DID YOU KNOW?
Colorado’s TABOR Amendment is the most restrictive government spending limitation of any state in the nation. While it has helped Coloradans sustain a lower tax burden than most other states, it has caused our state budget to shrink relative to the size of our growing economy and thus forced a relative reduction in funding for many program areas, including cutting funding for college tuition support by half since 2000.
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WHAT IS TABOR?
“TABOR” (an acronym for the “Taxpayer Bill Of Rights”) is an amendment to Article X of Colorado’s state constitution which Colorado voters adopted in 1992. With controls on the amount of revenue that can be collected and spent, as well as on how and which taxes can be raised, TABOR is the most restrictive spending limitation of any state in the nation and affects Colorado’s fiscal policy and processes in several ways, most notably:
1) TABOR requires a vote of the people within a state or local government taxing district to approve any increase in taxes for that district.
2) TABOR limits the ability of a state or local government taxing district’s revenue to grow over time. All surplus tax revenue which the taxing district might collect beyond the established revenue limit must be returned to the taxpayers of the district in the following fiscal year (unless voters approve of the district keeping and spending it).
Colorado Fiscal Policy Interactive Series: The TABOR Amendment
Click here to learn more about TABOR and tell us how YOU would address some or the challenges that our state budget faces in relation to this amendment with our new interactive video presentation series.
Also In Our Interactive Fiscal Policy Series:
(For policy Nerds) What is the difference between a TAX DISTRICT and TAX AUTHORITY?
A “tax DISTRICT” is a defined geographic AREA which maintains the same tax rate as approved by the voters who live in that geographic area. The “tax district” could be the state, a city, a county, or some other geographic area which has a defined boundary. A “tax AUTHORITY” is a legal ENTITY which governments create for the purpose of providing a specific service to the public within a taxing district (or multiple districts). The “tax authority” could be the State of Colorado, a City, a County, or some other Special District (such as public schools, fire district, a library, or a recreational district).
Tax authorities are created by the government which has jurisdictional authority over the geographic area in which the authority will operate. For example, the County Commissioners are responsible for approving the creation of any tax authorities which will serve the citizens within the boundary of the county and beyond the boundary of any single city within the county. A tax authority can be created to exist within an entire single tax district, or cover the entirety of multiple tax districts, but it cannot cover only a portion of a tax district. Once a tax authority is created, the voters within that tax district are authorized to approve how much tax the authority may collect from them.
(NOTE: Many “special district” taxing authorities have the word “District” in their name (i.e. “Montrose Fire Protection District”) which adds a little confusion to the difference between a geographic taxing “district” and a legal taxing “authority”.)
What does TABOR do?
Click the points below for expanded explanation and data.
1) TABOR prohibits tax increases without voter approval.
2) TABOR limits the growth of state and local tax revenues.
TABOR limits the ability of a state or local government taxing district’s revenue to grow over time, and all “surplus” tax revenue which the taxing district might collect beyond the established revenue limit must be refunded to the taxpayers of the district. Although TABOR’s revenue growth limit is referred to as a “spending limit” in the constitution, it is, in actuality, a limit on the amount of REVENUE that state and local governments can collect because that revenue is subject to the limit regardless of whether it is spent or saved.
TABOR defines the following different parameters for establishing the limit on the growth of revenue for “state government”, “local governments”, and local “school districts”.
3) TABOR limits taxation options
4) TABOR defines requirements and restrictions concerning tax elections
5) TABOR limits the ability of governments to save money in reserve.
How has TABOR impacted Colorado?
TABOR has had a number of significant impacts on local and state government budgets, and while much of this impact is a result of the intended effect of TABOR, some of those impacts have been unintended consequences resulting from the interaction of TABOR with other fiscal restrictions which Colorado voters have also placed into our constitution over the years.
1) TABOR has helped keep taxes low.
Colorado’s overall tax burden is lower than most other states.
Compared to OTHER states, Colorado’s STATE expenditures (as a percent of the state’s Gross Domestic Product) is lower while our LOCAL expenditures are about average. In the following three charts, a proportion of 10.0 percent would signify that the state government spends a dime for each dollar produced in the state economy. (NOTE: “State Government Expenditures” includes “Federal” pass-thru funds not collected by the state and “Cash” fees paid to fund specific programs such as college tuition.)
TABOR has contributed to a reduction in state tax rates.
While it’s unknown if the State would have RAISED taxes in the absence of TABOR, it’s likely that the State WOULDN’T have LOWERED taxes as it has done three times since the adoption of TABOR. During the late 1990’s, when the internet economy was developing and state revenues were growing beyond TABOR’s revenue limit, Colorado’s state legislature approved reductions in both the State Income Tax and State Sales Tax.
The legislature approved two reductions in the State Income Tax: from 5.0% to 4.75% in 1999, and to 4.63% in 2000. The State Income Tax represents 2/3rds of the revenue to the “General Fund” (the state’s discretionary “checkbook”) and these two reductions in the State Income Tax rate contributed to reduced state collections/revenues thereafter, including an anticipated reduction of over $600 million in FY2017-18. Additionally, in 2000, the legislature reduced the State Sales Tax (which represents about 1/4th of the revenue to the General Fund) from 3.0% to 2.9%. Because TABOR requires an affirmative vote of the people to raise taxes, the State’s Income Tax and Sales Tax have stayed at their reduced rates of 4.63% and 2.9%, respectively.
2) TABOR has shrunk the state’s operating budget as a percent of our economy.
3) TABOR doesn’t allow state spending on programs to keep up with the growth in the cost of those programs.
A. TABOR’s “Population” constraint on revenue doesn’t keep up with the costs associated with our population.
The segments of the population requiring the most state services, such as senior citizens and children, often expand more rapidly than the population overall; therefore, as population grows, the state’s cost per person also grows, but TABOR doesn’t allow revenue to grow accordingly. For example, the fastest growing segment of Colorado’s population (as a percent of total population) is our “over 65” citizens.
In prior years, Colorado has enjoyed a relatively young population compared with other states. In 2010, Colorado had the 4th lowest share of seniors (age 65+) as a percent of our total population (only 11%). Our relatively youthful population has meant that we’ve previously had a larger share of our population in the workforce, which means our state has enjoyed a relatively larger tax revenue and a relatively lower cost for senior health care. This is changing as our previously large share of youthful “Baby Boomers” who flocked to Colorado in the 1970’s to ski (and never left) are now aging into seniors.
- Between 2010-16, Colorado’s population of seniors (age 65+) grew by 34%, which was the 3rd fastest rate of growth in the US.
- Over the next 30 years, the percent of Colorado’s population which is age 65+ is expected to double from 10% to 20% — at which point 1 in 5 Coloradans will be seniors who will contribute relatively little tax revenue and consume relatively large health care costs for our state.
“Colorado’s senior population is not only the FASTEST GROWING segment of our population, it’s also the MOST EXPENSIVE in terms of government services because of the cost of long-term health care. Although seniors only make up 6% of the state’s Medicaid population, they consume 20% of the total cost of the Medicaid program.
Medicaid (which is a health insurance program for low-income and needy people) is often confused with Medicare (which is a separate federal program that provides health coverage if you are 65 or older or have a severe disability, no matter your income). Because Medicare does NOT cover long-term care costs, and because Medicaid is paid for (in part) by the State, the cost of long-term care for Colorado’s increasingly aging population has a growing impact on the state budget.”
B. TABOR’s “Inflation” constraint doesn’t keep up the with cost of government services.
The inflation measure that TABOR uses — the Denver-Aurora-Lakewood Consumer Price Index (CPI) — measures changes in the cost of goods and services that INDIVIDUAL consumers buy, like housing, clothing, and food, rather than the cost of public services that state GOVERNMENT pays for, like construction costs, education and health care for our aging population. The cost of providing public services grows much faster than the general rate of inflation for consumer goods, in part because labor-intensive public services are less likely to reap the efficiency and productivity gains achieved by other sectors of the economy. For example, teachers can only teach so many students, and nurses can only care for so many patients.
In short, because TABOR’s “Population + Inflation” revenue limit doesn’t allow Colorado’s state budget (the General Fund) to keep pace with the normal growth in the cost of maintaining the public services that Coloradans demand of their state government, and because our state’s economy grows faster than inflation (because our economy grows at the speed of inflation PLUS other factors like increases in productivity), TABOR forces our state budget to therefore shrink relative to the size of our economy.
4) TABOR has forced cuts in primary service areas of our state budget.
Because TABOR doesn’t allow the overall state budget to grow any faster than “Population + Inflation”, and the cost of the state’s four largest departments (K-12 Education, Health, Human Services and Corrections) grows faster than inflation, the amount which the state has had to dedicate to fund these four programs since the passage of TABOR in 1992 has grown from about 70% of the total state General Fund budget to over 80%. In turn, the remainder of the state’s budget available to pay for all other programs has shrunk from about 30% to less than 20%.
It’s important to note that funding is only ONE component of achieving successful outcomes in any program area; other factors such as establishing measurable program performance metrics and linking additional investments to demonstrated improvements in performance, and ensuring an efficient division of resources between program investments and accompanying administrative costs, are also essential components of achieving successful outcomes in any program area.
In short, more funding alone in any program area does not guarantee better program outcomes; funding is only effective to the extent that it is strategically invested and efficiently utilized.
How do the State Budget Cuts Impact You?
The fiscal constraints which we’ve embedded into our constitution since the 1980’s, including TABOR, have forced reductions in funding for several important state service areas that affect our everyday lives.
Budget Challenges for HIGHER EDUCATION
The state’s reduction in support for Higher Education – from 15% of the state’s General Fund budget in 1992 when TABOR was adopted to only 8% today — has resulted in shifting the funding burden for Higher Education from the State to students.
●Average state funding for Colorado resident students has been cut by almost HALF since FY 2000-01. (adjusted for inflation)
● In FY 2000-01, the state covered 68 percent of the cost of college, while students and families picked up 32 percent. Today, those numbers have reversed with students and families covering two-thirds of the costs and the state paying for one third.
Budget Challenges for K-12 EDUCATION
In 2009, in the wake of “The Great Recession” and faced with significant budget shortfalls, the Colorado legislature made the difficult decision to cut about $1 billion/year from the state’s annual budget for K-12 education by reinterpreting the “Amendment 23” constitutional K-12 funding mandate (adopted in 2000) to ONLY apply the mandated funding increase to the “base” per-pupil funding requirement and NOT the additional “disparity factors” which allocate additional funding to address inequities between student populations .
This reinterpretation has withstood a Supreme Court challenge and has contributed to Colorado’s declining performance in the following national K-12 rankings:
- Colorado invests $2800 less per pupil than the national average and now ranks 42nd in per pupil spending. (Source: Education Week)
- Colorado ranks 50th in teacher wage competitiveness—compares teachers to non-teachers with similar education, experience and hours worked. (Source: Rutgers Education Law Center)
- 58% of Colorado districts (104 out of 178 school districts) are on or have some schools on 4-day school weeks, primarily forced due to budget reductions. This has more than doubled since 2000.
- Colorado’s graduation rate lags the national average in EVERY student sub group.
Budget Challenges for TRANSPORTATION INFRASTRUCTURE
Because of the constraints on our state budget, the state has not been able to keep up with much-needed investments in our statewide transportation infrastructure.
- Since 1991, Colorado’s population has grown by 64%, and Vehicle Miles Traveled has increased 82%, while the amount that CDOT spends per person has declined from $125 to $69 (adjusted for inflation) and the total lane miles on our highways to transport that growing population has only gone up by 2%.
- 41% of Colorado’s major urban roads are in poor condition. 43% are in mediocre or fair condition and the remaining 15% are in good condition.
- The largest source of funding for Colorado’s transportation system is the “gas tax” which has not been adjusted for inflation since 1991. Every $1 generated from the gas tax in 1991 is only worth 56-cents today. As a result, CDOT estimates that Colorado’s roads and highways face a $9 billion revenue shortfall over the next decade.
- 6% of Colorado’s locally and state-maintained bridges are structurally deficient.
5) TABOR has a “ratchet-down” effect on local property tax revenues by interacting with the “Gallagher Amendment” which we’ve also placed in our constitution.
TABOR’s constraints on our state’s ability to invest in public services is compounded by the way that it interacts with the “Gallagher Amendment” which Colorado voters adopted into our state constitution ten years prior to TABOR in 1982.
The Gallagher Amendment froze the ratio of the total valuation of “Residential” and “Non-Residential” property in the state so that Residential property would never constitute more than about 45% of all property value in Colorado. However, since its adoption in 1982, the valuation of Residential property has consistently outpaced the value of Non-Residential property such that Residential property now makes up about 80% of the valuation of all property in the state.
Gallagher requires the legislature to reduce the rate at which Residential property is taxed in order to meet its requirement that the valuation of Residential property doesn’t constitute more than 45% of the total valuation of all property in the state.
Since 1982, Gallagher has forced the taxable value of residential property to decline from 30% to 7%, and this has subsequently eroded the property tax base that funds local services like fire protection districts.
TABOR complicates Gallagher in two ways:
While the Gallagher Amendment requires that the Residential Assessment Rate be LOWERED during times when the growth in Residential valuation outpaces the growth in Non-Residential valuation, TABOR has been interpreted to prohibit the legislature from conversely abiding by Gallagher’s requirement that the Residential Assessment Rate be RAISED during times when the formula would support such an increase. This results in an irreversible ratcheting down of the Residential Assessment Rate.
2005: How “Referendum C” changed TABOR
As originally crafted, TABOR forced state revenues to “ratchet down” over time as those revenues dropped rapidly during economic downturns and were not allowed to recover with the economy before they were forced down again by the next recession. This “ratchet down” effect happened in FY2001-02 and FY2002-03 and the resulting drop in state revenue threatened state funding for Colorado’s higher education system.
To address this “ratchet down” effect, Colorado voters adopted “Referendum C” in 2005, which made two changes to TABOR’s state revenue limit:
1) “Referendum C” reset the “base year” from which state revenues could grow. Referendum C created a 5-year “timeout period” between FY 2005-06 and FY 2009-10 during which the state was allowed to spend or save the full amount of revenue it collected, effectively setting the spending limit equal to revenue. After the 5-year “timeout” period in FY 2010-11, Referendum C allowed the state to establish a new base year from which the revenue cap could grow based on the year in which the highest amount of revenue was collected during the 5-year timeout period; the legislature selected FY 2007-08 as the new “base year”.
2) “Referendum C” eliminated the “ratchet effect”. The newly reset “Ref C” cap is allowed to grow from the prior year’s cap by an amount equal to TABOR’s “Population and Inflation” limit, irrespective of whether state revenue is below or in excess of the cap. Referendum C effectively eliminated the possibility of ratcheting-down the revenue limit because the cap on the state’s revenue grows from the prior year’s CAP instead of the prior year’s SPENDING.
In the chart above, the black line labeled “TABOR Limit Base” represents TABOR’s original limit on state revenue, and the blue bar above that (labeled “Ref C Cap”) represents the amended higher revenue limit as a result of “Referendum C”. The amount of the annual revenue bars ABOVE the “TABOR Limit Base” and BELOW the new “Ref C Cap” represents the amount of revenues which the state would have otherwise been required to cut from state services and refund to taxpayers if Referendum C had not passed.
Efforts to “De-Bruce” from TABOR’s Revenue Constraints
Most local governments in Colorado – 51 of Colorado’s 64 counties, and over 90% of cities – have received approval from their voters to retain and spend revenues beyond TABOR’s revenue limit, thereby effectively eliminating the revenue limit as it applies to their taxing jurisdiction. Such efforts to be exempted from TABOR’s revenue limit are referred to as “de-Brucing”, named after Douglas Bruce, the author of the TABOR amendment.
While LOCAL governments have largely been successful at their efforts to “de-Bruce”, the STATE has had limited success in this regard. Coloradans did, however, vote to “de-Bruce” tax revenues from the sale of medical marijuana (2013) and recreational marijuana (2015) in order allow the state to use all of those revenues for the intended benefit of schools, police, and drug education.
Additionally, state “Enterprises” are exempt from TABOR’s revenue limitation and represent the largest share of TABOR-exempt state revenue. State enterprises are self-supporting, government-owned businesses that receive revenue (usually primarily from fees) in return for the provision of goods or services.
Current enterprises include such programs as:
- most public colleges and universities
- the State Lottery
- College Assist and CollegeInvest
- the state nursing home system
- the State Fair Authority
- the Division of Wildlife
- the Colorado Tolling Enterprise
- the Unemployment Insurance Program
How “Cash Funds” revenues affect the TABOR Revenue Limit
An additional challenge which the state faces in complying with TABOR’s revenue limit is that, because most “Cash Funds” (except for Enterprise funds) contribute towards the revenue limit, and only tax revenues from the “General Fund” are used to refund surplus revenues to taxpayers, the “cash” fees which are generated from one program (such as the “severance taxes” which energy producers pay to extract oil and gas reserves) can force the state to cut “general” funding for other programs (like higher education).
These Cash Fund revenues can fluctuate significantly from year-to-year (such as when energy severance taxes rise and fall during energy “booms” and “busts”) and are largely out of the control of the legislature.
For example, before the “Hospital Provider Fee” was reestablished as a state enterprise in 2017, those growing fee revenues were forcing the legislature to make additional cuts to Higher Education and other General Fund programs.
TABOR is more restrictive than Other States
While many other states have some form of “Tax & Expenditure Limit” (TEL), none are as restrictive as Colorado’s TABOR constraint. There are a number of reasons why Colorado’s TABOR tax constraint is more restrictive than other states’ TELs:
1) Because TABOR was passed as a constitutional amendment rather than a statutory law, it may only be amended by a vote of the people. While there are provisions for a supermajority of the legislature to pass an override in case of an emergency, the definition of an emergency is fairly restrictive and therefore Colorado has never used this emergency provision.
2) TABOR’s revenue limit is based on “Population and Inflation which is more restrictive than limits in other states that generally allow growth to increase at the rate of personal income growth or in some cases by the maximum of either income growth or inflation. As a result, Colorado’s budget is forced to shrink relative to the size of the economy because the economy grows faster than inflation. Only three other states have a revenue limit based solely on population and inflation and, in those other states, the limit either applies to the proposed rather than the enacted budget, or only applies to limited portions of the state budget.
3) TABOR’s “Population” constraint on revenue doesn’t take into consideration higher natural growth rates that can occur in specific expenditure programs. For example, the segments of our population requiring the most state services, such as senior citizens and children, are expanding more rapidly than the population overall; therefore, as population grows, the state’s cost per person also grows, but TABOR doesn’t allow revenue to grow accordingly.
4) TABOR’s “Inflation” constraint on revenue doesn’t take into consideration that the inflation rate for many government services (i.e. medical expenditures) is higher than the general inflation rate for other consumer goods (i.e. toasters), so the TABOR limit requires cuts in either the real level of service for a specific program (such as Medicaid expenditures) or forces cuts in other programs to offset this growth.
5) While most other states’ TELs limit state EXPENDITURES, Colorado’s TABOR limit applies to OVERALL REVENUES. TABOR’s limit on revenue limits not only the state’s ability to SPEND money, but also limits the state’s ability to SAVE money.
THE BOTTOM LINE (Why YOU should care.)
TABOR is a story of two very valid and competing values.
On the one hand, TABOR has helped to reduce Coloradans’ tax burden.
On the other hand, in life, we generally get what we pay for, and reduced tax revenues has meant reduced investment in our public infrastructure, and therefore reduced performance in public services such as the quality of K-12 education, access to higher education, and the capacity of our transportation system.
Because the TABOR Amendment is an amendment to our state’s constitution, and since ONLY the voters can amend our constitution, it will be up to Colorado voters – NOT their elected legislature – to change the TABOR Amendment IF they desire a different outcome.
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