Voters suspend tax revenue limitations
In 1992, a group of Colorado residents, believing that local and state governments were growing too rapidly, led a successful campaign to pass the Taxpayer’s Bill of Rights Amendment (TABOR). In November 2005, faced with a fiscal crisis, the state’s residents voted to suspend the tax limitations under TABOR for the next five years.
TABOR essentially was established to restrain local and state tax revenues and spending. Under the amendment, the amount of revenue collected by Colorado state and local governments cannot exceed the revenue raised in the preceding year, with an allowance for a small increase based on inflation and local growth.
Since voter approval in Colorado, several other states have adopted tax or expenditure limitations. Arizona, for instance, requires two-thirds of its legislature — a “super-majority” — to approve any tax increase; Florida restricts government revenue growth based on a five-year average of personal income growth; and Maine restricts government revenue based on personal income growth.
Colorado’s TABOR policy commonly is viewed as the most restrictive, according to the National Conference of State Legislatures. Opponents of TABOR have argued that when the economy downturns, state and local governments collect less revenue. That reduced revenue then sets a lower ceiling for the following year’s tax collections. In turn, the lower revenue limit affects funding for government services.
Concern over the “ratcheting down” effect led state and local officials of both parties to propose a temporary relaxation of the TABOR revenue limits. Henry Sobanet, chief budget officer for Republican Gov. Bill Owens, argued in favor of such action, stating that, “while some of the cuts in recent years have not affected the general public, this subsequent round of reductions would diminish public safety and result in higher tuition for families.”
Not everyone, however, agreed with the idea of suspending the TABOR revenue limits. Colorado Congressman Bob Beauprez argued that the state needed long-term solutions to government funding problems, not a temporary suspension of revenue limitations.
In November 2005, Colorado voters passed Referendum C, which would allow the state government to keep all tax revenue collected during the next five years. Denver voters also approved Referendum 1B, which allows the City and County of Denver to do the same thing for 10 years. Gov. Owens and Denver Mayor John Hickenlooper say the election results will mean better public services for residents.
Although easing government revenue restrictions in the state with the toughest limitation policy was noteworthy, it is not the only recent example of such action. In April 2005, the Washington state legislature suspended for two years the requirement that a two-thirds “super majority” must approve any tax increases. “The legislature has ignored the will of the people and made it easier for lawmakers to raise taxes and increase spending,” said Steve Appel, president of the Washington Farm Bureau and critic of the measure.
Whether easing revenue limitations will continue to occur in other states and municipalities remains to be seen. However, the experiences in those two states indicate that in some circumstances, concerns over adequate funding for local government services can override statutory limitations on government revenue and expenditures.
— John Ragan is assessor for the City and County of Denver.