Referendums C and D on the Nov. 1 ballot are a reasonable way to address the state's fiscal challenges and should be approved.
Referendum C asks for a five-year timeout from revenue limits in the Taxpayers Bill of Rights. This would allow the state to keep about $3.7 billion in revenues that otherwise would be refunded in the next five years. Referendum D, which can only pass if Referendum C is approved, allows the state to borrow against those funds now to pay for overdue highway improvements, public school and college capital projects and pensions for police and firefighters.
We think TABOR has served the state well since its inception in 1992, keeping government spending in check. But TABOR does have a glaring flaw in its unforgiving ratchet effect.
TABOR limits state revenue increases to the previous year's limit plus an adjustment for inflation and population growth. But when state revenues decline from one year to the next, TABOR requires that the new lesser amount become the basis to determine future revenue limits. Thus, TABOR's ratchet effect forever bases the state's future revenues on its worst revenue year. In Colorado's case, that's the 2002 fiscal year when revenues fell 17 percent.
The state's economy has recovered since 2002, and state revenues have increased significantly. But because of the ratchet, state government has been unable to rebound the way the state's economy has. State officials have spent much of the past three years cutting services while refunding large chunks of tax revenues back to taxpayers.
If TABOR did not include the ratchet effect, the state would be limited to about $10.9 billion in revenue by 2011. That's $200 million more than it will be if Referendum C is approved.
Most encouraging about Referendum C is that it truly is a bipartisan compromise, hammered out between Republican Gov. Bill Owens and the Democratic-controlled state House and Senate. Republican state Sen. Jack Taylor supports the referendum as does Republican State Rep. Al White. More than 600 organizations statewide, ranging from nonprofits to business and industry concerns, have endorsed the plan. It is hard to imagine legislators coming up with a plan in the future with broader bipartisan support.
That said, we do have concerns about Referendum C.
First, it's wrong for proponents to say this is not a tax increase. True, tax rates will not go up, but Referendum C will allow the state to keep more of residents' tax dollars. The bottom line? Residents will pay more in taxes to the state.
Second, taxpayers should expect a significant return on the $3.7 billion investment they are making in state government. If Referendum C is approved, we should expect that the trends of recent years -- delayed highway projects, sharp increases in college tuition, reduced support for local human service agencies, etc. -- will be reversed.
Third, Referendum C should not excuse state legislators' responsibility to address Amendment 23 and the Gallagher Amendment. Many would argue that Amendment 23, which requires the state to fund public education at increasing levels year after year, and the Gallagher Amendment, which requires businesses to pick up an ever increasing share of the tax burden, are as much or more to blame for the state's financial woes as TABOR.
If Referendum C does not pass, it is estimated the state will have to cut $408 million from its general fund next year. That could have a devastating effect on important state services. Therein lies the rub -- TABOR is wildly popular with taxpayers because it so effectively holds the line on spending, but there is a point where cuts in service outweigh the benefits of tax savings. We are at or near that point.
Referendums C and D fix that problem while keeping intact the core of TABOR, including the requirement that residents vote on any new tax increase. We urge residents to vote yes on Referendum C and Referendum D.