'The Hal Syndrome'

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.

As the Colorado Economic Futures Panel looks at the fiscal problems facing so many institutions in our state, I find myself thinking about HAL, the onboard computer in Stanley Kubrick’s 1968 classic film, “2001: A Space Odyssey.”

As you may recall, HAL was the highly advanced computer designed to operate the spaceship Discovery and to protect the passengers during a long trip into unknown territory.

At the time of its construction, HAL was programmed by well-intentioned people. It turns out, however, that HAL was given some conflicting instructions, which eventually turn his character from benevolent to malevolent, ultimately wreaking havoc upon the crew he was designed to protect.

Over the past 20 years or so, Colorado has methodically built its own version of HAL and put the custody of our state finances on autopilot. Colorado’s version of HAL not only controls many of the fiscal events in the state, it is also guided by conflicting instructions. I call this “The HAL Syndrome”.

Conflicting instructions programmed into Colorado’s fiscal autopilot include: The Gallagher Amendment, the Taxpayers Bill of Rights (TABOR), Amendment 23, and the state General Fund appropriations limit. Although it is reasonable to conclude that each of these major policies was well-intended, as a practical matter they now interact with each other in complex ways that are no longer subject to human judgment.

For example, the Gallagher Amendment to the state constitution was approved in 1982 at a time when Colorado state and local governments were much more reliant on property tax and when housing values were rising quite rapidly. Gallagher was intended, at least in part, to protect homeowners against tax increases driven by inflating home values and special tax breaks given to non-residential property. It included a self-balancing mechanism that would allow the residential and business property tax base to remain in relative equilibrium over time.

Like Gallagher, the Taxpayer’s Bill of Rights (TABOR), approved by voters in 1992, can be viewed as a well-intended initiative, in this case one designed to protect taxpayers from unfettered tax increases. TABOR is complex, but, when adopted, it had the effect of locking all other tax levels at a fixed point, only allowing increases after a public referendum.

The interaction of Gallagher and TABOR provides an example of the autopilot effect of public finances in Colorado. Although Gallagher alone was intended to keep residential and business tax bases in relative balance, the combined effect of Gallagher and TABOR is such that, as a practical matter, the residential portion of the tax base can only decline relative to the business tax base. As a consequence, residential assessed value has continued to decline, effectively shifting of the property tax burden from residential to business properties.

That seems fine for awhile, especially to homeowners, but at some point the increasing tax burden may start discouraging businesses from expanding, or spending more on operations or salaries, or locating new jobs in Colorado.

In most other states this would be a matter where legislative judgment would be required to examine the matter and take appropriate action. But that doesn’t happen in Colorado. That’s because Gallagher and TABOR are frozen in the state constitution.

So Colorado’s HAL continues to execute its instructions, as any good automaton should, oblivious to the potential damage to our state’s long-term economic health.

The interaction of TABOR and Gallagher is just one instance where the state’s course is charted based on pre-programmed instructions without reference to the cumulative consequences of conflicting commands. It is not the work of evil people bent on evil deeds. Rather, it is the result of good intentions, expressed through disjointed efforts, locked into the state’s constitution, operating automatically and without regard to the implications.

Jim Griesemer is professor and dean emeritus at the Daniels College of Business at the University of Denver. Comments may be directed to the panel through its web site: www.du.edu/economicpanel.