Question: When is a legislative expenditure not a TABOR expenditure? Read on…
Supporters of the Taxpayer Bill of Rights (TABOR) amendment would like Colorado taxpayers to believe it provides a simple braking mechanism on increases in state and local spending. And, for a few years in the mid-‘90s it probably did just that — slow the rate of growth in these governmental budgets. But it didn’t take long for the finaglers (think lobbyists, tax lawyers, JBC members, OSPB staff and the half dozen other legislators who actually understand how the long bill works) to begin constructing TABOR escape hatches for their favored initiatives. At first, these fixes were large and clumsy, like the re-labeling of legislative support for higher education as the Colorado Opportunity Fund.
Colorado residents attending state colleges and universities ostensibly receive a pro-rated share of state appropriations to the Fund in the form of grants that can be applied against their tuition bills. This is a fairly transparent subterfuge, as these dollars never actually pass through a student’s account, but are transferred in bulk to each institution by the state Treasurer. Yet, for TABOR accounting purposes these are no longer general fund moneys. This has allowed several of our larger institutions to qualify as “TABOR enterprises,” since less than 15 percent of their revenues are derived directly from the general fund. Everywhere you look, definitions have been twisted to create TABOR free dollars.
I recently stumbled across a clever scheme that has operated for nearly a decade to help fund the high-risk, health care pool for Coloradans with pre-existing medical conditions. Cover Colorado has served as the insuror of last resort for these otherwise uninsurable individuals. Their coverage has been expensive, and consequently out of reach for many, but it has been a lifeline for those who can afford it. No one could earn a profit serving this market, which is why the private sector hasn’t bothered. The risk pool must be subsidized, not an easy trick since Cover Colorado was denied access to general fund appropriations. Enter the fiscal magicians.
It is important to understand why tax credits and exemptions are referred to as tax expenditures. Without loopholes, taxpayers (both individual and corporate) would otherwise pay higher taxes dumping additional moneys into the general fund. Business and special interest lobbyists have understood this relationship for decades. Find a plausible rationalization and then you can begin campaigning for special treatment. Why is bull semen exempt from the Colorado sales tax? Well, semen leads to little bulls (and a few heifers), which are all eventually slaughtered for food — and, since groceries are exempt from sales tax, why not the semen that kick-started the hamburgers? Experiment with it. I’m sure you can get the hang of it.
Republicans are usually partial to tax credits for drilling, inventory, wholesale purchases, capital investment and a few hundred other specialty applications. Democrats lean towards conservation, sustainability, charity, environmental clean-up, non-profits, public health and another couple hundred of their own bright ideas. Once these credits are in place, TABOR zealots like to claim that the repeal of even one of these special pleadings would constitute an improper hike in taxes without voter approval. You don’t have to be a philosopher to poke a hole in this argument. Canceling a government program and canceling a tax credit are each a reduction in expenditures. Taxes remain the same.
Back to Cover Colorado and the Health Benefits Exchange, which will soon inherit these high-risk clients now that ObamaCare has prohibited their exclusion from health coverage because of pre-existing medical conditions. Cover Colorado was allowed to impose a monthly fee (not recognized as a TABOR tax), adjusted annually, on every health care policy issued in the state to help build its financial reserves. Since this wasn’t enough to keep their plan solvent, insurors were also allowed to make contributions directly to Cover Colorado, who, in turn, could claim these payments as a credit directly against their Colorado premium taxes. Since these dollars technically never reached the general fund, the Legislature can pretend it isn’t improperly appropriating moneys to support Cover Colorado or the Exchange. Got it? Do you see how this works?
HB 1245 will transfer these identical funding mechanisms to the newly created Colorado Health Benefits Exchange — a necessity, as state exchanges must be self-supporting by 2014 when their federal funds are cut off. I have no objection to this. In fact, it’s almost certainly a good idea. Still, when I asked a former OSPB staff member how many of these TABOR “end arounds” have been devised since 1992, and I was informed, “…certainly dozens, maybe more,” I found myself shuddering. Each TABOR ‘fix’ makes for another distortion of rational budget policy. These ‘carve outs’ delay the day when we must collectively decide whether we wish to live in a state that competes with Mississippi and Arkansas for last place in its funding of basic services — roads, schools and higher education?
Miller Hudson is a public policy consultant. He served two terms in the Colorado Legislature (1979-1983) from Denver, and most recently was director of the Colorado Association of Public Employees.