Jan 192010
Authors: Aaron Hedge

One rabbit. Two rabbit. Three rabbit. Colorado’s bailouts keep coming from some magic hat. But as the state delves deeper into a bank of short-term fixes, will a fourth rabbit save the day?

No one really knows. But one thing is certain: There is no magic solution to Colorado’s funding woes. Especially for those paying for a college education.

It’s the big story everywhere­ –– the worst financial downturn since the Great Depression. It’s threatening jobs and businesses nationally and throwing states into their own fiscal frenzy.

But for well-educated Colorado, where a perfect storm has been brewing for decades, this latest recession could be the nail in higher education’s coffin.

Less than a week after the Colorado legislative session began, talk is rampant at the Capitol about how the state’s reported $2 billion shortfall will be addressed, and many say higher education is first in line to be cut.

As state money dwindles, students and their families are picking up more of the tab; some worry they may pick up all of it soon.

In the last decade alone, tuition at CSU has more than doubled from $2,408 to $4,822. Fees and book costs have skyrocketed.

But the story behind this situation is confusing and largely untold.

Nearly three decades ago, the winding road began when the state implemented a narrow piece of legislation that limits lawmakers’ ability to increase property taxes ­–– the bread and butter for most states, especially in tough financial times.

From there, implementation of a large number of seemingly harmless but effectively conflicting voter initiatives created a state constitution that, for the last decade, has depended on unexpected financial bailouts for many state programs, including higher education.

The first bailout came at the beginning of the new millennium after an economic recession threatened to cripple the state’s colleges and universities, not to mention its transportation, health care and corrections systems.

Then-Gov. Bill Owens, a Republican, was forced to pull cash from one-time state funds to bridge the gap.

“There was a rabbit in the hat,” said John Straayer, a 43-year political science professor who specializes in state and local government. “They found it.”

Straayer said the initial bailout, coupled with a 2005 relaxation of state revenue caps and a recent influx of federal stimulus dollars, fostered a philosophy among Colorado voters that keeps them assuming the magic hat is bottomless and the rabbits are endless.

But according to interviews with state lawmakers and university officials, that might not be the case.

Don Marostica, who was appointed the top financial officer in the state last year by Gov. Bill Ritter, a Democrat, said after the stimulus money runs out in 2011, it’s unclear how long public higher education in Colorado will last.
Here’s how the state reached this point.

Winding toward the funding cliff

In the years leading up to 1982, states across the nation were implementing rules that restricted lawmakers’ ability to collect property taxes as the housing market boomed.

A number of conservative lawmakers in Colorado were feeling pressure from homeowners to do something about a sharp incline in property taxes as housing values increased along with a burgeoning economy.
The Gallagher Amendment was their fix.

It restricted the amount lawmakers could increase property taxes every year, while ensuring that the proportion of revenue coming from homeowners stayed significantly lower than that shouldered by the private business sector.
The result was that homeowners experienced a much lower tax burden than they would have otherwise.

“It worked. It worked very well,” said Wade Buchanan, the president of the Bell Policy Center, a non-profit organization that conducts research on Colorado policy, and one of the lawmakers who drafted the Gallagher Amendment.

Move forward nearly a decade to 1991, where lawmakers pass a statute called Arveschoug-Bird (R-ves-scow-bird). The statute restricted the amount lawmakers could increase spending authority to state programs to 6 percent every year.

One year later, looking to slow the increase in taxes across the board in the state, a prominent conservative El Paso County resident named Douglas Bruce drafted an overarching measure that would place an umbrella cap on all state taxes.

The Taxpayer’s Bill of Rights, or TABOR, requires legislators to gain voter approval for tax increases, while mandating that revenue hikes cannot exceed the increase in population plus inflation. It was another measure Buchanan said was hugely successful.

Since then, Colorado’s broad voting community –– a 2.5 million-person populace –– has had sole decision-making power over tax increases.

Over the rest of the decade, those three policies meshed perfectly with the robust economic growth of the period, resulting in an unusually high level of financial health.

Between 1997 and 2001, the TABOR law ramped up, mandating tax refunds that, during that time, totaled $3.2 billion.
But local property tax revenues, by edict of the Gallagher Amendment and TABOR, began to fall short at the turn of the millennium, depriving the K-12 education system of the necessary backing to support itself.

So in 2000, voters decided to mandate, through an initiative called Amendment 23, that funding should increase for K-12 education by at least the rate of inflation plus 1 percent for the following 10 years and at least by inflation after that.

Little did voters know, however, that just around the bend lay the devastating effects of the 9/11 terrorist attacks, which, exacerbating what was already one of the most difficult times the United States has ever experienced, laid the track for a major economic downturn across the nation and in Colorado.

State mandate to balance budget

The obvious and only solution: Slash general fund allocations for state programs that are not mandated to grow –– including higher education.

“When revenues are limited … what are you gonna do?” Straayer asked. “Well, there are two areas that aren’t protected: Transportation’s not protected. Higher ed is not protected.”

Consequently, community colleges and other small institutions began sweating over possibly crippling budget cuts. Many doubted survival.

Lawmakers were forced to backfill college and university operating budgets from one-time state reserves, depleting them.

That was the first rabbit, and things slowly started to right themselves.

But it was merely a butterfly bandage on a gaping wound.

By fiscal year 2005, Colorado’s higher education budget was 21 percent smaller than it was in 2002, even though enrollment continued to increase, according to a 2009 Bell Policy Center report.

At CSU, freshman enrollment had grown by record numbers for two years under the direction of former university President Larry Penley.

But because of TABOR’s ratchet effect –– conservative fiscal policies compounded and tied legislator’s ability to bolster revenues –– Colorado was quickly falling far behind most other states in terms of funding for its colleges and universities.

So a number of voters and influential community members, including Joe Blake, who was inaugurated last semester as CSU’s sole chancellor, began rallying across the state for a measure that would quell the problem, at least temporarily.

Referendum C, which barely squeaked through the electorate at 52 percent to 48 percent in 2005, temporarily lifted TABOR’s lid, allowing the state appropriations committee to approve bigger budgets and spending authority for Colorado’s starving public programs.

That was the second rabbit, but it wasn’t enough either.

“Well, we weren’t OK,” Straayer said. “That was a time-out deal (from TABOR).”

And now, as the economy is in shambles, despite headlines and anecdotes in the nation’s largest newspapers suggesting that it is improving, federal bailout dollars are flowing into Colorado, intended, in part, to liquidate the higher education system.

That’s the third rabbit.

“So, this didn’t happen overnight,” Straayer said. “This happened incrementally, and hence, your tuition goes up and up and up.”

Where do we go now?

Voting trends seem to indicate that Colorado expects another rabbit.

But more than a dozen lawmakers and policy experts interviewed for this report say the temporary fixes, which they call “Band-Aids,” are just that: Temporary.

And the solution most likely to work –– a comprehensive rewrite of the Colorado Constitution –– is not likely to happen as voter support for such a complicated move is thin, the experts say.

If something isn’t done very soon, however, colleges and universities will start to die off.

“We’re a lot closer to that than a lot of people acknowledge,” Buchanan said.
Projects Editor Aaron Hedge can be reached at tips@collegian.com._

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