Commentary

TABOR Time

By Michael J. New and Stephen Slivinski
This article appeared on NationalReview.com on October 25, 2005.
With Election Day 2005 approaching, much attention has been devoted to numerous initiatives appearing on the California ballot and the gubernatorial races in New Jersey and Virginia. However, what is arguably one of the most important referendums is taking place in Colorado on November 1. That’s when the fate of the state’s Taxpayer’s Bill of Rights (TABOR) will be decided.

TABOR, an amendment to the Colorado constitution, was passed by voters in 1992. It mandated that state revenue can grow no faster than population, plus inflation, and required immediate refunds of surplus revenues to taxpayers. During the past 13 years, TABOR has rightly been viewed as America’s best and most effective revenue limit. It has restricted the growth of government, provided tax relief, and is viewed as a model by fiscal conservatives across the country.

However, the economic downturn of 2001 gave TABOR opponents an opportunity to rally against the budget limit. Colorado’s economy was hit harder than most states in the wake of the September 11 terrorist attacks because the attacks occurred right before the start of ski season. Many Americans avoided flying and the first part of the 2001-2002 ski season saw visits to slopes decline by 14 percent.

An even more substantial economic stress arrived in the form of an exceptionally severe drought in 2002. The drought had an adverse effect on Colorado’s agriculture industries. Overall, the combination of the terrorist attacks and drought caused tax revenues to decline by over $1 billion between 2001 and 2003.

But one of the worst strains on taxpayers had already been baked into the budget cake. In 2000, the teachers unions in Colorado pushed Amendment 23, and voters approved it. The amendment mandated large annual increases in state spending for K-12 education — even if revenue declined — and exempted this spending from the TABOR cap. This led to an increase in education spending of $450 million between 2001 and 2003 at a time when state revenues were declining dramatically.

The severe budget deficit spurred legislators and policymakers in Colorado into action. But rather than reform Amendment 23, they were more interested in expanding government further. The argument was made that the problem wasn’t that the state needed to scale back auto-pilot spending increases. The problem, as they saw it, was a TABOR limit that wouldn’t let them spend even more taxpayer money.

In an effort to weaken TABOR, the state legislature has placed a pair of referenda on the November ballot. Referendum C would suspend the revenue limit for the next 5 years, allowing the legislature to spend rather than rebate all the excess revenues. Referendum D, which is contingent on the passage of Referendum C, would add $100 million to the TABOR revenue limit and would allow the state to float $2.1 billion in bonds to fund various projects.

Passage of both of these referenda would put Colorado government spending in overdrive and would be the equivalent of giving politicians in Denver a blank check for the next five years. If Referenda C and D pass, Colorado would be allowed to spend all the surplus revenues (currently projected at $3.7 billion) between now and 2010.

What if the current estimates of $3.7 billion are too low? Too bad. Any additional tax money collected in excess of $3.7 billion could be spent without further voter approval. Passage of Referendum C would also permanently adjust the TABOR cap by locking in all this government spending. Perhaps even more disheartening for fiscal conservatives is that many Republican officials, including Gov. Bill Owens — a onetime TABOR supporter — are avidly supporting and campaigning for both referenda.

Colorado’s November election will likely have implications that extend far beyond the Rocky Mountain State. Since the late 1990s, many fiscal conservatives have attempted to enact legislation similar to TABOR in other states, but progress has lately been stalled. TABOR’s political opponents have been on the offensive not just in Colorado but in other states, misrepresenting what is going on in Colorado.

If fiscal conservatives are to be successful in promoting budget limits in other states, TABOR’s reputation needs to be rehabilitated. A vote of confidence by the people of Colorado on Nov. 1 could provide a vital kick-start to what could become the next nationwide tax revolt.

Michael New is an assistant professor at the University of Alabama and an adjunct scholar at the Cato Institute. Stephen Slivinski is director of budget studies at the Cato Institute. They are authors of the Cato study, “Dispelling the Myths: The Truth about TABOR and Referendum C.”