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From Governing’s
TABOR also limits annual revenue growth to the sum of inflation and population increase. Any revenues collected beyond that ceiling must be refunded to the state’s residents. What if the treasury is starved for cash? Too bad. The voters have to grant permission for the government to retain the money. This was tried. It failed. (Interestingly, TABOR also applies to local governments, and they’ve been successful in the majority of their attempts to retain extra funds.) The first TABOR refund checks were issued in 1998, and since then the state has handed back about $3.2 billion through 19 different refund mechanisms, mostly related to the personal income tax.
One might think that the refunds would lessen the demand for conventional tax cuts, but the Colorado legislature opted for those as well. During the past few years, before the high-tech collapse began eating into revenues, sales and income taxes were cut by $433 million, in a combination of more than 20 bills. Then, last year, corporate income tax receipts fell a whopping 46 percent, and individual income taxes — which comprise about 51 percent of the state’s tax revenues — declined by more than 15 percent. Moreover, the state still had to pay residents about $927 million they were owed for the 2001 surplus. It shouldn’t come as much of a surprise that there won’t be any refunds in 2003. But right now, that’s the least of Colorado’s tax problems. If revenues recover, the state won’t be able to use the added funds to cover its deficit. Instead, it will have to start handing out new refunds it can’t afford. Unless voters agree to some changes in the system, it could be years before Colorado’s finances are stable again. Adaptations that other states discuss — such as extending the sales tax to services and repealing some of the current exemptions — don’t even get to the table in Colorado. TABOR has complicated Colorado’s fiscal life so much that some of its original supporters have soured on it. “In hindsight,” says Republican Senator Ron Teck, “I wouldn’t vote for it again. It ties the hands of the representatives. It’s like trying to change the spark plugs on a car that’s moving down the road at 90 miles an hour.” But those who would like to do something about the law are probably too late. After its passage, the legislature approved a bill that limits all constitutional amendments to a single subject. TABOR has dozens of pieces, so a separate ballot amendment would likely be required to repeal each one. Recognizing that it might be time to reconsider the tax structure, the legislature several years ago created a commission to study the system (a comprehensive look hadn’t been conducted since 1959). But the project hit a snag when the legislature refused to appropriate any money for the commission to complete its tasks, and last year, Governor Bill Owens vetoed a measure to keep the penniless group going. Colorado not only has restricted its ability to make positive changes for the future — it has locked in ill-considered changes of the past. One of them is the so-called Gallagher Amendment, passed in 1982. That law requires that 55 percent of property tax revenue be derived from commercial property, and 45 percent from residential. The commercial rate was fixed at 29 percent of value, with a variable residential rate. As time has gone on, the value of residential property has increased in relative terms, forcing residential rates down dramatically in order to hold the ratio constant. But with lower residential rates, the property tax system doesn’t generate sufficient local revenue. And as with all other tax policies, the rates can’t be changed without the voters’ approval. That has led to a system in which localities depend heavily on their local-option sales taxes. Localities are allowed to set their own rates and create their own exemptions from the tax base, which make it difficult for businesses to figure out their tax liabilities. Companies describe Colorado as “a nightmare to do business in,” says Phyllis Resnick, of the Center for Tax Policy, affiliated with the University of Denver. On the administrative side, the state has had difficulty moving forward with its plan for an integrated tax information system. Individuals can file and monitor the status of their income tax returns over the Internet but haven’t been able to pay electronically. The Department of Revenue uses rudimentary imaging and is only in the pilot stages of 2-D barcoding, although it says it is meeting its performance goals in the processing of returns. There are a couple of bright spots, though: A local government revenue information system helps cities and counties analyze data from more than 220 taxing jurisdictions, and a smart e-mail system answers taxpayer questions with a detailed FAQ database. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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or the past decade, a constitutional amendment has crippled Colorado’s representative government when it comes to fiscal issues. Dubbed TABOR — for the Taxpayer’s Bill of Rights — it strangled officials’ ability to raise taxes by adding to the state’s constitution the requirement that voter approval be obtained for any tax increase.