The Battle Over Colorado’s TABOR

The Wall Street Journal weighs in on tomorrow’s vote on the Colorado Referenda C and D, which would take the reigns off state spending currently held in place by the state’s TABOR (Taxpayer Bill of Rights) law:

Halloween arrived early in Colorado this year as supporters of a pro-tax ballot initiative rolled out scare tactics to dramatize the allegedly dire consequences of a “no” vote at the polls this Tuesday. We hope Colorado voters look to see what’s hiding behind the fright costumes. Advocates of what amounts to a $4 billion tax hike have deluged the airwaves with threats that senior citizens will go without their lunches, schools and state parks will close, college tuitions will soar, and programs to prevent poisoning, air pollution, ski lift accidents and teenage suicide will shut down. One TV ad shows the popular mayor of Denver jumping out of a plane as a metaphor for the carnage that awaits Colorado should the tax hike fail. (Miraculously, he survived.) At stake here is the fight over the future of the famous Colorado Taxpayer Bill of Rights law, or Tabor, as it is now commonly called. Tabor was approved by voters in 1992 to end the tax and spending cycle of the 1970s and 1980s. It restricts increases in the state budget to the rate of population growth plus inflation. Any tax revenue collections above that cap are returned to taxpayers. Some $3.3 billion, well over $1,000 per taxpayer, was returned to Coloradans in just the first five years. But when the high-tech bubble popped in 2000 and 2001, Colorado was hit hard and general fund revenues fell by 15% in two years. Now Republican Governor Bill Owens has joined hands with unions and the business community to call for a five-year “time out” on Tabor so state agencies can replenish their budgets. Taxpayer groups worry that once the state is freed from Tabor’s fiscal discipline, it will never be restored. This battle of Tabor has gained national attention because the law has become a template for at least two dozen other states seeking to restrain their own stampeding taxes. Colorado is a worthy role model: The tax cap is one of the main reasons that economists cite for the state moving to 10 percentage points above the national average in personal-income growth in the period after Tabor, from five points below it in the years before Tabor. Despite the state’s recent fiscal ills, a compelling case can be made that the automatic tax rebates in the 1990s saved it from even worse budget misery. The $3.3 billion that was returned to taxpayers would otherwise have been spent, probably on new obligations that would have created a permanently larger spending base. Jon Caldara, who is leading the “Vote No” campaign, points out that the rebates are all that “prevented us from looking like debt-ridden California in the last few years.” . . . . We do have some sympathy for Governor Owens’s argument that Tabor’s limits put an extra burden on government services during economic downturns. Once revenues tumbled by 15%, it took the state three years to regain the revenues lost because Tabor ratcheted down permanently to a 15% lower revenue baseline during the recession. However, the way to fix this is not to take a sledgehammer to the Tabor mechanism and force taxpayers to surrender billions of dollars in future tax rebates. The better answer is to negotiate an exception that protects the revenue baseline from falling so far during recessions. In our view, Mr. Owens gave away too much when he negotiated the five-year Tabor waiver, which the spenders will use as an opening for a major expansion of state government. There’s a good reason that Tabor is the taxpayer model of the nation. It has done precisely what its supporters said it would do in forcing politicians to set spending priorities the way that families and businesses do, and in requiring government to live within its means. If Coloradans abandon Tabor’s discipline, even for a while, they may never get it back.

In case you missed it, be sure to check out Geoff and Adam’s piece last week on Referenda C and D, as well as the Priority Colorado report from earlier this year. For more info on Ref C & D, see