TABOR: Restrictive Tax Limit Curbs Economic Mobility in Colorado

TABORTABOR: How It Started

In 1992, Colorado voters approved the Taxpayer’s Bill of Rights, a constitutional amendment designed to restrain growth in government. It took the acronym TABOR, which has extra meaning in Colorado, as some of the state’s history was shaped by the famous mining baron of the late 1800s, Horace W. Tabor.

Related: Understanding TABOR: The First Steps

TABOR applies to all levels of government in Colorado: state government, cities, counties, school districts, and special districts. It is the most restrictive tax and spending limitation in the country.

Passage came at the start of nearly a decade of record economic growth in Colorado, the Rocky Mountain region and the country. During those years, TABOR limited the amount of revenue governments could collect and spend. Taxpayers received refunds on their state income taxes, and mill levies were suppressed to prevent governments from collecting too much in property tax.

TABOR Reform

Some local governments found TABOR’s restrictions too constraining, and hundreds of cities, counties, school districts, and special districts successfully appealed to voters over the years for a partial reprieve from some TABOR provisions.

With the recession of 2001-2003, the negative impacts of TABOR became apparent. Tax revenues fell and the state government only had a 4 percent cushion to fall back on. Lawmakers were forced to make budget cuts, accounting for hundreds of millions of dollars.

Related: 10 Years of TABOR

By 2005, Colorado’s economy made strong gains, but the measure’s ratchet effect prevented the state government from using the growing revenues to restore vital programs. That year, legislators and former Gov. Bill Owens crafted a bipartisan budget compromise to give Colorado’s state government a five-year timeout from TABOR’s revenue and spending limits. Following the voter approval requirements in TABOR, they referred the measure, called Referendum C, to the state’s voters. It was approved in the November 2005 election.

While most states operate with some tax or spending limits, TABOR is the most restrictive in the country. Some believe this restraint is necessary; the argument is smaller government is always better, and authority for making decisions about the level of taxation and spending should rest exclusively with voters.

Related: Fiscal Prospects After Referendum C

Philosophically, these arguments are appealing. Everyone wants efficient government and a role in how our money is spent. At the same time, most of us would agree effective government must be responsive to changing economic conditions and the needs of society and its citizens.

Under TABOR, Coloradans have had an unprecedented opportunity to set state fiscal policy through the ballot box. Also under the measure, state government has grown only slightly.

Related: Projected TABOR Rebates in 8 Charts

But our research also points to structural flaws in the amendment that have seriously impaired the state’s ability to set budgetary and program priorities and respond to crises, as evidenced during the recession of 2001-2003. In short, TABOR has created a state government that is hamstrung by inflexible rules, making it unresponsive and less effective.

The Bell’s research experts spent years studying the impact of TABOR on Colorado’s budget and its programs, particularly those in place to increase opportunity for Colorado residents. The result was a pair of highly acclaimed reports that set the stage for the success of Ref C and for permanent budget reform.

Related: About That “Taxman” Podcast…