With the fall campaign starting in earnest, voters soon will have to decide what to do about the top items on statewide ballots, Referendums C and D.
A key question is the impact on public services if the measures pass or fail. While state finances are complicated, the answer is pretty clear,
Colorado students, motorists and local governments will be big losers if C and D go down to defeat Nov. 1. Higher education, highways and social services are sure to bear the brunt of the budget cuts that would follow.
Referendum C asks voters to declare a five-year “timeout” from the revenue limits imposed by the 1992 Taxpayer’s Bill of Rights. It’s foes are assailing C as a “tax increase,” but the measure doesn’t raise any of Colorado’s tax rates. Instead, it allows the state to keep the revenue that existing taxes will generate as the economy grows over the next five years.
For the fiscal year that begins next July 1, the surplus revenues are estimated at $498 million. Over five years, the state Legislative Council estimates the surplus will total $3.7 billion. It could be more or less, depending on how the state economy actually performs over that time.
To put that number in perspective, Colorado produced $200 billion in goods and services in 2004, according to the U.S. Department of Commerce. With 5 percent annual growth, the state would have a total economic output of about $1.2 trillion over the next five years – meaning the surplus TABOR revenues the state is asking to retain represent only 0.3 percent of the state economy over that time. That’s less than one third of one percent.
More important, even if voters pass C and D, the state’s budget in 2010 will still be about $200 million less than the level voters were originally promised that TABOR would authorize, as shown by the diagram on page 4E. That’s because of an obscure but powerful provision of the amendment known as the “ratchet clause.”
When they were campaigning for TABOR in 1992, backers said they didn’t intend to cut the size of state and local governments – only to prevent them from growing without express voter consent. TABOR, therefore, allowed the state to increase its revenue only by an amount equal to population growth and inflation – as measured by the consumer price index for the Denver-Boulder area. Therefore, the amount of money the state could spend per resident would neither increase nor shrink after being adjusted for inflation.
That’s the theory, anyway. In practice, TABOR bases each year’s increase upon the previous year’s revenue limit or last year’s actual revenue collections – whichever is lower. Because state revenue dropped by 17 percent during the 2001-02 recession, the ratchet clause will forever prevent state revenues from rising back to the real per capita levels of 2001 – unless voters approve Referendum C.
To understand how the ratchet works, assume it applied to you. Imagine you earned $25,000 last year. This year, you were laid off for six months and earned only $12,000. If TABOR applied to you, you could only earn $12,000 next year and every year thereafter, plus an allowance for inflation. No matter how hard you worked, you could never regain the purchasing power you lost during the recession.
That’s exactly the problem the state now faces. In the pre-recession 2000-01 fiscal year, the TABOR revenue limit was about $7.9 billion. If there had not been a recession, inflation and population growth would have raised that ceiling to $9.5 billion by 2003-04. Yet, the sharp drops in revenue during the recession lowered the actual TABOR limit to about $7.8 billion last year. When the five-year “time-out” in Referendum C ends in 2010-11, the state revenue base is projected to be about $10.7 billion. Without the TABOR ratchet, the amendment’s inflation-plus-population formula would have allowed for $10.9 billion in 2010-11 – about $200 million more.
Approval of Referendum C will release most (though not all) of that ratchet. Its defeat would doom Gov. Bill Owens’ efforts to upgrade the state highway system and also force $408 million in cuts from the state’s non-highway programs.
If Referendum C fails, the state budget next year will have to decline from the current year’s level by $208 million, according to the Office of State Budgeting and Planning. That’s not a reduction in the rate of increase – it’s an actual cut from this year’s spending level. Mandated increases in K-12 public school aid and federal programs such as Medicaid will add another $200 million to the Colorado budget. Thus, state budgeters would have to cut $408 million from unprotected programs.
Critics of Referendum C argue that $408 million cut as a small part of a “$15 billion state budget.” But that’s a misleading number that includes pass through federal funds such as highway grants and a host of “cash funds” such as college tuition that can only be used for the purposes the fees were created to support. The $408 million cut would have to come from the state’s general fund, which totals just $6.2 billion. Owens notes that federal mandates such as Medicaid and K-12 school funding required by Amendment 23 put about two- thirds of the general fund off limits to cuts. And the remaining third includes public safety programs such as prisons and the state court system, which chew up $828 million.
That’s why students at Colorado universities, colleges and community colleges will see such heavy cuts if Referendum C fails. Higher education draws $597 million in general fund support in the current budget – almost half of the $1.3 billion in state funds remaining after federal and state mandates and public safety programs are accounted for.
It isn’t as if Colorado higher education hasn’t suffered plenty. State aid totaled 15.7 percent of the general fund in the 1993-94 budget, the first year following the passage of TABOR. Higher education received just 9.6 percent of the state general fund this year – a cut of two- fifths. Without Referendum C, many experts predict all state aid to higher ed would end within 10 years.
Highways and school facilities would crumble beneath your feet if C fails. Referendum C would earmark about $100 million to finance $1.2 billion in highway projects specified in Referendum D. That measure also authorizes $147 million in bonds for capital construction for poor K-12 school districts, $50 million for capital construction in higher education and $175 million for police and fire pensions. But if C fails, no general fund money will be available to supplement the trust fund revenues earmarked from the state’s motor fuel and vehicle registration taxes. Those funds totaled $488 million this year.
Can’t the state just “cut the fat” and avoid reductions in higher education and highways? Owens argues persuasively that state cuts are already biting into bone. Besides the 20 percent cut from higher education since 2001, the state has slashed 50 percent from the Department of Public Health and Environment, 22 percent from Natural Resources, 25 percent from the Department of Revenue and 35 percent from Transportation.
Inevitably, therefore, the defeat of C and D would force radical new cuts in higher education and cause further setbacks in Colorado’s already inadequate highway network.
Finally, local governments, especially counties, would suffer if Referendums C and D fail. Cities and counties both depend on the state highway system for part of their own transportation needs. Counties are doubly vulnerable, because they are the level of government that actually delivers social services. Such programs as TANF (Temporary Assistance to Needy Families) and the WIC (Women, Infants and Children) nutrition program are funded by a mix of federal, state and county money.
If the state is forced to cut back its contribution to programs like TANF and WIC, counties would either have to cut back services to their neediest residents or ask voters to raise taxes to offset the lost state share. Since counties are heavily reliant on the politically unpopular property tax, the prospect makes local officials shudder.
This prospect also explains why Colorado Counties Inc., which represents all 64 state counties, has officially endorsed C and D, as has the Colorado Municipal League. Many county commissioners, mayors and city council members are also campaigning for the ballot measures.
In all, nearly 600 civic or community groups have now endorsed Referendums C and D, ranging from the Western Slope promotional group Club 20 and the Colorado Association of Commerce and Industry to the Association of Retarded Citizens and the AARP. Supporters are counting on those volunteer groups to wage an active door-to-door campaign to supplement the radio and television ads hitting the airwaves later.
Bob Ewegen is deputy editorial page editor. He has written on state and local government since 1963.
