TELs of the tape

Filed under: Opinion |

Editor’s note: In December, the University of Denver announced the formation of the Colorado Economic Futures Panel to analyze the state’s fiscal situation and provide a platform for informed discussion and possible solutions. Sixteen business and civic leaders from across the state comprise the panel, including Dick Celeste, president of Colorado College. This is the second of a series of columns that the panel plans to submit until early April, when the panel expects to complete the first phase of its work.

There is an interesting quirk in the taxing scheme in Colorado, which has among the lowest state tax rates in the country. According to a comparison of 2003 state tax collections, Colorado is 50th among the states in state tax burden as a percentage of personal income. The most recent data available for local governments, from 2002, shows that Colorado local governments ranked 11th in local tax burden as a percentage of personal income, and the combined state and local government tax burden ranked 46th as a percentage of personal income.

The quirk comes from the fact that Colorado has a longstanding and seemingly intense love affair with “tax and expenditure limits” – called TELs.

Under TABOR, short for the “Taxpayer’s Bill of Rights,” the citizens have the right to vote on any tax increase or any new taxes. And yet, we continually impose ironclad limitations or constraints on relatively small revenue generating sources.

Those who desire to limit the size and cost of government should take heart in the fact that Colorado has been at the forefront of states for many years in efforts to limit the size of government, and there are a number of TELs already in place. Some of these limitations have included the local government property tax limit, the Kadlecek Amendment, the Gallagher Amendment, the Arveschoug-Bird Limit and TABOR. In addition to overall tax and spending limitations, Colorado has done a significant amount of “earmarking” where revenues are directed to pre-specified spending programs. Examples of earmarking include the recently adopted tobacco tax, and Amendment 23, which designates revenue for public schools, and others. Currently, there are five major earmarking programs embedded in Colorado’s constitution.

In most cases, the tax and expenditure limits and earmarking programs were enacted independently, on an ad hoc basis, and frequently without regard to other limits and earmarking. The existence of this jumble of limitations has created a complex financial structure made up, in large part, of schemes created to cope with the unforeseen and unintended consequences of the conflicts between the constraints.

Given the constraints, fees are imposed for myriad public services supplementing the limited property tax revenue available to local governments. Special districts, of which we already have nearly 2,000, are being formed at an alarming rate to provide new services. The use of cash funds to avoid the Kadlecek Amendment became prevalent in the 1980s. These funds have often been raided to balance the state budget in recent years. Perhaps even worse, many state services such as the University of Colorado are now being designated as “enterprises,” to get out of TABOR restrictions. The problem with enterprises is that they are often less accountable to institutions of representative government like the legislature, the governor and state oversight bodies, and for that reason are less accountable to the public.

This entire approach has not only created a complex and confusing fiscal system that is difficult to predict and impossible to adjust in changing economic times, it has led to the concept of special interest tax legislation and constitutional mandates. That has removed the ability and the responsibility for our elected officials to deal effectively with budget and funding issues. When we tie the legislature’s hands in dealing with state finances, we kill the concept of representative government.

I voted for the state officials because I wanted them to make intelligent decisions on how our state is run. I didn’t vote for my state representative to go to the Capitol to decide what issues I would vote on. I voted for my representative to study the pros and cons of the issues, and then to use informed judgment in making decisions. I think most voters did the same. However, by continually imposing and reinforcing limitations and constraints, we are coming dangerously close to eliminating the concept of representative government.

I contend that we should and must return the power to make the tough decisions on our fiscal future to currently elected, active and informed representatives. Casting our economic and fiscal future in stone by imposing more limitations and constitutional constraints that our representatives and senators cannot affect makes no sense and is doomed to failure. The best solution to our fiscal problems may well be to eliminate virtually all of the constitutional limitations and constraints from the present system, elect competent public officials and hold them accountable to make the hard decisions on a real-time basis.

What a novel idea. Isn’t that where we started?

Jerry Groswold is a native of Denver and a consultant to mountain ski resorts. Comments may be directed to the panel through its Web site: www.du.edu/economicpanel.