Capitol Review

Final Days Focus on Fiscal Fix

By State Senator Mark Hillman

April 30, 2004

The closing days of the legislative session are likely to focus on the potential for compromise between proponents of the Taxpayers Bill of Rights (TABOR) and advocates for Amendment 23.

Enacted in 1992, TABOR puts the brakes on government spending by limiting how much state spending can grow from one year to the next. Rather than allow legislators to spend money as fast as it comes in the door, TABOR requires that each year’s budget grow no more than the combined rates of inflation plus population growth.

Eight years later, voters approved another constitutional change with precisely the opposite intent – to mandate increased government spending on K-12 education. Amendment 23 requires that spending on K-12 education increase at no less than inflation plus new enrollment plus an additional one percent until 2011.

Without modification, the two amendments are incompatible. While TABOR restrains spending, Amendment 23 requires that the largest portion of the budget to grow faster than the budget as a whole. The two amendments co-exist awkwardly while the economy is growing, but they mix like oil and water when the economy slows.

Amendment 23 ignores economic reality by requiring that education spending increase no matter what. In recent years as tax revenues decreased, the only way budget writers could meet Amendment 23’s spending mandate was to cut other budget priorities, like higher education and programs for the poor and elderly.

TABOR, on the other hand, hasn’t impacted revenues yet, but will in the coming years because it prevents the state budget from rebounding with the economy. While government should tighten its belt in tough times just as taxpayers do, it makes little sense to use the lowest point in a recession as the standard for future years.

Those who argue that TABOR shouldn’t be altered one bit should explain how the state could cut another $480 million from this year’s budget. That’s precisely what we’d be doing right now had legislators not phased in the 2000 census population adjustment over several years – something strict adherents to TABOR argued was heretical.

Proponents of Amendment 23 justified it by arguing that Colorado’s education spending lagged behind inflation after TABOR passed. In fact, in seven budgets passed after TABOR and before Amendment 23, average per pupil spending exceeded inflation three times, matched inflation once, and fell short of inflation three times.

From a broader perspective, Colorado’s education spending has increased 10.9 percent faster than inflation over the last 20 years. Per pupil spending in Colorado is now $588 above the 20-year inflation rate.

However, the struggle for constitutional harmony isn’t so much a battle between budget hawks and education boosters. No, it’s a battle between budget hawks and advocates for more government spending across the board.

If instead of adopting TABOR in 1992, voters had mandated that the entire state budget grow at inflation-plus-population – as they did for education eight years later – state spending would be $9.9 billion instead of the current $8.0 billion. And if voters mandated an extra one percent above inflation, a la Amendment 23, state spending would be $11.0 billion.

There’s just one problem: current tax rates yield only $8.0 billion in revenue. To require that state spending always keep place with inflation would require massive tax increases -- $1.9 billion this year alone.

Although a variety of proposals remain in play, my preference is to take a two-year "timeout" from both TABOR and Amendment 23 – allowing the budget to recalibrate as the economy recovers. Even during the timeout, no tax increase could pass without voter approval.

Legislators would then be required to build up a rainy day fund which could only be used when the economy slows. After the timeout, the main provisions of TABOR and Amendment 23 would remain intact, except to allow for budget flexibility in tough times.

Proponents of Amendment 23 justified it by arguing that Colorado’s education spending lagged behind inflation after TABOR passed. In fact, in seven budgets passed after TABOR and before Amendment 23, average per pupil spending exceeded inflation three times, matched inflation once, and fell short of inflation three times.

From a broader perspective, Colorado’s education spending has increased 10.9 percent faster than inflation over the last 20 years. Per pupil spending in Colorado is now $588 above the 20-year inflation rate.

However, the struggle for constitutional harmony isn’t so much a battle between budget hawks and education boosters. No, it’s a battle between budget hawks and advocates for more government spending across the board.

If instead of adopting TABOR in 1992, voters had mandated that the entire state budget grow at inflation-plus-population – as they did for education eight years later – state spending would be $9.9 billion instead of the current $8.0 billion. And if voters mandated an extra one percent above inflation, a la Amendment 23, state spending would be $11.0 billion.

There’s just one problem: current tax rates yield only $8.0 billion in revenue. To require that state spending always keep place with inflation would require massive tax increases -- $1.9 billion this year alone.

Although a variety of proposals remain in play, my preference is to take a two-year "timeout" from both TABOR and Amendment 23 – allowing the budget to recalibrate as the economy recovers. Even during the timeout, no tax increase could pass without voter approval.

Legislators would then be required to build up a rainy day fund which could only be used when the economy slows. After the timeout, the main provisions of TABOR and Amendment 23 would remain intact, except to allow for budget flexibility in tough times.