Oct 202005
Authors: Drew Haugen

Despite the poor condition of Colorado's economy, several other economically conservative states are watching this year's election to see whether the Taxpayer Bill of Rights (TABOR) is something worth imitating.

However, some experts have argued the strict TABOR spending limits need to be eased to allow greater fiscal flexibility coming out of recession periods. TABOR's biggest fault lies in its "ratchet effect," which caps state spending equal to the tax revenues of the previous year, plus additions for inflation and population growth, said political science Professor John Straayer.

"It's like getting your paycheck, and instead of going home and paying your bills you default on your bills and give your boss some money back," Straayer said.

Colorado is the only state to have an economic policy that sets spending limits for the state government in this fashion.

California, Wisconsin, Kansas and Ohio all have interest groups that hope to propose tax management and spending policies similar to the Colorado Taxpayers' Bill of Rights to their respective legislatures, Straayer said. But TABOR-like policies to be proposed in other states lack the "ratchet effect" that has mired Coloradan policymakers in budgetary turmoil.

If Colorado adopts the Colorado Economic Recovery Plan on Nov. 1 by voting "yes" on Referendums C and D, it may solidify the platforms for groups pushing similar spending limit reforms in other states.

Advocates of C and D have taken issue with TABOR's inflexibility. When Colorado's tax revenues drop to unusually low levels, such as during a recession, TABOR holds the state's spending limit at that lower level.

When the recession abates and additional tax revenue is generated above the TABOR-mandated spending limit, the overflow is refunded to taxpayers through refunds and rebates. Meanwhile, the government is still restricted to recession-time spending.

Many states made cuts in spending to accommodate lower state tax revenue levels. But after the recession subsided and tax revenues began to increase, most other states were able to bump up funding again, restoring programs they had cut during the recession.

TABOR prevents Colorado from doing so.

The "ratchet effect" has forced Colorado policymakers to cut state-funded programs. Higher education funding has become a highly vulnerable target for budget cuts, Straayer said – in the last two years Colorado has slashed funding for higher education by 14 percent, the highest drop in the nation.

The justice, library, transportation, mental and physical health, and agricultural facets of the state budget have faced cuts to a similar extent.

The general public is "schizophrenic" to the issues of the state budget crises, Straayer said.

To speak in generalizations of the Colorado political culture, everyone likes tax rebates, wants low tax rates, and dislikes state tax increases. But at the same time, no one wants to see state programs cut, Straayer said.

Governor Bill Owens in his Letter to Coloradans dated March 21, 2005, states: "I believe most Coloradans will object if we do nothing and, in the coming years, the state cuts $200 million in higher education, transportation, health care and other programs while, at the same time, provides taxpayer refunds under TABOR. Most Coloradans would, I believe, be willing to forego refunds to meet these important needs."

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