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February 2012 Policy Study, Number 12-2

   

TABOR: A Pro-Growth Solution for Iowa

by John Hendrickson

   

 

TABOR Revised

   

 

TABOR was able to “stop excess government growth,” while “private-sector job creation and the state government were able to grow at a reasonable pace.”[39]

 

Although TABOR’s economic outcome was successful and led to economic growth, the voters decided to revise the Amendment in regard to education funding. Progressives and liberals had long opposed TABOR as being a harsh policy that cut spending and tax rates, which eliminated money from the state coffers to fund education. In response, voters agreed to Amendment 23, which “established a constitutional mandate for educational spending.”[40] As columnist George F. Will explained:

 

But in 2000, voters, encouraged in their cognitive dissonance by teachers unions, passed an initiative requiring spending on education in grades K through 12 to increase significantly faster than overall spending. This, combined with the inexorable growth of federally mandated Medicaid spending, meant that, as the portion of the budget devoted to primary and secondary education expands, spending cuts must come from a small and steadily shrinking fraction of the state’s budget.[41]

 

In addition to Amendment 23, voters also passed Referendum C in 2005.[42] Referendum C “allowed the state to retain and spend $3.7 billion in surplus revenue above the TABOR limit instead of rebating that money to the taxpayers.”[43] As Allison Acosta Fraser wrote, Referendum C was described as the “Colorado Economic Recovery Act,” but it “is designed to permanently increase Colorado’s government and tax base.”[44] Barry Poulson described the impact of Referendum C when he wrote:

 

Unfortunately, Referendum C was not as it was portrayed — a measure concerning the expenditure of surplus revenue produced by an economy recovering from a recession and a drought. Instead, it was really about replacing the nation’s most effective tax and spending limit with an ineffective limit. Referendum C has essentially gutted the TABOR Amendment by permanently altering the base line on which the state calculates the allowable growth in spending. The original TABOR limit applied inflation and population growth to either actual revenue or the TABOR limit in any year, whichever is lower. In contrast, Referendum C will apply inflation and population growth to the previous limit, not actual revenue.[45]

 

Both Amendment 23 and Referendum C resulted in weakening TABOR — and with the economic recession and other problems that confronted taxpayers in Colorado, this led to further fiscal problems. It also demonstrates that although TABOR still remains a powerful tool to protect taxpayer interests, the initiative and referendum process does not guarantee that voters will always agree to follow a limited-government policy course in terms of taxes and spending. This has been, and continues to be, a major battle between conservatives and liberals over the proper function of government and what policies lead to economic growth.

 

In terms of reforming and strengthening TELs, one idea is for TABOR “to link an effective tax and spending limit to a rainy day fund and an emergency fund.”[46] As Poulson explains:

 

This will both constrain the growth of government and stabilize the budget over the business cycle. This will end the ratchet-up effect of higher taxes and debt from one business cycle to the next. It will also take away the argument for suspending or repealing tax and spending limits when there is a revenue shortfall or emergency. In short other states can avoid the fiscal problems that led Colorado to gut its TABOR Amendment.[47]

 

Poulson also recommends eliminating the mandate for increased spending on education and that all programs should be subject to priority-based budgeting.[48] Dedicated funding is not always the best solution, such as the case for education when massive amounts of both state and federal spending has not improved the overall quality of education. Implementing school choice measures will not only save taxpayer’s money, but will also improve the quality of education.

 

In addition, he recommends a series of measures to improve “Colorado’s fiscal constitution”:

 

•preserve and strengthen tax and expenditure limits
•restore TABOR provisions
•restore caps on property taxes
•revisit tax rebate provisions
•limit user fees to cover the cost of government services voluntarily chosen by citizens
•require a supermajority vote of the Legislature to propose new taxes
•eliminate the structural deficit in the state budget
•repeal Amendment 23
•create a rainy day fund
•impose a constitutional amendment on annualization
•limit debt
•impose strict limits on certificate of participation bonds and require a supermajority vote of the Legislature to issue these bonds
•eliminate unfunded liabilities in state pension and other post- employment benefit plans
•require a supermajority vote of the legislature to propose new debt[49]

 

This also includes implementing budget reforms based on priority-based budgeting:

 

•introduce priority budgeting
•identify core functions of state government
•require state agencies to evaluate programs as they relate to core functions
•prioritize programs
•impose a hard budget constraint
•monitor the performance of state programs
•conduct performance reviews
•conduct sunset review of state programs
•reform state programs
•eliminate earmarks
•eliminate unfunded liabilities
•reform entitlement programs
•eliminate mandates[50]

 

These fiscal and budgetary reforms will help in the development of sound economic policies which will lead to economic growth. ALEC has written the State Budget Reform Toolkit, which provides a solid blueprint for reforming budgets and creating sound fiscal policies.[51]

 

Colorado’s TABOR — even with its revisions — is still seen as a model TEL for other states to follow. In today’s economy with many states struggling with deficits, crisis in unfunded pensions, and deficit problems, Colorado is doing fairly well economically. The Tax Foundation has recently released its 2012 State Business Tax Climate Index, and Colorado has an overall rank of 16 out of the 50 states.[52] ALEC’s fourth edition of Rich States, Poor States provides Colorado with a rank of six out of 50 in terms of economic outlook and 24 out of 50 in economic performance.[53] It also should be noted that ALEC ranks Colorado number one in regard to the number of tax expenditure limits.[54]

 
   

 

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