Taxpayers Have Their Own Bill of Rights in Colorado. But Who Benefits?
The unique anti-tax tool has defined spending in the state, and it may spread to more states.
The blue tag on the streetlight outside Robert Loevy’s Colorado Springs home in 2010 didn’t signal an upcoming utility project. It was a receipt to show he had paid the $100 to keep his light on for the year. The city was facing a decimating $40 million budget gap and, among many other cuts, it was turning off one-third of its streetlights. That is, unless residents could come up with the money themselves. “I could afford to pay it,” Loevy says today, “but I have to think that would have been a stretch for many lower-income people.”
Loevy, a retired Colorado College professor, says the lights-out incident — which earned Colorado Springs international infamy that year — is just one of the many instances in which Colorado’s Taxpayer Bill of Rights (TABOR) has only benefited those taxpayers who can afford to pay for services out of their own pocket. Loevy has been a vocal critic of the law. As he sees it, “TABOR has had its worst effects on poor people.”
TABOR was approved by Colorado voters 25 years ago next month. The constitutional amendment limits the state’s year-to-year revenue growth to a formula based on inflation plus the growth in population. If revenues exceed TABOR limits, the money has to be rebated to voters, unless they approve an increase in spending.
Halfway across town, the author of TABOR holds a more cynical view of Colorado Springs’ recession-era cuts, which also included shuttering pools, terminating bus service on evenings and weekends and eliminating 550 municipal jobs. The deeply conservative Colorado Springs has its own TABOR that puts even more limitations on the city’s property tax rate. To Douglas Bruce, an anti-tax advocate who spearheaded the bill of rights effort in 1992 at the state level, the cuts were nothing more than a “publicity stunt” designed to fuel resentment against TABOR. “It confirmed my belief,” Bruce says, “that the people running city government are sadistic bastards.”
“No one has had the impact on Colorado politics that Douglas Bruce has had because of TABOR’s effect on state and local finances,” says Loevy. Indeed, in the two-and-a-half decades that TABOR has been on the books, it’s become a lens through which Coloradans see all of state politics. To its defenders, TABOR is a self-fulfilling prophecy: When things go wrong, it reinforces their belief that government spending decisions are better left to the taxpayers. TABOR, they say, is the only thing that has kept Colorado from the spending perils facing other states. To opponents, on the other hand, TABOR is a scapegoat for the many things they’d like to fix in state and local government management, if only they had the funds. TABOR ties policymakers’ hands, they say, and it’s leaving many Coloradans behind.
The reality lies somewhere in the middle. TABOR is the most restrictive tax measure in the country, but it hasn’t caused Colorado to be much of a financial standout — good or bad. When it comes to spending, the state ranks in the middle of the Urban Institute’s per-capita measurements for things like education, housing and transportation. The debt transparency organization Truth in Accounting ranks Colorado 20th in the nation in taxpayer debt burden, while the Tax Foundation ranks it 16th for its business tax climate.
To be sure, the amendment has created some weird policymaking scenarios. For example, it has long stalled counties’ ability to require insurance and a driver’s license to operate all-terrain vehicles on roads. That’s because registering the vehicles would have generated a new revenue stream for the motor vehicle administration, meaning the state would have had to make cuts elsewhere or risk coming up against the revenue cap. (Lawmakers solved the dilemma last year by not requiring vehicle registration tags.)
What seems fairly certain is that TABOR has ensconced itself in Colorado politics and isn’t going anywhere. Numerous efforts to repeal it have failed, and lawmakers have only managed to alter the growth formula once in the past 25 years. Liberals love to hate it and conservatives wear it like a badge of honor, but TABOR has undoubtedly become an intrinsic part of Colorado politics. It’s a product of a unique time in a state that covets its independent, frontier identity. As a former state budget director told Governing nearly two decades ago, “If you don’t understand the benefits of TABOR, you don’t understand Colorado.”
Colorado is certainly not alone in the idea that governments’ taxing power should have some limits. A total of 14 states require a legislative supermajority and voter approval for new taxes. Six states, including Alaska, South Carolina and Texas, require popular votes to exceed a spending limit. And many state governments impose property tax rate caps upon their localities.
Some places have gone further. In 1978, California voters approved one of the nation’s most restrictive property tax policies, which not only caps the rate, but also sets property values at their 1975 value. Those values can only be reassessed upon a sale or remodel of the home. The constitutional amendment also required a two-thirds majority in both legislative houses for any future tax hikes. Similarly, Colorado in 1982 passed the Gallagher Amendment limiting residential property tax rates. In Michigan, voters in 1978 passed the Headlee Amendment, which ties the state’s revenue to just under 10 percent of personal income, requires voter approval for local tax increases and bars the state from imposing unfunded mandates upon its localities. Missouri voters in 1980 passed the Hancock Amendment, which caps the amount of personal income used to fund state government and imposes restrictions on the amount by which fees and taxes can be increased.
Among those states affected by the anti-tax libertarianism that swept through much of the United States in the 1980s and early 1990s, Colorado went further than any other by placing restrictions on state and local revenue and spending. It was the right bill at the right time: In 1992, the fiscal-reform third-party candidate Ross Perot was on the presidential ballot. Perot did particularly well in Colorado, winning over 23 percent of the vote there. It was also the third time Bruce had been able to get TABOR on the ballot, each election result closer than the previous one. Looking back, many people said they should have taken the effort more seriously. “We didn’t know what we were getting into,” says Sam Mamet, executive director of the Colorado Municipal League.
Over the years, TABOR measures have also made it to the ballot once in Florida, Nebraska, Oregon, Washington and twice in Maine. But none has passed. Critics note that while most of these measures were citizen initiatives, they had the taint of “imported policy” because they were heavily driven by highly influential and deep-pocketed groups like Americans for Prosperity, the conservative Koch brothers’ political foundation. Three of the six measures were on the ballot after the 2008 recession led to major service cuts, which the Center on Budget and Policy Priorities’ Robb Gray says likely dampened voters’ tastes for placing checks on government spending. “Voters had seen their school funding cut, community mental health cut, transportation cut,” Gray says. “And TABOR would probably lead to more of that.”
Still, such efforts aren’t fading away. If anything, says Gray, they have ramped up in recent years as small-government proponents like the Tea Party have gained in power and influence. Two states — Florida and North Carolina — are likely to see a TABOR measure on the ballot next year. But if history is any indication, it would seem that Colorado has been a lesson for voters elsewhere about strictly limiting the choices their elected officials can make. “It’s slightly ironic,” says William Glasgall, director of the Volcker Alliance’s State and Local Program. “This is an honest libertarian movement that sprang up, but it doesn’t necessarily let the people decide because it replaces the decision-making process with a rigid formula. Is that democratic?”
There are other ironies that can occur under TABOR. The amendment was born from a distrust of government. But its strictures have in some cases led lawmakers to engage in unorthodox methods of budgeting.
For the past several years, for example, the legislature has been in turmoil over what to do about the state’s hospital provider fee. Money from that fee is matched by the federal government to, among other things, expand Medicaid. When the fee was introduced in 2009, it was the middle of the recession and there was little worry that the new revenue would push the state up against its limit. But after the economy recovered, that threat became real. In 2016, the fees netted Colorado more than $700 million in revenue. The state was going to have to make cuts elsewhere — even as it was facing serious demands for more education and transportation funding — to stay under the cap.
The conundrum led to the passage this year of Senate Bill 267, a mammoth bill tailored to address a multitude of interests. The meat of the legislation turns the hospital provider fee into an enterprise fund, thus exempting that money from the TABOR revenue cap. It also makes provisions for a $1.8 billion bond issue for improving state highways and calls for some state agencies to make budget cuts to open up more money for education and transportation investment. And as a subtle way to free up even more space, the bill requires that any future TABOR rebates to taxpayers will first come from the money given back under the state-administered senior homestead exemption and disabled veterans property tax exemption — rebate programs that are already in existence. All told, SB 267 averted a potential $528 million cut in payments to hospitals while putting the state back under the revenue cap with several years of room to grow. TABOR supporters railed against it as an illegal workaround of the state’s spending and revenue limits.
SB 267 is a prime example of how TABOR puts lawmakers in a straitjacket, says state Rep. Dan Thurlow, a Republican. “As we sit there and wrestle with the budget contradictions, it almost drives us into the trap of doing things that voters perceive are underhanded and trying to trick them,” he says. “It is sneaky. But that’s the hole we’ve got ourselves in.”
Such budget sneakiness hasn’t been as much of an issue at the local level. That’s likely because– unlike statewide ballot questions — tax hikes at the local level have been far more successful. Over the past 25 years, proposed tax increases have had a 60 percent success rate, according to data collected by the Colorado Municipal League. Seven out of 10 times, voters have approved a local debt issuance. And a whopping 86 percent of the time, voters have opted to forgo a tax rebate and let their governments keep excess revenue. Colorado government has always been decentralized — it’s one of just four states where total local spending is higher than the state’s spending. “It has historically been that governments are very close to the people, and taxing and spending is done more at the local level,” says Penn Pfiffner, chairman of the TABOR Foundation.
Still, the fend-for-yourself nature of TABOR, critics say, has left poor people behind and created a patchwork of governments tailored to the tastes of only those who can afford to pay for the services they want. “We’ve lost any notion that we’re in this thing together,” says Carol Hedges, executive director of the Colorado Fiscal Institute. She points to the inequities in local school district funding and how wealthier districts have approved higher property taxes to supplement state dollars. Case in point: Just east of Boulder, Boulder Valley School District voters have approved an additional $2,236 in per-student funding, according to her data. In Greeley, which hosts three times the number of students on a free or reduced lunch, no additional funding has been approved.
But it’s hard to place sole blame on TABOR for a financing system that’s primarily based on property values. School finance inequities are rampant across the country, thanks to the fact that wealthier areas generate much more tax revenue for governments to spend on schools than do poor areas. Mamet of the Colorado Municipal League says that TABOR has certainly exacerbated the inequities in Colorado, but he notes that inequality in school finance “is an age-old one that’s been around since the state was admitted to the Union.”
On a positive note, Pfiffner argues that all this taxpayer permission-seeking has forced state and local governments into better spending transparency. “If you give a legislator money, they spend it,” he says. Giving citizens the power to check their lawmakers’ spending, he adds, “forces governments to be very clear about how they are going to use their money.”
That power has become somewhat of a third rail in Colorado politics over the past 25 years. Multiple state leaders, including the current governor, have called TABOR untouchable. Few efforts to change it — much less repeal it — have gotten off the ground. It has been altered just once, by a 2005 referendum that gave the state a five-year reprieve from TABOR’s revenue limits. The approval saved the state from rebating more than $5 billion over that time. The referendum also changed TABOR’s formula so that the new revenue cap was measured from the previous year’s spending limit, rather than the previous year’s revenue collections. The change was designed to help governments more quickly restore service cuts after recessions.
Nonetheless, many believe that more should be done to modernize TABOR for today’s economy. Rep. Thurlow calls the current formula “bogus” and, along with Republican state Sen. Larry Crowder, sponsored legislation this year to tie TABOR’s formula to personal income growth rather than inflation. Their case that Colorado is not fully capturing its economic growth is convincing. Since 1992, the state’s general fund revenue has gone from collecting 4.9 percent of personal income to 3.9 percent. Colorado also ranks 41st in the Tax Foundation’s revenue-per-capita measurement. The Volcker Alliance’s Glasgall agrees that the formula is “unrealistic,” noting that tying the government’s spending to a consumer price index is misleading because governments don’t spend their money on the same things consumers do. But after passing the House, Thurlow and Crowder’s bill languished in a Senate committee.
With the passage of SB 267, however, the pressure is off for the moment. Thurlow says he is undecided about whether he will attempt a TABOR formula change next year or wait until things become more urgent. That might be because, after the dust settles, Colorado’s problems look a lot like those of other states. Mandated spending on things like Medicaid and prisons is crowding out other areas of the budget. At the local level, extreme variance in property tax collection has exacerbated inequities and contributed to the rural-urban divide.
There’s no debate that TABOR has been challenging. Yet policymakers have still found ways to create growth. Since 1992, the state’s general revenue has doubled, when taking inflation into account. Local revenue has increased by 84 percent. That’s almost identical to neighboring Utah, which has no law like TABOR. In both states, population has increased by more than half while economic growth has also far outpaced the national average.
To be sure, TABOR is a tool that continues to keep government spending in check. But, given Colorado’s political history and bi-partisan legislature, it’s hard to say whether the 1992 amendment should get all the credit. And after 25 years, even TABOR’s critics are resigned to the idea that it’s here to stay. “You’ve got to be a realist,” says Mamet. “How many times can you bang your head against the wall?”
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