TABOR on the Line . . . Again!

Colorado's Taxpayer's Bill of Rights (TABOR) has the reputation of being America's best and most effective fiscal limit. However, it is under attack once again. On Election Day, Colorado residents will vote on Amendment 59 which would permanently nullify TABOR's revenue limit by requiring that all surplus revenues be spent on schools. This is an important election for fiscal conservatives. If Amendment 59 wins, TABOR will likely be reduced to a historical footnote. A defeat of Amendment 59, however, would have implications that will be felt well beyond Colorado. Indeed, a revitalized TABOR could give fiscal conservatives something that they have lacked--an effective model that can be used in other states.

This fall, many conservatives have been avidly following the upcoming Presidential, Senate, and House elections. However, there are other elections of considerable importance as well. For instance, on November 4th Colorado residents will once again have to defend their state’s Taxpayer’s Bill of Rights (TABOR). Indeed, Colorado’s Amendment 59 represents the most serious threat that TABOR has ever faced. Unlike 2005’s Referendum C which simply suspended TABOR’s revenue limit for 5 years, Amendment 59 would require that all funds exceeding TABOR’s revenue limit be deposited in an account for schools–permanently nullifying the limit.

Indeed, Amendment 59 is the latest in a long series of efforts by the left to undermine TABOR. Some background here is instructive. TABOR was passed by Colorado voters in 1992 and is rightly viewed by many fiscal conservatives as America’s best and most effective fiscal limit. It places a tight cap on the growth of state revenues and requires that all revenues above the limit be refunded to taxpayers. Between 1997 and 2002 TABOR required Colorado to issue tax rebates totaling more than $3.2 billion. Not surprisingly, Colorado led the nation in tax relief and its economy was among the strongest in the country during this time.

Effective fiscal restraints such as TABOR have long been a goal of conservatives. There are good reasons for this. Limiting government reduces the tax burden and keeps the economy strong. More importantly when the government is limited to a few vital functions, individuals assume greater responsibility for both themselves and their communities. Problem solving is handled by those institutions which are close to the people. This places more of an emphasis on institutions such as neighborhoods, churches, fraternal societies, and families–allowing civil society to flourish.

However, advocates of big government, including the media, unions, and many elected officials oppose these fiscal limits. TABOR proved to be no exception. Interestingly, the early efforts by the left to undermine TABOR were not particularly effective. In every year from 1993 to 1999 there was a proposal on the Colorado ballot to either raise taxes or increase spending in excess of the TABOR limit. Knowing these initiatives would markedly reduce the size of their annual tax rebate, voters soundly defeated each of these measures. However, in 2000 TABOR opponents changed their strategy. Instead of attacking TABOR directly, they succeeded in passing Amendment 23, a K-12 education spending mandate.

Amendment 23 has two features that resulted in significant budgetary pressures in Colorado. First it required that K-12 education spending grow at a rate faster than the TABOR limit. This effectively forced reductions in other parts of the Colorado budget. Even worse, Amendment 23 mandated significant increases in K-12 education spending even when state revenues declined. Between 2001 and 2003 a combination of the September 11th terrorist attacks and a severe drought caused state revenues to decline by over $1 billion. Despite this, Amendment 23 forced Colorado to increase K-12 education spending by $450 million during this time.

Not surprisingly, this combination of a sharp increase in K-12 education spending with a decline in overall revenues caused significant budgetary pressures in Colorado. The media, politicians, and labor unions were quick to blame TABOR for Colorado’s fiscal woes. This led to the passage of Referendum C in 2005 which suspended TABOR’s revenue limit for 5 years. This has allowed the legislature to spend, rather than rebate, all revenues over the TABOR limit. As such, Colorado’s growing economy has not funded tax relief as it had in previous years, but funded big government instead.

Indeed, data from Colorado’s Joint Budget Committee indicate that the legislature appropriated a total of $3.4 billion above the TABOR limit between 2006 and 2008. This means that each and every Colorado resident has missed out, on average, of a total of $750 in tax rebates during the past three fiscal years. In fact, the latest projections have raised this projected tax hike since the passage of Referendum C from $3.7 billion to $6.1 billion. That number is likely to continue to grow in subsequent years.

If Amendment 59 passes in November, it would effectively be the third time in eight years that Colorado voters required the state to increase spending on education. Still TABOR opponents probably felt that 2008 presented the best opportunity for them to eliminate TABOR’s revenue limit altogether. The 2008 election cycle is not looking particularly good for Republicans and conservatives. More importantly, the benefits of TABOR’s revenue limit have been invisible in recent years–the limit has been suspended since 2005 and Colorado residents have not received any tax rebates since 2002.

However, a defeat of Amendment 59 would give TABOR a bright future. In 2010 TABOR’s revenue limit is scheduled to come back into effect. The subsequent tax rebates will doubtless increase TABOR’s visibility and popularity. Furthermore, starting in 2010 the constitutionally mandated increases in K-12 education spending are reduced, which will reduce fiscal pressures. Overall, TABOR was the first state level fiscal limit that was both durable and effective. For a long time, it was heralded as a model by other states seeking to limit spending, promote tax relief and spur their economy. A loss for Amendment 59 may be the first step in rehabilitating TABOR’s reputation.

This could have nationwide implications. For a long time, fiscal conservatives have been searching for an effective strategy to limit government growth. There is plenty of evidence from both the states and federal government that electing more Republicans provides no guarantee of fiscal discipline. As such, starting in the 1970s with the passage of California’s Proposition 13, many turned to the initiative process. Unfortunately, many of the spending and revenue limits that were passed through the initiative process suffered from design flaws. Furthermore, increases in other taxes have diluted the impact Proposition 13 and other property tax reductions. As such, a revitalized TABOR could give fiscal conservatives something that they have lacked–an effective and durable fiscal limit that can be used in other states.

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