Colorado State Spending Act, Referendum C (2005)
The campaign battle over Referendum C was very hotly-contested. Supporters of Referendum C outspent its opponents with approximately $8 million spent by 14 different political committees advocating for its passage, while about 7 committees cumulatively spent about $3.5 million to defeat it.
How does the constitution limit state spending?
A constitutional provision commonly known as TABOR limits the amount of money the state may spend each year. It limits the annual increase for some state revenue to inflation plus the percentage change in state population. Any money collected above this limit is refunded to taxpayers, unless the voters allow the state to spend it. Referendum C asks voters if the state may spend money it collects above the limit on health care, public education, transportation projects, and local fire and police pensions.
What money is included within the limit?
The constitutional spending limit applies to about 60 percent of the money collected by the state, including income taxes, sales taxes, fees, fines, and interest earnings. Money received from the federal government, enterprises, lawsuits, and gifts is not covered by the spending limit and is not included in this analysis. 
How has the spending limit worked?
Between 1997 and 2001, the state collected money above the spending limit. For instance, in 2001, the state was allowed to spend $7.9 billion, but $8.9 billion was collected. The difference of about $1.0 billion was refunded to taxpayers.
When the state collects less money than the spending limit allows, there are no refunds. The next year's limit is calculated from the amount of money actually collected in the prior year. For example, the state experienced a recession during 2001 and the amount of money collected in 2002 was $7.8 billion, while inflation plus population growth would have allowed spending of $8.1 billion. The next year's limit grew from the $7.8 billion, not the $8.1 billion. This lowering of spending is known as the "ratchet-down" effect. The amount the state can spend under TABOR is now permanently below what it would be if no recession had occurred and spending had grown by inflation plus population each year.
According to its supporters, a "yes" vote was due to Referendum C because:
1) Referendum C provides money for critical investments in Colorado's future: improving the safety of roads and schools, providing additional health care for Colorado families, and supplying an educated workforce for Colorado businesses. These investments will help generate new jobs and retain existing jobs in the state. Based on income, Colorado ranks among the bottom ten states for funding K-12 and higher education. In addition, 39 percent of Colorado's roads and highways are in poor condition. Repairing highways now is cheaper than replacing them later.
2) Referendum C allows the state to recover from economic downturns while preserving the right of citizens to vote on all future tax increases. Under current limits, the state can never fully recover from an economic downturn. In the past few years, the state has added students and prisoners, and experienced more traffic congestion while TABOR revenue fell. Even if Referendum C passes, the state will be spending less in the future than inflation and population growth would have allowed since 2001. After five years, the state will once again have the strictest spending limit in the nation.
3) Without raising taxes, Referendum C provides the state with money to fund programs and services that were cut during the recent recession. The money will be generated from job growth, increased sales, higher salaries, and tourism spending. Colorado will still be a low tax state. Without Referendum C, the state will have to reduce funding for items such as higher education, programs that assist seniors like the senior homestead exemption, and programs that benefit low-income families and the disabled.
According to its opponents, a "no" vote on Referendum C was advisable because:
1) Referendum C is effectively a tax increase. It eliminates TABOR refunds for five years and reduces them each year thereafter. The state will spend roughly $3.743 billion that could be better used by Colorado's citizens and businesses. This reduction in private spending could dampen the economic recovery that began in 2003, making the state a less desirable place for business relocation. Not only are taxpayers giving up their sales tax refund, they are also voting to suspend 15 other refunds, such as a child care credit, lower motor vehicle fees, and capital gains credits. The estimated five-year total for all refund methods, including the sales tax refund, averages $1,106 per taxpayer.
2) Referendum C allows state spending to expand without being specific about the programs for which the money will be spent. The broad spending categories outlined in Referendum C cover 83 percent of state government. The new money could replace current spending on health care and public schools, essentially allowing the money to be spent for any purpose. The legislature can change the spending priorities anytime after the election. In addition, suspending the TABOR limit might lead to increases in fees and charges during the next five years because there is no limit on these increases and no requirement that these increases be approved by voters.
3) The perceived budget shortfall could be handled in other ways. TABOR allows government growth at inflation plus population, but it does not guarantee it. Government growth at a slower rate is acceptable and could encourage greater productivity and efficiency. Since TABOR passed in 1992, state spending has increased each year. Rather than spending more, the state could save money by eliminating inefficiencies, consolidating government functions, privatizing certain services, and reforming the state purchasing system.
Support by Donation
Approximately $8 million was spent by 14 different political committees advocating for passage of the referendum, while about 7 committees cumulatively spent about $3.5 million to defeat it.
|Denver Chamber of Commerce||$708,000|
|Colorado Education Association||$250,000|
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