May 08, 2009 11:25 PM UTC

Patrick's Plan for a Successor to Referendum C

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• by: Patrick Sean Byrne

It’s clear that many of the problems in state and local Government in Colorado stem from the arbitrary and competing provisions of the Taxpayer’s Bill of Rights (TABOR) and the Gallagher Amendment to the Colorado Constitution.

For almost twenty years now, the combined impacts of TABOR and Gallagher have pushed more and more of the state’s K-12 education spending away from local governments and onto the state’s General Fund. Combined with the Arveschoug-Bird 6% limit, this has crowded out critical public investment in higher education, transportation, and social safety nets. Furthermore, TABOR and Gallagher have created the illusion that local public schools are still under local control, when in fact they are controlled by bureaucrats at 200 East Colfax.  

As Senator, I will propose a fully-fleshed successor to Referendum C. Some highlights of how I want to reform TABOR:

   * It would be intellectually dishonest to say that everything about TABOR is bad. We should keep the provisions of TABOR that require votes of the people for tax rate increases. One good thing about TABOR is that it has made state government very lean (although possibly too lean).

   * Requiring a vote of the people forces policymakers to think very hard about whether to ask for tax increases and how to spend the money received from tax increases. When policymakers haven’t done the best job of thinking out their requests for tax increases (for example, regrettably, Amendment 58), the voters will prevent government from taking more of their money, every time.

   * We should also keep the provision in TABOR that requires a vote of the people for issuing bonds and other forms of debt. Coloradans should consider themselves very lucky that their elected officials cannot load their children and grandchildren with public debt without public permission. For me, this is a very refreshing change from my childhood home on the east coast, where legislatures and municipal governments create crushing debt loads without anything valuable to show for it.

   * However, it is time to get rid of the mindless and arbitrary “inflation plus population growth” limit on revenues retained by the state. I cannot begin to explain (in just one blog post) every example of why this provision is bad policy, inefficient, self-defeating, and not even mathematically correct.

   * It is also time for the Governor and the General Assembly to prepare the state’s General Fund budget in arrears. Currently, policymakers have to try to forecast how much tax revenue will be collected in a given fiscal year, and then make drastic cuts if the economy swings, like it did in 2008. I was one of the unlucky people whose job it was to try to forecast tax revenue, and it’s really difficult to do accurately, especially at a turning point in the economy.

I want to engage you in a thought experiment:

If you are a small businessperson whose business goes up and down in a volatile manner due to economic circumstances, you wouldn’t want to spend all of your money on cars and houses that require ongoing, long term payments. It’s too risky. You’d want to save money to be safe in the event of a downturn.

In fact, a good rule of thumb would be to not spend more money in one year than you earned in the prior year, and save the difference for a rainy day.

State government in Colorado should operate like this, in my opinion. Due to timing and other technical considerations, we would have to budget our general fund revenues (mostly income and sales taxes) two years in arrears.

If we did this, we would never be caught off guard by a swing in the economy, and we would slowly but surely build up a strategic reserve that could be tapped (with a constitutional supermajority of both houses) in the event of a downturn. Currently, Colorado has no rainy day fund, except for a small statutory reserve that could fund about two weeks worth of government operations in the event of a natural or man-made disaster.

Given how volatile our tax revenue sources are, and how strongly they cycle with the economy, it is insane that our reserve is only 4%. It should be 40%. It’ll take time to get there, but that just means we have to get to work that much more quickly.

So, I propose a constitutional amendment to spend only as much in General Fund dollars as was collected in the twice-previous fiscal year. As tax revenues tend to grow over time due to increases in population, income, and inflation, this new, sensible, and transparent rule will create a strategic reserve to protect higher education and social services next time there’s a downturn.

In the event of an emergency or a recession, the General Fund could appropriate moneys from the reserve with a supermajority. I’d want at least a 60% supermajority of both houses, maybe even a two-thirds majority.

No more arbitrary formulas. No more gimmicks. Just common sense.

This new rule would also put enormous pressure on policymakers to end the statutory and constitutional earmarks of tax revenue to special interests, and that’s a good thing. The way our severance taxes and limited gaming taxes are nakedly doled out to special interests by formula is an embarrassment to Colorado, and will be eliminated eventually by my plan. Instead, all tax revenues will eventually be allocated by a rational budget process. That is what is best for all Coloradans.

There will also eventually be some kind of tax increase on the ballot. I’m not convinced that we’re allocating our existing revenues efficiently, so I won’t be very excited about the idea of a tax increase. However, if the proposal is sensible and does not perpetuate the bad practice of creating earmarks for special interests, I will probably support it.