In Colorado, Concern Over Anti-Tax Measures

Glenn Gustafson can imagine a day when Colorado schools fall apart, prisons close and highways crumble. As chief financial officer for the Colorado Springs school system, Gustafson recently had to cut his budget by 6 percent.

But those cuts are nothing compared to the hardship he says the school system would face if voters approve three tax-cutting ballot measures this November. He calls them the “evil triplets.”

If approved, the measures would dramatically hinder the ability of the state and local governments to raise and borrow money. Taxes on income and real estate would be slashed, as would fees on car registration and telecommunications. Strict limits on public borrowing would put future construction projects in doubt. According to some estimates, the state tax cut proposals could hack at least 25 percent out of the state’s general fund, not counting cuts to local governments and school systems.

“Are we really ready for the anarchy of an uneducated population that we can’t lock up in prison?” Gustafson asks.

Even in a year of anti-tax outrage, marked by Tea Party rallies around the country, Colorado stands out. Of the roughly 200 ballot measures that voters will decide on this fall, none would potentially shake the foundations of government as much as Colorado’s Amendments 60 and 61 and Proposition 101. Freda Poundstone, who sponsored Proposition 101, says the proposals are needed to protect taxpayers at a time when many are hurting financially. “It’s time people start getting their money back. It’s tough out there,” Poundstone says. “People are losing their homes, they’ve lost their jobs and they’ve lost their shirts. Government has not been reduced one iota.”

Over the past few months, voters have been sending mixed signals on taxes. Although voters in Arizona and Oregon recently approved higher taxes, several incumbents lost their primaries this week, suggesting that voters may be restless. Dan Smith, a political scientist at the University of Florida who studies ballot measures, says anything is possible in Colorado. “If you look at the type of displeasure with government generally and specifically in Colorado, if you look at the anti-incumbent sentiment, if you look at government spending and problems with balancing state budgets, this environment is probably as opportunistic as any for anti-tax crusaders.”

WHAT COLORADO’S THREE ANTI-TAX MEASURES WOULD DO

Amendment 60

• Require that school districts cut their property tax rates by half of their 2011 rates by 2020. Also require that state funds backfill those cuts.
• Roll back voter-approved increases to tax rates or revenues made after 1992.
• Terminate any new property-tax increase approved by voters after 10 years.
• Extend property taxes to “enterprises and authorities” such as utilities, parks, hospitals and universities. Lower tax rates to offset the revenue generated.
• Allow people who own property in a jurisdiction but live in another to vote on property tax measures.
• Make it easier for citizens to petition to lower local property taxes.
• Require that property tax elections be held only in November. Also require that property tax questions be voted on separately from debt questions.
• Estimated impact: property tax revenue will fall by about $1.87 billion.

Amendment 61

• Prohibit the state from taking on new debt and restrict local governments’ ability to borrow.
• Set a limit of 10 percent of assessed taxable value of real property on local governments’ ability to issue bonds. Currently school districts can borrow up to 20 percent of the assessed value of all taxable property.
• Require that debts must be paid off within 10 years.
• Require that once a debt has been paid off, taxes be lowered by an amount equal to the average debt payment.

Proposition 101

• Cut the income tax rate from 4.63 percent to 4.5 percent and provide for additional annual cuts until the rate reaches 3.5 percent.
• Exempt the first $10,000 in value from the vehicle sales tax; eliminate or reduce most other state and local taxes and fees on vehicles.
• Eliminate taxes for communications services, such as telephones, pagers or cable service.
• Estimated decline in revenues when fully phased in: $1.7 billion annually to the state, $622 million to local governments

Source: Sherman and Howard LLC, Colorado Center on Law and Policy

Billions at stake

The main provision of Amendment 60 would make school districts cut property tax rates in half by 2020 and require state funds to backfill those cuts. It also would impose property taxes on so-called “state enterprises” such as universities. Local governments wouldn’t get to keep that windfall — they would have to lower tax rates to offset the extra revenue.

Amendment 61 would ban the state from issuing any kind of debt and impose severe restrictions on the amount of debt that local governments could take on. And Proposition 101 would reduce income taxes, vehicle sale taxes, car title and registration fees and communications fees.

The nonpartisan Bell Policy Center , based in Denver, has calculated that Amendment 60 would cut local property taxes by more than $1 billion and force the state general fund to make up the difference. Proposition 101, meanwhile, would cut state tax revenue by $1.7 billion when fully implemented.

“I think these are very moderate proposals that address tax relief and tax reform,” says Natalie Menten, an anti-tax advocate who helped gather petition signatures. Menten, a longtime activist who often has clipboards sliding around the backseat of her car, says the measures are a way of fending off “unconstitutional tax hikes.”

School officials across the state are worried, however. To balance budgets, they would be forced to rely even more heavily on volatile state funding and would no longer be able to borrow money. Several school boards have come out against the measures and more are scheduled to discuss them in the weeks ahead.

A history of anti-tax sentiment

Arguments over taxes and spending are nothing new in Colorado. While many recession-battered states only recently have begun to ask difficult questions about tax rates and service cuts, Coloradans have been grappling with these issues for almost two decades. Mostly, that’s because it’s relatively easy in Colorado to place constitutional amendments on the ballot.

In 1992, voters approved the Taxpayers’ Bill of Rights, or TABOR, a sweeping measure that became a national model for anti-tax advocates. Authored by the activist Douglas Bruce, TABOR limited revenue increases to that year’s inflation rate plus population growth. Any revenue exceeding those limits had to be returned to taxpayers. And any new revenue-generating plan had to be approved by voters. In practice, these provisions made it very difficult for government revenues to recover from a recession, even as the economy bounced back.

Almost immediately, local governments began chipping away at the provisions of TABOR by petitioning voters to let them keep tax revenue that exceed the act’s limits — a process colloquially known as “de-Brucing.” In 2005, voters approved Referendum C, which allowed the state government to hold onto tax revenue in excess of TABOR’s limitations for a period of five years. A few years later, the Colorado Supreme Court upheld legislation that brought in more property tax revenue. Many observers see this year’s package of ballot measures as an attempt to undo these watering-down efforts.

Yet the implications of the initiatives are unclear. For instance, school districts routinely borrow money from the state to pay teachers until the spring, when property taxes start rolling in. Under Amendment 61, school districts would have no way to pay to keep schools open until April. Gustafson jokes that to make ends meet, he’s considering changing the school calendar or withholding part of teachers’ paychecks until the spring.

Also, it’s unclear how the state will be able to make up for more than $1 billion in property tax cuts called for under Amendment 60. Education already took a $260 million cut this year to balance Colorado’s budget. “To put more money into education out of the state’s general fund you’d have to do something pretty radical: close all the prisons or take all the mentally disabled kids that are in residential facilities and toss them out on the curb,” says state Rep. Joel Judd, chairman of the House Finance Committee. “It’s unlikely that we’d do anything like that.”

So far, Amendments 60 and 61 and Proposition 101 have generated little discussion among voters. But opponents are mounting a campaign bringing together such disparate interests as labor groups and chambers of commerce. Lawmakers from both parties have criticized the measures. So have both parties’ front-runners in this year’s governor’s race. Coloradans can expect to be flooded with ads on the initiatives during the summer and fall.

Meanwhile, opponents have filed a lawsuit claiming that the sponsors of the ballot measures have not disclosed their funding sources. They accuse Douglas Bruce of being involved with the petition drives. Bruce, who some view as an anti-government demagogue and others laud as a taxpayers’ hero, has denied any involvement and refused to testify in the court case.

Smith, the University of Florida professor, sees similarities between this year and 1992, when TABOR was approved after being rejected by voters twice. “It was a matter of commitment. A lot of folks were not focused on TABOR in 1992, as they had been in previous cycles,” he says. “If progressive groups and the business community aren’t vigilant, when the public mood shifts to an anti-government, anti-tax sentiment, these measures have a chance of passing in a state like Colorado that has a very strong libertarian streak.”

For his part, Gustafson has been spending a lot of time talking to people about the three measures. “I’m a Republican. I’m very conservative,” he says. “I’m not in favor of taxes, but I am in favor of a fair amount of taxes to provide government services. I want prisoners locked up in jail, I want indigents to get health care and I want children to be educated and I want all our children to get a college education. And we’re taking away all those things because of a frustration that I don’t quite understand.”