December 07, 2009 11:55 PM UTC

Understanding the Initiatives: Part 1 (Prop 101)

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• by: TheBell

( – promoted by Colorado Pols)

The Bell Policy Center is analyzing the initiatives currently under discussion on Pols, and first up is Proposition 101. First, though, a word about nomenclature. Thanks to a change in Colorado law, ballot measures that change laws will now be called propositions while those that amend the constitution will be called amendments.

Proposition 101 is one of three anti-government measures proposed for the 2010 ballot. At a time when the state is in a deep financial hole, Prop 101 will only dig a deeper and darker hole. As the rest of the nation comes out of a recession, this measure has the potential to permanently lock in recessionary conditions in Colorado.

It is not going too far to say that Prop 101 could close down some community colleges, eliminate nearly all support for higher education, ensure that roads and bridges fall into disrepair and risk federal matching dollars for programs such as Medicaid. That’s just for starters.

In a larger sense, Prop 101 and the other two proposals threaten the very notion of government — the idea that public structures are critically important in supporting a growing, thriving society and economy.

Here’s a thumbnail description of the impact of Proposition 101. Below that is our preliminary analysis of the measure. We are digging further into the numbers and the implications and will release a more complete analysis soon.

Proposition 101: This is a grab bag of tax cuts and revenue reductions that somehow made it through the single-subject requirement for ballot proposals. In broad strokes, it would eliminate the FASTER plan for transportation funding, in part by cutting vehicle registration fees to $2 for new vehicles and $1 for older vehicles. It would immediately reduce the state’s income tax from the current rate of 4.63 percent to 4.5 percent, and over time cut it to 3.5 percent. And it would eliminate all taxes and fees on telephone and satellite and Internet services, except for 911 fees. A conservative estimate says that this initiative will cost the state more than $1.5 billion a year (current value).  

Preliminary Analysis of Proposition 101

Proposition 101 (“Concerning limits on government charges”) is intended to drastically reduce a wide range of state and local taxes and fees in Colorado.

The first sentence of the measure reads, “This voter-approved revenue change shall be strictly enforced to reduce government revenue.” Proponents say they intend for this language to be interpreted according to the provision in TABOR that defines spending limits. If so, then proponents clearly intend to repeal Referendum C, passed by voters in 2005, and impose a new, lower state spending limit moving forward. And just like before Ref C, this new limit would ratchet down state spending after recessions.

Proponents also intend the measure to impose new, lower spending limits in all cities and counties in Colorado.

Based on preliminary estimates, when fully implemented the provisions of Proposition 101 would reduce state income tax revenues by $1.2 billion per year (current value), state and local revenues from a range of sales taxes and vehicle fees by well over $1.1 billion per year (current value), and state revenues from telecommunications charges and fees by $4.5 million per year.

When fully implemented, the provisions of Proposition 101 would cut state revenue by at least:

1. $1.2 billion in income tax revenues (rate reduced from 4.63% to 3.5%)

2. $179 million in transportation revenues from elimination of FASTER fees

3. $164 million in transportation revenues by cutting registration, license and title fees to $10 per vehicle

4. $100 million in sales taxes from exempting $10,000 in vehicle value from sales taxes

5. $22 million by eliminating sales taxes on rental vehicles

6. $4.5 million in telecommunications fees by prohibiting all fees, except those to fund 911 services. Another $72 million that is used to subsidize telecommunications services in rural areas would be cut, but these funds go to a private escrow account and not the state.

Total equals $1.7 billion (current value)

When fully implemented, the provisions of Proposition 101 would cut local government revenue by at least:

1. $500 million in specific ownership taxes by cutting them to $2 per new vehicle and $1 per used vehicle

2. $100 million in sales taxes from exempting $10,000 in vehicle value from sales taxes (based on an average 3 percent sales tax rate for local governments)

3. $22 million by eliminating sales taxes on rental vehicles (based on an average 3 percent sales tax rate for local governments)

Total equals $622 million (current value)

Totals do not include the loss of state and local sales taxes on leased vehicles because we were not able to gather the necessary data on vehicle leases to calculate this amount.

Our calculations for the amount of sales taxes reduced by the $10,000 exemption on the value of a vehicle are based on sales of new and used vehicles at Colorado franchised new vehicle dealers only. They do not include sales by independent auto dealers and private individuals.