Weighing Impact of Strict Tax Limits

By Cynthia Pasquale

Colorado has one of the fastest-growing economies in the nation, yet it struggles to fund education, transportation projects and basic services.

“Colorado is unique because we put a lot of our tax code in the constitution, and a couple of amendments that the voters approved have combined to put us in this situation,” said Carol Hedges, executive director of the Colorado Fiscal Institute.

TABOR (Taxpayer’s Bill of Rights), the most restrictive tax-and-spending limit in the country, requires voter approval of any state or local government increase in revenue, such as by raising taxes. Under a formula that factors in population growth and inflation, TABOR caps state revenue, and any extra must be refunded to taxpayers.

Fiscal conservatives like Jon Caldara, president of the Denver think tank Independence Institute, laud TABOR for restricting government growth. But he said priorities need to be evaluated: “[The state has] $35 million to give people free refrigerators and $100 million for bike paths, but we don’t have money for roads.”

Since TABOR was enacted in 1992, taxpayers’ refunds have amounted to more than $3 billion. Hedges noted that TABOR rebates for the 2018-19 fiscal year could total $209 million. Although payments to individuals are minimal, she said, the funds could make a big difference if the state used them for transportation needs, teacher salaries or other “building blocks of thriving communities.”

Another constitutional change, the Gallagher Amendment, resulted in reduced residential property taxes, which pay for schools. The state must provide a base level of funding for education and fill in gaps using dollars intended for other priorities. Even so, Colorado ranks 31st in the nation for teacher pay and 28th in per student funding.

Cuts considered

“As these constitutional amendments work together to squeeze what money is available, it’s natural for policymakers to want to address budget challenges” by cutting growing programs, Hedges said.

Medicaid is under scrutiny as its total expense goes up because of population growth and higher health care costs. It represents one-third of the state budget even though the federal government pays a majority of its spending.

Medicaid growth is squeezing out other priorities, Caldara said. But “Medicaid also affects the rural economy and is vital to the survival of many rural hospitals and health centers,” said Bob Murphy, state director of AARP Colorado.

The Senior Homestead Exemption, which forgives a portion of property taxes owed by eligible residents 65 or older, is also under review. The exemption is estimated to cost the state about $136 million this year and as much as $300 million by 2030, as the population ages. AARP Colorado’s advocacy team and volunteers work to educate residents and policymakers about the issues.

Voters have approved 90 percent of the hundreds of local initiatives to undo TABOR restrictions. But amending TABOR throughout Colorado hasn’t come up, said Hedges, mostly due to the high cost of a statewide ballot-measure campaign. “People increasingly understand that the things that taxes buy really are good for their communities.”

Cynthia Pasquale is a writer living in Denver.