TABOR: What Was Said Vs
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TABOR: What Was Said vs. What Really Happened by Todd Hollenbeck IP-8-2008 October 2008 13952 Denver West Parkway • Suite 400 • Golden, Colorado 80401-3141 www.IndependenceInstitute.org • 303-279-6536 • 303-279-4176 fax Introduction The Taxpayer’s Bill of Rights1 (TABOR or Amendment 1) was predicted by opponents to cause economic Armageddon, destroy the education system and the arts, even put the Pope at risk, and let criminals back on the streets. Its author, Douglas Bruce, was a greedy, slick, interloping, terrorist from California who wanted to pass TABOR to save money and cause the same catastrophes California was experiencing. With all of these predictions and accusations, why did TABOR pass? The simple answer: all of these predictions were obviously hysterical, and none of them came true. I. What is TABOR? The Taxpayer’s Bill of Rights (TABOR) was added to Colorado’s Constitution in 1992. It contains three main provisions: 1) Voter approval of tax increases. TABOR defines a tax increase as, “a new tax, a rate increase, an increase in a property assessment value ratio, extension of an expiring tax, or a tax policy change requiring a net tax revenue gain.” TABOR also bars four types of taxes: New or increased real estate transfer fees, local income taxes, state property taxes, and surcharges on state income taxes.2 2) Revenue growth limit. Most annual growth in state revenue is limited to inflation and population growth. The Denver- Boulder-Greeley Consumer Price Index is the measure used to determine the level of inflation. The U.S. Bureau of Census measures the population growth. Within school districts, TABOR revenue growth is limited to increases for inflation and pupil enrollment.3 3) Weakening existing revenue, spending, or debt limitations requires voter approval. Called the ‘weakening provision,’ TABOR constitutionally protects statutory tax and spending limits, such as the Arveschoug-Bird Amendment and the Gallagher Amendment. 4 TABOR’s restrictions on the growth of government spending apply to most, but not all, government revenues. Not included are revenues from government enterprises, federal funds, gifts, collections for another government, employee pension contributions, pension fund earnings, damage awards, and property sales.5 When ordinary government revenues grow faster than inflation plus population, the excess revenues must be refunded to the taxpayers. The surplus must be refunded to Colorado’s taxpayers within one year. There are 19 different ways to refund the surplus, but income tax refunds and tax credits are the most common.6 If the government wants to keep the extra money, it can ask the voters via a referendum. In Colorado, voters have often, but not always, given governments permission to keep surplus revenues. 2 A. Groups that favored TABOR: • National Federation of Independent Business • Colorado Farm Bureau • National Taxpayers Union • Colorado Union of Taxpayers • Cato Institute • Americans for Prosperity Foundation7 Arguments that were made for TABOR 1. It makes the government more accountable by forcing discipline over budget and tax practices. 2. It makes governments more efficient by making them think of creative ways to generate revenue. 3. It controls the growth of government. 4. It enables citizens to vote on tax increases and determine their desired level of government service. It also forces government to evaluate and prioritize services.8 5. It forces governments to limit revenue and therefore to spend within their means. Prior to TABOR, Colorado governments could increase mill levies and state taxes at their discretion. 6. It is “tightly written” and therefore the government would not be able to counteract its intent. 7. It reduces the power and influence of special interests and their lobbyists because they would need the support of the people to expand programs and government activities. 8. It curbs Colorado’s expanding debt. Certificates of participation and lease-purchase agreements were allowing state and local governments to go into debt without voter approval. 9. Taxes had been increasing significantly. In 1981, state and local taxes were 8.6% of per capita income. In 1990, the state and local tax burden had risen to 10.2%.9 B. Groups that opposed TABOR: • No On One Committee • Rocky Mountain Farmers Union • Colorado Education Association • Colorado Municipal League • Colorado Ski Country USA • Colorado Municipal Bond Dealers • Colorado Association of Realtors • Greater Denver Chamber of • County Sheriffs of Colorado Commerce • League of Women Voters of • Colorado Arts Coalition Colorado • Colorado Commission on Higher Education10 Arguments that were made against TABOR 1. It reduces elected representatives’ ability to make fiscal decisions. 2. It causes disproportionate cuts for general revenue fund programs and does not account for disproportionately greater growth in elderly and youth populations that require intensive government service. 3 3. It makes it difficult for states to raise new revenue, especially in hard economic times, and result in long term declines in government service levels. 4. It would be hard to refund excess revenues in an equitable or cost-effective way. 5. It shifts the state tax base away from the income tax to a regressive sales tax or to narrowly defined sources like lotteries and user fees.11 6. The wording contains “confusing provisions” that would cause administrative problems and lawsuits. 7. Fees are not included in the revenue limit, so governments would develop a “system of fees.” 8. The debt restrictions would hinder the government’s ability to provide for long- term capital outlays, like airports, highways, mass transit, prisons, and higher education buildings. 9. Federal databases for population and inflation were included in the wording of TABOR. Opponents pointed out that put the “composition of these databases” is “in the hands of federal bureaucrats.” The inflation index in TABOR is based on federal data for Denver-Boulder-Greeley, and thus is not accurate for rural areas of the state. 10. Federal money is excluded from the TABOR revenue growth limits, but non- federal matching programs are not. Thus, governments might need to ask voter permission to keep money from non-federal matching programs. 11. The tax rates in Colorado have been reasonable. Per capita state and local taxes in Colorado has usually been below the U.S. average. Colorado’s ratio of taxes to income has also been below the U.S. average.12 II. What Was Said and What Really Happened Former State Representative Betty Ann Dittemore, former Congressman Ray Kogovesek of Pueblo, former Congressman Jim Johnson of Fort Collins, and John Lay, Director of Ski Country USA, led an anti-TABOR group called the No on One Committee. They warned that TABOR would cause “total chaos.” Dittemore said TABOR was like a big piece of chocolate with a sour lemon inside. Lay said, “The name of the game here is we are communicating chaos.”13 Lobbyist Wally Stealey ran television ads predicting that TABOR would “make it tough to educate kids, put out fires and arrest criminals.”14 TABOR’s author Douglas Bruce responded, “They’ve proven they’ll say anything.”15 4 A. Education What Was Said An anti-TABOR brochure said the measure “limits school spending growth to the rate of inflation and growth in student population. Experts fear this will make it difficult for schools to keep up and create further impetus for cuts.”16 What Really Happened Revenue for education has continued to increase. TABOR does not shrink government, but only slows its growth. Rocky Mountain News editorial page editor Vincent Carroll wrote: “Who are these experts who cannot do basic arithmetic? Since when does spending growth that accommodates inflation plus enrollment equal ‘cuts’?”17 From 1988-89 to 2002-03, total per pupil spending grew by more than 17 percent.18 After adjusting for inflation, Colorado has had three years of total per-pupil spending decreases since TABOR. These decreases came in 1993, 1994, and 2000. The increases that occurred during other years more than made up for the three decreases. In 2000, Colorado voters approved Amendment 23, which requires state per-pupil spending on K-12 education to be increased at least one percent annually. Over the eight years, between the enactment of TABOR (in 1992) and Amendment 23, per-pupil spending in Colorado increased by 2.7 percent in real dollars.19 So rather than leading to education “cuts,” TABOR had been followed by increased spending on education. B. Bond Rating What Was Said Colorado could see a “long-term deterioration” of its credit rating, claimed Ditmar Kopf, an Assistant Vice President of the bond rating firm Moody’s. He made the prediction based on his analysis of California, where voters had enacted some tax and spending restrictions in the 1970s and 1980s. TABOR specifies suspending the limits if payment of bonds and pensions is necessary. Kopf argued that the suspension provision would not help because the school district’s entire financial picture determines the bond rating.20 What Really Happened Moody’s prediction of “long-term deterioration” was wrong. According to the Colorado Department of the Treasury, since 2003 (earliest year available) the Moody’s rating for Colorado has been MIG 1 for every year. That is the highest rating available from Moody’s. The ratings for the same period for Standard and Poor’s and Fitch Ratings have also been at the highest level, SP-1+ and F1+ respectively.21 Vincent Carroll wrote in 1992, “Moody’s, of course, is the bond-rating firm that is supposed to be above the political fray. But if you believe that, perhaps you also think that American Medical Association has no interest in defending the prosperity of doctors. The largest single contributor to the anti-1 campaign happens to be the Colorado Municipal Bond Dealers.”22 5 C.