Important questions about TABOR and their answers, part one

James Redmond

Colorado’s unique tax law — the Taxpayer’s Bill of Rights, or TABOR — will likely become a point of conversation and contention during much of 2016 in both the legislative session and at the ballot box.

Gov. John Hickenlooper’s budget request attributed some of the need for millions of dollars in cuts to the constitutional amendment that is seen by some as too restrictive a way to govern Colorado’s spending.

Movement is already afoot to make change. As an example, a nonpartisan group of state leaders called Building a Better Colorado has been traveling Colorado this year to find consensus on a possible ballot initiative in November to change parts of TABOR.

In addition, state Democrat lawmakers have said they plan to bring back last year’s failed hospital provider fee bill, a potential work-around TABOR to create wiggle room in the state’s budget. The hospital provider fee, which is assessed on hospitals to help pay for indigent health care, has raised so much money that it has bolstered state budgets past TABOR limits, requiring the state to issue taxpayer refunds.

Those ideas come after years of local governments and taxing districts asking voters to exempt their budgets from TABOR limits — or de-Brucing — to function more effectively for growing populations.

With the state’s legislative session about to start, here is the first of two articles — researched with politicians and experts on both sides of the political spectrum — offering some important questions about TABOR and their answers:

What is TABOR?

Authored by tax crusader Douglas Bruce and put into place by voters in 1992, the contentious constitutional amendment is known mostly for requiring all new taxes — and increases in taxes — to be approved by a vote of the people. Other states allow lawmakers to change tax rates or even enact new taxes, to a point, without a vote of the people. TABOR prevents Colorado lawmakers from doing so.

Perhaps less known, TABOR also limits how much money the state can collect through taxes and fees. The limit is based on an equation using inflation plus population growth.

If the state collects too much money, it has to return it to taxpayers. That refund comes from the state’s general fund, regardless of what caused revenues to break the limit. An increase in fees collected from any service, such as car registrations, could cause a refund and take money away from services such as public education.

It also limits types of taxation — Colorado can’t have a graduated tax for example — and sets certain requirements for elections such as the wording of tax-related ballot questions.

Some say the constitutional amendment gives necessary control to residents and keeps rampant spending in check. Others say it hurts lawmakers’ ability to budget effectively and hurts public services such as education, healthcare, corrections, infrastructure and more.

Why does TABOR mean so much to this year’s budget?

Hickenlooper’s budget request for next year attributes cuts to education, health care and infrastructure to TABOR’s revenue restrictions, growing costs in areas like education and healthcare and refunds required by the tax law.

In short, TABOR adds all kids of complications to the state Legislature’s budgeting process.

From one point of view, TABOR ties the hands on legislators at the edge of a budget shortfall. The state can barely handle increasing Medicaid and education costs, said Chris Stiffler, Colorado Fiscal Institute economist.

TABOR’s revenue limit formula fails to take all relevant factors — such as productivity — into account, he said. So despite Colorado’s booming economy, which is built largely on increased productivity, the state is faced with making cuts.

For others, that’s just TABOR working as it should.

The revenue limit increases each year, just not as much as some people want, said Sen. John Cooke, R-Greeley.

“We don’t have a revenue problem. We have a spending problem,” he said.

What’s the deal with enterprise funds, like the proposed hospital provider fee change?

The hospital provider fee accounts for a large portion of all state fees — about a fourth — and counts toward the state’s revenue limits.

By shifting the provider fee to an enterprise fund, the state could exempt that money from the TABOR revenue limits.

If a bill passes and moves the fee to an enterprise fund, it would give state lawmakers more room under the limit, meaning more money for the state budget, said Rep. Dave Young, D-Greeley, a member of the state’s Joint Budget Committee.

Last year, a bill to make the change was killed by Republican legislators.

What has to go to voters because of TABOR?

Basically all increases or changes in taxes, or increases in debt, have to go before voters because of TABOR.

All voting residents in a taxing district — which include local governments such as towns and counties, and special districts such as libraries and schools — get to vote on their taxes.

When city officials want to raise or create taxes to work on roads, residents have to approve it. When school districts want money to build a new school, residents have to vote to approve it.

TABOR gives voters control over their taxes and adds an extra level of democratic review to government action, said Rob Natelson, senior fellow in constitutional jurisprudence at the Independence Institute in Denver.

Part II of this series will discuss the pros, cons and TABOR’s similarities with tax codes in other states.

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