What is TABOR?
TABOR is the Taxpayer Bill of Rights, passed in 1992. TABOR prohibits any tax increase without a vote of the people. In addition, TABOR places strict limits on how much revenue the state can keep and how much it can spend. TABOR limits are the strictest revenue and spending limits in the nation. Any revenue collected in excess of TABOR’s revenue limits must be refunded to the taxpayers. [This provision of TABOR has been suspended at the state level for five years as a result of the passage of Referendum C.]
TABOR was popular because it forced legislators to come to the people when they wanted to raise taxes, but most voters were not aware of the strangling effect TABOR would have on basic government services. Those detrimental effects were felt in K-12 funding, when the strict limits prevented the State from providing per pupil increases that even kept up with inflation during the 1990s. As a response, Amendment 23 was passed by the voters in 2000, in order to make up some of the ground lost during those years.
The post-9/11 recession of 2001-2003 intensified the need to address the restrictions of TABOR. This economic downturn required deep cuts in already bare bones state services. Even worse, TABOR’s so-called “ratchet effect,”—which locked in TABOR’s revenue limits at their lowest point—prevented the state from restoring cut services when the economy improved. In response to this crisis, a bipartisan coalition referred to the ballot Referendum C—basically a five-year time out from the most harmful provisions of TABOR—and the voters of Colorado approved it in 2005. Had Referendum C not passed, the State would have been forced to make deep cuts at the same time it refunded hundreds of millions of dollars to taxpayers. During this five-year Referendum C “time out from TABOR,” the State is allowed to keep all the revenue it brings in from Colorado’s tax rates (among the lowest in the nation). After the five years, however, TABOR’s strictest-in-the-nation revenue limits will be put in place again. In addition, TABOR’s requirement that any tax increase be approved by the voters remains in place.
What is the Gallagher Amendment?
The Gallagher Amendment, passed in 1982, was designed to maintain a constant ratio between the property tax revenue that comes from residential property and from business property. To simplify a set of complex formulas, the effect of Gallagher was to reduce the assessment rate (the percent of property value that is subject to taxation) whenever statewide total residential property values increased faster than business property values. As a result of the Gallagher Amendment, the assessment rate for residential property has declined by more than two-thirds over the years because of Colorado’s population growth and because of increases in residential real estate values. The net effect has been a marked decline in revenues collected from property tax, which prior to Gallagher, provided the majority of school funding.
How do TABOR and Gallagher combined affect public schools?
Schools are funded by a combination of local (property) and state revenues. The Gallagher Amendment formula has limited local revenues by cutting the residential assessment rate by two-thirds since its passage in 1982. From 1982 until 1992 districts could make up for the lower assessment rate by increasing their mill rate. In addition, the state had the flexibility to increase state spending to make up for losses in the local property tax contribution. But with the passage of TABOR in 1992, a combination of budget formulas made it increasingly difficult to fund schools: TABOR’s revenue limits automatically cut mill rates in districts across Colorado at the same time TABOR limited the state’s ability to prop up school funding with state dollars. As a result, total per pupil funding didn’t even keep up with the Consumer Price Index during the 1990s – even though Colorado’s economy was booming. Note that the combination of Gallagher and TABOR has shifted the burden of school funding from local property taxes to the State General Fund. Thus, the State’s General Fund provides more than 60% of school funding whereas it used to be less than 40%. This explains the dramatic increase in the portion of the General Fund now spent on schools.
To learn more, read this blog post and view the presentation below titled “Four Things You Should Know About Colorado’s Fiscal Challenges” (Bell Policy Center, the Colorado Fiscal Policy Institute, and Colorado Strategies)