased, with
ever fewer members leaving and retiring from politics, and more of them focused on their
next political move. The old-grey beards who carried the institutional and policy
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memory, who provided procedural decorum and who had a good sense of the state’s past
and its needs for the future, are now gone. More so than in the pre-term limit era, the
focus is on the “here and now”, plus the next election, and on individual successes and
careers. A determination to launch a war against dysfunctional policy and re-capture
legislative authority—to restore representative government to Colorado—is absent.
Ironically, past efforts to cope with budgetary crises may have contributed to the
difficulty of enacting any comprehensive fiscal fix. In the 2000-01 economic down-turn,
the legislative raid of cash funds softened the impact and led many voters to believe that
there were, indeed, rabbits in the budgetary hat. The 2005 passage of Referendum “C”
temporarily steered the state away from the fiscal cliff and, again, allowed voters to give
a sigh of relief. If the national fiscal stimulus package eases the negative consequences
of 2008-2010 down-turn, Colorado may yet again simply push meaningful fiscal policy
reform down the road.
One might, I suppose, find a variety of theories to explain various aspects of
Colorado’s fiscal conundrum and its history. We know that policy development
is generally incremental and to some degree that was the case here. Some of our
literature speaks of policy “innovators”. Here, perhaps, Douglas Bruce, the author of
TABOR, might fit. So, too, might House Speaker Andrew Romanoff and Senator Steve
Johnson who led the way on Referendum “C” in 2005 and Senator Morse and
Representative Marostica, the sponsors of the proposal to eliminate the six percent
appropriations limit. Other and more recent literature envisions a policy world of
“punctuated equilibrium”. In the case here, there is surely punctuation—as with
Gallagher, TABOR and Amendment #23. All three had major impacts—punctuation,
one might say. But the equilibrium to follow? There is little of that. Instead, ever more
fiscal measures are piled one on top of the others, sometime pushed by elected officials
but more often by outside groups.
The most appropriate conceptual fits for Colorado’s budgeting and policy train
wreck come from Klyza and Sousa, and from Henry Ford. It is, after all, “just one damn
thing layered on top of another.”
In Federalist #71, Alexander Hamilton made these observations:
“The republican principle demands that the deliberate sense of the community should
govern the conduct of those to whom they entrust the management of their affairs; but it
does not require unqualified complaisance to every sudden breeze of passion or to every
transient impulse…”
and,
“When occasions present themselves in which the interests of the people are at variance
with their inclinations, it is the duty of the persons whom they have appointed to be the
guardians of those interests to withstand the temporary delusion in order to give them
time and opportunity for more cool and sedate reflections. Instances might be cited in
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which a conduct of this kind has saved the people from very fatal consequences of their
own mistakes…”
_________________________
* The quip, “One foot on the brake and one foot on the gas”, is stolen from former
Colorado House Speaker, Andrew Romanoff.
__________________________
Sources:
Christopher McGory Klyza and David Sousa, American Environmental Policy, 19902006, (2008), London: MIT Press.
Colorado Constitution. Article X, Section 3. Uniform taxation (Gallagher Amendment).
Colorado Constitution, Article X, Section 17. Education – Funding (Amendment #23).
Colorado Constitution, Article X, Section 20. The Taxpayers Bill of Rights
Colorado Legislative Council, Colorado General Assembly, House Joint Resolution 031033 Study, Publication Number 518, September, 2003.
Colorado Legislative Council, Colorado General Assembly, State Ballot Information
Booklet, various years.
Colorado Legislative Council, Colorado General Assembly, unnumbered report entitled
“Tax and Finance”, undated.
Colorado Legislative Council, Colorado General Assembly, unnumbered document
entitled “Enacted Bills in the 2008 Session That Established New Fees”, undated.
Colorado Legislative Council, Colorado General Assembly, memorandum entitled
“History of General Fund Appropriations”, February 6, 2008.
Colorado Office of Legislative Legal Services, Colorado General Assembly,
memorandum entitled “The Arveschoug-Bird general fund appropriations limit. . . “,
November, 1, 2004 revised version.
Colorado Office of Legislative Legal Services, Colorado General Assembly,
memorandum entitled “Implementation of the Arveschoug-Bird general fund
appropriations limit, section 24-75-201.1 (1) (a) (II) through (VII), C.R.S., December 17,
1993.
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Colorado Revised Statutes, section 24-75-201.1 Restriction on state appropriations. (the
six percent annual appropriation increase limit measure).
Foundation of a Great State: The Future of Colorado’s Constitution, University of
Denver, Strategic Issues Program, 2007, Colorado Constitutional Panel, Final Report.
Hamilton, Alexander, The Federalist Papers, Number 71.
“How the 6% Arveschoug-Bird Directive Works”, Colorado Fiscal Policy Institute,
February, 2009.
Scores of reports from media sources, the Rocky Mountain News, Denver Post, Colorado
Statesman and others gathered over three decades, direct observation of the Colorado
General Assembly over the same time period, and continuous examination of annual state
budgets and appropriations reports.
Decades of direct observation of legislative budgetary struggles and internal legislative
politics.
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