Michael New - Contributor
J. New received his Ph.D. in Political Science from Stanford
University and is currenty a post-doctoral fellow at
the Harvard-MIT Data Center. Michael's research interests
include tax limitations, campaign finance reform, and
welfare reform. Michael's writings have appeared in a
number of publications including Investor's Business
Daily, National Review Online, and
Country Register. He
is a board member of The Stanford Review and an Adjunct
Scholar at the Cato Institute. [go
to New index]
Learned from California
Colorado taxpayers beware...
[Michael J. New] 5/7/04
the 1990s, Colorado’s Taxpayer’s Bill of
Rights (TABOR) was America’s most successful spending limit.
However, recent fiscal shortfalls have put pressure on the limit.
In fact, legislators are currently trying to weaken the limit
by employing a strategy that was used to undermine California’s
own spending limit during the early 1990s. Colorado residents
should take notice, because California’s subsequent fiscal
nightmare reveals the perils of weakening effective fiscal limits.
When Colorado residents first enacted TABOR in 1992, it was
different from other fiscal limitations. TABOR established both
a low limit for state expenditure growth and mandated immediate
refunds to taxpayers of all surplus revenues. Starting in 1997,
revenues began to exceed the limit and over the next five years
taxpayers received annual tax rebates totaling $3.2 billion.
Colorado easily led the nation in tax relief during this time.
Now, most legislators dislike tight fiscal limits. Colorado
legislators have proven to be no exception. They have repeatedly
tried to enact initiatives that would allow them to spend in
excess of the TABOR limit. While some efforts to relax the TABOR
limits at the local level have been successful, TABOR opponents
have enjoyed little success in statewide elections.
In 2000, all of this changed when the education
lobby succeeded in passing Amendment 23. This law established
mandate for education spending: It required that education spending
increase faster than TABOR’s expenditure limit. This means
that, over time, a progressively larger share of Colorado’s
budget would have to be devoted to education.
Shortly after Amendment 23 was enacted, Colorado, like many
other states, encountered a budgetary shortfall. During the budget
crunch, these education spending mandates resulted in some unpopular
spending reductions elsewhere. This has sparked intensive efforts
to reform TABOR. In fact, Colorado lawmakers are trying to craft
a bipartisan reform proposal before the legislature adjourns
on May 5.
Now, it should be noted that some of these proposed
reforms are reasonable. A larger reserve fund would make it
the state to weather economic downturns. Furthermore, TABOR mandates
that the current year's budget serve as a baseline for the next
fiscal year. This creates a "ratchet back" effect and
gives the state the incentive to spend right up to the limit
every year. This could be reformed as well.
However, many reform proposals would gut the
limit, and make it virtually powerless to stop future spending
State Representative Brad Young has proposed raising the spending
limit from inflation plus population growth to personal income
growth. While this appears innocuous, his proposal would substantially
increase the limit, rendering it ineffective. In fact, over 10
other states have similar limits and numerous academic studies
indicate that these “restrictions” have virtually
no effect on state fiscal outcomes.
Interestingly, the strategies being used by
opponents of TABOR bear a striking resemblance to the strategies
used in the early
1990s to weaken California’s spending limit. In 1979, California
residents enacted a spending limit known as the Gann Limit, which
placed a tight limit on appropriations of tax revenues. During
the 1980s, the Gann Limit effectively kept budgetary growth in
check. In fact, in 1987 the Gann limit required the state government
to issue tax rebates totaling over $1.1 billion.
This tax rebate angered education interests
who wanted more spending on schools. As a result, California’s
education lobby devised a clever strategy to weaken the Gann
in 1988 the education lobby enacted Proposition 98, which required
that public schools receive a share of any revenues that exceeded
the Gann Limit. Perhaps more importantly, Proposition 98 required
the state to compensate for any decreases in education spending
that occurred when revenues declined.
These increases in education spending came at the expense of
other state programs. As a result, in 1990 the transportation
lobby was able to enact, Proposition 111, which exempted gasoline
taxes from the Gann limit. More importantly, Proposition 111
raised the spending limit. The formula, instead of inflation
plus population growth, was tied to per capita personal income
growth and population growth. This set a considerably higher
Ever since the passage of Proposition 111, the
Gann Limit has ceased to be a meaningful constraint on the
size of state government
in California. The Gann limit could not even prevent the 48 percent
increase in spending that occurred during Gray Davis’s
first three years in office. With a record setting deficit last
year and a large deficit projected for the current fiscal year,
California taxpayers are still paying the price for weakening
Indeed, Colorado residents should take note
fiscal condition, before deciding to tamper with TABOR. CRO
is a board member of The Stanford Review and an Adjunct Scholar
at the Cato Institute.
2003 Michael New