View From a Height
Commentary from the Mile High City
Monday, September 22, 2003

Conflicting Unintended Consequences

H. H. Munro, alias "Saki," once wrote a story named "Hermann the Irascible - A Story of the Great Weep". It's a story of too much of a good thing, and while Saki is no longer so popular in his written, as opposed to his liquid, form, he's well worth reading.

Colorado is facing a similar problem, the victim of a series of budget ballot initiatives, each of which has flaws and merits, all of which taken together leave little room for budgetary maneuver. The Gallagher Amendment specifies that no more than a certain percentage of revenues may come from property taxes. This tends to keep propoerty taxes low, even as property values rise. Certainly, those who oppose Gallagher overestimate the amount of money being left on the table, since higher taxes will depress values.

TABOR, or the Taxpayers Bill of Rights, restricts spending to last year's levels plus population growth plus inflation. It's a terrific amendment, hated by all who love big government, but its flaw is hidden. The Government can't have a rainy-day fund, so when spending declines during a recession, that becomes the new baseline for the next year. Even when the economy rebounds, and revenues come back, that money can't be spent without a popular referendum to increase spending. It's being called the "ratchet effect," and it does seem to be restruct spending more than is good for the state.

The Left's favorite amendment, Amendment 23, is essentially a mandated welfare program for the teachers' unions, requiring increasing spending oin schools, and that that spending be fully funded. This increase in spending is to happen regardless of the economic circumstances of the state. When revenues decline, the schools still get theirs. The combination of mandates is squeezing the state: the whole pie must get smaller, but the schools' slice is mandated to get bigger.

The Democrats don't like TABOR since it restricts their spending; the Republicans, seeing the economy recover, are hoping to slide past this budget cycle by claiming there's no problem. Both are wrong, but the Republicans are making a strategic error. We may indeed make it past this budget cycle, and even through this business cycle, without having to make tough choices, but sooner or later the two imperatives will conflict, and we'll find ourselves in the same positions as Nevada, with one side petitioning the State Supreme Court to mandate a tax increase because of the "overriding" requirement to fund schools at an increased level.

The Republicans, controlling both houses, with a popular governor who will be termed-out, and a favorable alignment for this State Senate election cycle, should press their advantage and make the case against Amendment 23. TABOR should be changed so that the formula represents a ceiling, without the downward ratchet. The state could still only spend what it took in, and would still be required to go to the people to approve a tax increase. But when revenues recovered, they could be spent up to that ceiling of Baseline = 1992 + population + inflation. Amendment 23 should be changed to require a floor on school spending, as a percentage of overall state spending. Gallagher should be left alone. It may be that rates haven't increased, but an increasing population by definition pays more in property taxes.

Then, maybe, we can get around to asking why public employees are exempt from having to take pay cuts like the rest of us.

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