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Talking Points on TABOR

Below are bullets summarizing the Colorado TABOR Amendment and its consequences for fiscal policy in the state of Colorado. TABOR stands for "Taxpayers' Bill of Rights," and plays on the name of Horace Tabor, a well-known 19^th century Colorado silver king.

1. TABOR is a set of constitutional provisions Colorado voters adopted in 1992 to limit revenue growth for state and local governments in Colorado and to require that any tax increase in any state or local government (counties, cities, towns, school districts and special districts) must be approved by the voters of the affected government.
2. TABOR is principally a revenue limit, not a spending limit. It limits revenue the state government can retain from all sources except federal funds in a year to the previous year's allowed collections (not actual collections) plus a percentage adjustment equal to the percentage growth in population plus the inflation rate. Any revenues received in excess of this limit must be refunded to the voters. In this paragraph, allowed collections means the amount that the Tabor Amendment allowed state government to retain in the previous year.
3. The voters may vote to allow the state to keep the excess. TABOR limits the times when such votes may occur. Voters may also exempt their government from TABOR revenue limits for a set number of years. Both kinds of votes have passed in special districts, school districts and some small cities and in the city and county of Denver. The statewide vote that approved Amendment 23 in 2000 could be considered such a vote, because it allows the state government to retain as much of a TABOR surplus as necessary to fund the K-12 provisions the amendment included. No other such statewide vote has passed.
4. When revenues fall, the following year's limit on collections is still based on the allowed collections of the previous year. The result is that in years following a recession, allowed revenues will grow only from the worst revenue collection year of the recession to the extent allowed by rate of population growth and inflation.
5. TABOR also affected a 1991 limit on spending growth that the General Assembly had passed. By reference, it made the limit impossible to amend except by vote of the people. This provision, known as Arveschoug-Bird, limits the growth of General Fund expenditures to 6 percent more than the previous year or 5 percent of personal income, whichever amount is lower. In practice the 6 percent limit is always less
6. Colorado's early experience with TABOR was successful because of the very rapid demographic and economic growth of the state in the 1990s, due to substantial migration (30 percent population growth from 1990 to 2000) and the rapid expansion of the electronics and telecommunications industries in the state. Taxpayers saw substantial "TABOR reduction checks" as revenues were returned to them. The General Assembly reduced personal income and sales tax rates to reduce surplus (returnable) revenues.
7. Contraction in electronics and telecommunications industries occurred rapidly in 2000 and 2001, shrinking the state economy and tax collections. Personal income grew only 2 percent from 2002 to 2003, the sixth worst rate in the country, when the national average was 2.8 percent. State employment shrank by 1 percent from 2002 to 2003, again the sixth worst rate in the country, when the national average was -0.1 percent.
8. The state's budget problems have been made worse by the interaction of an additional constitutional provision with the TABOR revenue limit. Voters in 2000 approved Amendment 23, which requires the General Assembly annually to increase base per pupil funding for K-12 education by inflation plus one percentage point a year through 2010, and by inflation thereafter. K-12 funding now accounts for 40 percent of the Colorado General Fund budget.
9. Overall, then, it is very unlikely Colorado can grow out of its problems, especially now that migration to the state has slowed and inflation is low. The TABOR cap on revenue growth will ensure that state revenue growth will remain below the rate of economic growth in the state. Amendment 23 will require an increasing share of allowable revenue growth.
10. TABOR prevented the creation of a state rainy day fund through implication as well as its requirement that revenues in excess of a limit be returned to the voters. Reserves of 3 percent of the general fund are allowed, but any use must be repaid in the following fiscal year. Thus the reserve fund is more in the nature of a cash-flow reserve than a rainy-day fund.
11. Colorado uses an annual budget cycle. Since 2001, the General Assembly has wrestled with increased demands for Medicaid and K-12 education while facing reduced tax revenues. It is now considering ways to release the state higher education system from state government in order to allow institutions of higher education to raise tuition and fees outside of the TABOR limits (tuition and fees count toward the state government TABOR limit).
12. Both Republicans and Democrats in the state are considering constitutional amendments to revise TABOR and Amendment 23 to ease the long-term state budget dilemma. Republicans favor amending or repealing Amendment 23 with some adjustments to TABOR, such as changing the provision that rachets down allowable revenue collections after a recession. Democrats favor keeping Amendment 23 and making more substantial changes to TABOR. Both sides are hampered in designing constititutional amendments for the voters to consider by a single-subject rule for initiatives and referendums that did not exist in 1992 when TABOR was submitted.
13. Governor Bill Owens (a Republican) has long been a supporter of the TABOR provisions as a means of limiting or reducing the size of government in Colorado. He has recently urged the General Assembly to recommend to the voters revisions in TABOR and Amendment 23 to address the state's fiscal issues. In the past week, the governor has recommended the suspension of both constitutional provisions for two years to allow a greater flow of tax collections to the state as the economy recovers and to deal with the state's current fiscal problems. The governor has not released details of his proposal.

On March 14, 2004, the Denver Post ran an article, "Put 2 laws on hold, Owens says: TABOR, Amendment 23 targeted to beef up general fund," on this issue.

For a more complete analysis of TABOR, see the Bell Policy Center report Ten Years of TABOR: A Study of Colorado's Taxpayer's Bill of Rights (Denver, Colorado: 2003), available at http://www.thebell.org/pdf/TABOR10.pdf.

Posted 26 March 2004.
Email statetax-info@ncsl.org for more information.
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