“In the last 2.5 years, over 50 percent of our state’s budget for higher education has been cut,” Havey said. “And [Gov.] Ritter just announced another $5.5 million cut to colleges, and that’s only for the fiscal year that ends in on June 30. We’re getting more fiscal cuts for the fiscal year starting July 1. That’s the fifth cut that Ritter has made in the last fiscal year to the General Fund Budget.”
The cuts in funding for higher education are largely due to the recession gripping the entire nation. But some students and experts feel that certain legislation in Colorado’s constitution, in particular the Taxpayer’s Bill of Rights or TABOR, has had something to do with the deficit in the state budget.
TABOR was an amendment to the Colorado constitution passed by voters in 1992, according to a fact sheet on TABOR from the Colorado Fiscal Policy Institute.
Through this legislation, changes in tax policy on any level—such as state, county or city—must be first be approved by voters. It also applies a limitation to the amount of money the government can spend per year.
Mark Neuman-Lee, a policy fellow at the Colorado Fiscal Policy Institute, said TABOR has many different components but that there are a couple of main things that have really impacted Colorado.
“So you have that limit, it’s population growth plus inflation compared to last year’s revenue limit,” Neuman-Lee said. “So that’s the main way TABOR limits government in Colorado. That really impacted us in the late ‘90s when the economy was doing very well and government was still very small. We weren’t funding our programs very well but because of the revenue limit we weren’t able to fund programs. We had to give money back to taxpayers.”
During previous prosperous years in Colorado’s economy, TABOR stipulated that surplus revenue collected by the government be refunded back to taxpayers. For example, from 1997 to 2001, the state refunded $3.2 billion in excess taxes, according to the fact sheet.
The original intent of TABOR was to limit the growth and spending of taxes by the government. So, if the government was to acquire excess funds through taxes, it had to be put back into taxpayers’ hands.
Barry Poulson, a professor of economics at the University of Colorado, said that these limits have enabled voters to decide on the amount of government they want and are willing to pay for.
“I think if you look at the history of fiscal policy since ’92, you’ll find that TABOR has constrained [government] spending to inflation and population growth and that really has prevented problems you’ve found in California, where presiding governments have grown in an unconstrained rate,” Poulson said. “It has helped Colorado stabilize its budget.”
However, since its inception, there have been some unintended consequences of the limits to revenue spending and restrictions on tax increases.
One of these is the TABOR “ratchet effect.” According to the fact sheet, “The amount of allowable revenue in a given year is the base for calculating the next year’s allowable revenue.”
But during recession years, such as from 2001 to 2002, the government collects less revenue from constituents’ taxes than the allowable limit. Because the current year’s base spending limit is based on the previous year’s revenue collection, the 2003 to 2004 fiscal years had a lower revenue-spending limit, which had been “ratcheted down” permanently.
In an article previously published by the CU Independent, Brian Burnett, vice chancellor of CU-Colorado Springs and former analyst for the 1988 Joint Budget Staff Commission, gave an example of the ratchet effect.
“Essentially TABOR means if you take a base year under TABOR, if a state government brought in $100 this year, if next year inflation was 3 percent and the population grew by 2 percent, then you could grow by 5 percent so the next year you could bring in $105,” Burnett said. “So if there was $106 you’d have to refund $1 because you’d only be able to grow by inflation and population.”
What’s really hurting the legislature, Neuman-Lee said, is that they don’t have the authority to adjust tax rates to make up for the revenue decrease, or the “ratcheting down” effect.
It has resulted in budget cuts for some parts of the General Fund, and because nothing in the Colorado constitution mandates spending for higher education, it receives the brunt of budget cuts.
“Basically since the recession, it’s just really limited the amount of revenue our state can collect and therefore spend on various things in the General Fund budget,” Havey said. “One of the biggest things it cuts every year is higher education because higher education doesn’t have the restrictions other areas do in the General Fund budget. Higher education isn’t protected.”
Normally, representative government has more flexibility when deciding to change tax policy and restrictions, Neuman-Lee said. TABOR limits this flexibility.
“But with this we can’t just tax easily; we have to play out a large election every time we want to increase taxes in Colorado,” Neuman-Lee said. “At a statewide level this is very difficult. You have to plan out for two years, a campaign of at least $10 million. This has only worked once in 2005 with Referendum C.”
Referendum C was narrowly passed in 2005 by Colorado voters, according to Ballotpedia.org. It allows the state to spend the money it collects over the TABOR limit for five years after its approval. It also eliminated taxpayer refunds should there be a surplus in government revenue.
But referendum C is the reason some people contest the effect of TABOR on the dwindling funds for higher education.
Amy Oliver Cook, the director of the Colorado Transparency Project for the Independence Institute, said the beauty of TABOR is that it forces legislators to prioritize the budget.
“TABOR has nothing to do with the reduction in higher education [funding],” Oliver Cook said. “That is a myth. TABOR has had absolutely zero impact. The reduction in the General Fund is because of the recession; TABOR hasn’t been a factor since 2005.”
Referendum C ends this year, and Poulson said TABOR will kick in again to constrain growth and spending.
Regardless of the controversial effect TABOR may or may not have on funding for higher education, there is still a significant budget gap that will affect higher education funding.
There is a $1.3 billion budget gap for the next fiscal year and they’re proposing over $6 million in budget cuts, Neuman-Lee said. But the relief higher education cuts came in the form of the government stimulus package.
“What’s happened is what we’ve done is we’ve used federal stimulus dollars to backfill cuts that we’ve made to higher education” Neuman-Lee said. “So we’ve cut our general fund support for higher education by more than half but all that money has been backfilled by federal dollars.”
Stimulus funds will run out by the end of 2011, Neuman-Lee said, but federal law mandates that we don’t lower the level of higher education funding below the 2005 to 2006 level, which was at least $555 million.
One of the constraints to higher education funding and a contributing factor to its budget shortfall is Amendment 23.
Passed in 2000 by voters, it mandates for 10 years that legislators increase funding for K-12 education by inflation plus population growth plus one percent each year, Neuman-Lee said.
Because this amendment specifies a certain increasing amount of revenue be spent on K-12 education, 45 percent of the General Fund was spent on public schools in Colorado.
“[Amendment 23] was an absolute disaster for higher education funding because the more K-12 education continued to take from the General Fund, the less higher education got,” Oliver Cook said. “The biggest thing is to repeal Amendment 23.”
Both supporters and dissidents of TABOR have offered propositions to cushion the current budget shortfall. Varying from repealing Amendment 23 to outsourcing tax exemption, all constituents suggest different things. Regardless, because TABOR restrictions on tax increases kick back in this year, other methods of funding are necessary.
“What’s happened at CU is happening across the country,” Poulson said of the recession and the ensuing budget cuts. “Whenever you have a budget shortfall, so much is earmarked and nondiscretionary, but I think what Colorado attempted to do is to allow tuition to increase whenever there was a revenue shortfall.”
Despite potential tuition increases, taxpayers may be wary of voting for more tax increases during the current fiscal downturn. However, there could be some money coming in from the elimination of sales tax exemptions.
Businesses, soda and candy are among the things that are currently not taxed. The proposal for eliminating these products from tax exemptions could culminate in about $130 million of revenue, Neuman-Lee said.
“These things that used to not be taxed could now be taxed,” Neuman-Lee said. “If you think about it as a pot, they’re taking money from the closing of sales tax exemptions and putting it back into the General Fund. So it’s not going to go to a specific program, but it helps them from being cut.”
Havey also talked about sales tax exemptions and the potential money in their elimination.
“The one that I’m looking into would eliminate the tax exemption that companies get basically for filing their taxes in-state but they’re outsourcing to other states,” Havey said. “So not only would it save taxpayers a lot of money if we made this exemption it would also give more people in-state jobs.”
Ultimately, the tangled knot of TABOR and higher education funding is one not easily picked apart. The question of higher taxes, higher tuition, larger government or great autonomy to public universities is one that will always play across party lines.
“The thing you need is a vote of the people, but I don’t know how that’s going to go because the state does still have a large conservative presence and people are scared, thinking, ‘Why are we going to increase taxes when we’re still a weak economy?’” Havey said. “For a while I thought the biggest solution was to tone down TABOR, but it’s like, then what are we going to do?”
Contact CU Independent Staff Writer Sheila V Kumar at Sheila.firstname.lastname@example.org.