April 09, 2009 News » Cover Story

TABOR tyranny 

Or, why our city will never really recover from an economic downturn


Across America, the dark cloud of recession hangs black. People can only hope the storm will be brief, and that lighter, more prosperous times await on the horizon.

But the sun will not come out tomorrow for the city of Colorado Springs. Not with the Taxpayer's Bill of Rights hanging around.

While it's known to the public primarily for giving voters dominion over tax increases and government spending, the spawn of anti-tax crusader Douglas Bruce is a complicated law that has put Colorado's state and local governments in a stranglehold for more than 15 years. Bell Policy Center of Denver, a think tank that conducted a 10-year study of TABOR in 2003, calls it "the most restrictive limitation in the country" for how it has suppressed government spending and lowered property taxes, making it, simultaneously the most loved, hated and feared law of the land.

And TABOR will turn meaner in coming years. As the country emerges from recession, TABOR will tighten its grip on government, preventing it from quickly restoring services lost in hard times, and catching up on projects that have been put off.

Even in economic recovery, parks will stay brown. Buses parked. Police overworked. Fire stations unbuilt.

"You have a bad year," Vice Mayor Larry Small says, sighing, "and you have to start all over again."

This is called the "ratchet-down" effect, one of the many little-understood traits of Bruce's baby. Here's how it works: TABOR "caps" city spending at whatever was spent last year, plus inflation and city growth (actually defined as net new construction). That seems fair enough, but appearances can be deceptive, and that's especially true with TABOR. During a recession, the city spends much less than normal — its budget shrinks because people are spending less and, therefore, tax revenues are lower. Under TABOR's rule, that lower spending punishes the budget of every year that comes after it.

Think about this in terms of your own family budget: Let's say your boss promises to pay you no more than your last year's salary plus a 2 percent annual raise. In 2007, you worked full-time and made $50,000. That means you should have been able to make $51,000 in 2008. But in 2008, for whatever reason, you were only able to work part-time, and made $40,000.

Even though you're back to full-time employment in 2009, your boss reaffirms he's paying you last year's salary plus 2 percent — or $40,800. At that rate, it will take you 12 years to make more than $50,000 a year again — at which time inflation will have reduced your buying power considerably.

For comparison's sake, if you had never gone part-time, with annual 2 percent increases, in 12 years your salary would have ballooned to $63,000, and over that 12 years, you would have made more than $136,000 in additional salary.

Back to the city. Imagine, for a second, that since 1991 — when the city's version of TABOR passed — Colorado Springs had maintained consistent economic health. Adjusted for inflation and city growth, the general fund budget would now be $349 million.

That's more than $120 million over what it actually is — $228 million.

Is this what Bruce intended? Well, turns out Bruce doesn't believe the budget has ever ratcheted down. He thinks that so long as the total city budget has grown year to year, and it has, that the ratchet is a myth.

"Show me where it's ever happened," he says. "What they call a cut is eliminating the increase they hoped to get."

But Fred Crowley, an economist and associate research professor at the University of Colorado at Colorado Springs, modeled the city budget from 1998 to now. In doing so, he found that it had dropped about 20 percent in inflation-adjusted dollars.

"Eventually TABOR will reduce [the budget] to zero, under the ratchet-down," Crowley says. "How many years can you lose 20 percent before you're down to zero?"

No city budget means no emergency services, no parks, no road maintenance ... get the drift?

If you didn't understand the "ratchet-down" back in 1991, or in 1992 when voters approved putting a variation of TABOR in the state constitution, you've got company. Rocky Scott, who headed the Colorado Springs Regional Economic Development Corp. from 1989 to 2005, remembers the voter mood of the time.

"I think what people thought they were voting for was 'let me vote on an increase in taxes,'" says Scott, who now is an administrator at a Loveland-based real estate company. "[But] it's a little bit like doing an appendectomy with an ax."

Voters got a whole lot more than reasonable control over government spending. They also got endless ballot issues asking them to play government accountant — a role few understand or have any desire to understand. And when the ballot language proves confusing, Jane and Joe Public are easy targets for zealots and their narrow interests. TABOR gave us government that was set up for economic failure, impotent leaders and countless tiny taxes.

While it looked like a lamb from a distance, TABOR has much bigger teeth up close. A few of the incisors:

#1: Bruce's formula = bad math

Don't get the nerds started on this one.

As it turns out, the formula Bruce cooked up to determine the annual growth of government spending is, uh ...

"Inherently flawed," Crowley offers.

The first flaw is a basic math error. According to TABOR, city government can grow by the percentage of city growth plus the percentage of inflation. So if growth is at 2 percent and inflation is at 2 percent, the city budget can grow by 4 percent. But ...

"Mathematically, you commit a no-no when you add two rates of change." Crowley says.

Translation: Bruce used middle school math on a problem that required something more like college-level statistics. Of course, he doesn't see the error.

"They're two percentages," he says. "If you add 2 percent plus 3 percent, that's 5 percent."

That math isn't the only issue. Bruce also bases the inflation used in his formula on a consumer price index from the U.S. Bureau of Labor Statistics for the Denver-Boulder area.

There are two problems with that. First, prices in Denver don't necessarily match up with those here.

"Is it a perfect measure?" asks Sonny Katz, an economist for the Bureau. "No."

Second, using a consumer price index means government is allowed to grow at the same rate as prices for things like bread and milk — not at the same rate as things the city actually buys, such as health insurance, water and gas. Since 1999, the city's costs for fuel have increased by an average of 16.5 percent a year, and its utilities costs by an average of 9.6 percent a year. TABOR pinned inflation at an average of 2.6 percent annually.

#2: TABOR hearts local sales tax

Might as well just say it: Sales tax is a lousy way to fund key government services.

In essence, every time you say no to that cashmere sweater, or decide a new flat-screen TV really doesn't fit your budget, you're increasing the chance that police won't be there when you need them. Sounds absurd, but this is basically the way the system works.

That's because more than half of the city's general fund is collected from a 2-percent sales and use tax. (Coincidentally, half the general fund budget is spent on public safety.)

If you're not buying, the city's not collecting.

Meanwhile, total revenue from property taxes — a stable source of funding not dependent on your shopping sprees — makes up just 10 percent of the general fund. In 2008, per capita property tax here was about $55.

"When you pull out of your driveway, you've got gutter, sidewalk, street," Small says. "Just the maintenance costs of just that part in the front of your home is far greater than that $55 a year."

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Once again, TABOR is responsible. It does the same thing to property tax as to city spending: It allows revenues to grow only with inflation and city growth. In the 1990s, as we all fondly remember, home prices skyrocketed. Most cities, in turn, collected a lot more property tax. But in Colorado Springs, the property tax rate went down, down, down — to ensure the city wasn't collecting more property tax than TABOR permitted.

Now property values are going south, but guess what? Those property tax rates remain low. That ratchet-down means that in the coming years, the city will need to cut back. It also means that really important services like police and fire are now being funded on the slim hope that you're going to keep buying stuff you don't need, or that you'll buy the stuff you do need from city stores and not from, say, the Internet — which, of course, barely existed in the early '90s, when TABOR took hold.

It's not really working out. In February, sales and use tax collections were down a massive 10.39 percent compared to February 2008.

But wait — couldn't the city stabilize its budget by keeping enough savings to ride out the rough times? As it turns out, TABOR even makes that unattractive. As the Bell Policy Center points out, "Any money that is not spent in one fiscal year cannot be 'saved' for use in the next year without being counted in the limit for that second year." In other words, $10 million saved in 2009 may be $10 million less that the city can spend in 2010.

TABOR does require the city keep an emergency fund — but the city says to tap it, the declared emergency can't be economic in nature.

#3: Tiny taxes can make for big trouble

Killing taxes is a bit like playing Whac-A-Mole. TABOR may have bludgeoned some of 'em, but they just keep on comin'.

They are called "the silos" or "the stovepipes." They are taxes that fund something specific. You probably recognize the biggies: the voter-approved Public Safety Sales Tax; the Trails, Open Space and Parks sales tax; and the Pikes Peak Rural Transportation Authority sales tax. Together with city, county and state sales taxes, they've ballooned the taxes you pay on purchases to 7.4 cents on every dollar in Colorado Springs.

These silos fund the voters' favorite causes — while neglecting less-glamorous but still-vital expenses like, say, fleet maintenance or payroll.

Then there are the property tax silos, thousands of tiny taxing entities across the state, classified under names like metro districts, special improvement districts and business improvement districts.

In fact, there's a good chance you live in one of these districts, and if you do, you could be paying very high property tax — maybe even 10 times more than the current city rate. So in a hypothetical case, for an average home in Colorado Springs (market value of $267,000), the homeowner would pay the city $105 in property tax, but that could rise to $1,000 in a highly taxed special district.

In many cases, you're paying these districts — which are kind of like homeowners associations that don't care as much about dog crap — to do for you what the city might have if it had any cash. Often they are formed by a vote of neighbors, maybe to build a fence around a neighborhood, or keep flower beds blooming, or maintain sidewalks.

Other types of districts are formed by developers, so that you'll pay them back for the road they installed in front of your house. (Bruce likes to refer to the latter as "a scam where a developer calls himself a government so he can issue tax-exempt government bonds for the costs of building his infrastructure.")

Interested in escaping the taxes by moving to a new house outside city limits? You'll probably end up paying just as much, if not more, in property taxes to a district, but your roads won't be as high quality and you won't get the city's police and fire service.

And if you buy a new house on the city's edge? Watch out. You'll probably still end up paying your district to build your roads. Meanwhile, the property tax that you still have to pay to the city likely won't benefit your brand-new neighborhood infrastructure for years — because it probably won't need maintenance for awhile.

So, maybe the best bet is to buy in an older neighborhood? Nope. The city is way behind on infrastructure improvements, so chances are the roads and sidewalks will be in poor shape. And as the city grows, those infrastructure needs just stack up, meaning you're going to wait longer and longer to see those potholes filled.

As usual, the joke is on you. Your city is a mess because it's operating on money from sales taxes. But you may be paying extremely high property tax — to little taxing districts. So, when the city wants to raise property taxes to pay for things like police and fire, you're thinking your taxes are already hefty enough.

"We have forced ourselves in a position where a sales tax is preferable to a property tax," Vice Mayor Small notes, "because of the inequity that would happen if you raised the general mill levy on properties across the city. We've got to find a way to get out of that."

#4: TABOR and business: not BFF

Here's another equation that appears to be inaccurate: No taxes = a business-friendly city.

It's true that high taxes drive businesses away, says Mike Kazmierski, Scott's successor as the local EDC president and CEO. But excessively low taxes can be just as unattractive.

"In my eight years at the EDC, I have never had a company indicate our taxes are too high," Kazmierski says. "They are much more concerned about the quality of the workforce, the ability of government to meet their needs, the safety and security of the community, the transportation system.

"The basic government infrastructure needs to be functional and in place. And businesses are willing to pay their fair share to accommodate that. What they don't want is zero taxes and zero government service, because they will not be able to function effectively in that environment."

In other words, if the city government is, say, too underfunded to approve and process permits on time, a business will not want to relocate here. If a company wants that kind of service, there are more exotic places to move to.

"If all you care about is taxes, you're not in the United States at all, you're in Asia," Rocky Scott quips. "If that worked, there would be nobody in California or New York."

There's another wrench in the equation. It's called the Gallagher Amendment. Gallagher, which Colorado voters passed in 1982, says that residential property owners should never pay more than 45 percent of the total property taxes in the state. That means commercial property owners have to pay the rest. Over the past two decades, homes have popped up much faster in Colorado than businesses. And that's meant that individual homeowners need to pay less taxes to meet their share under Gallagher, while businesses pay more. By shifting the burden to business, Gallagher had saved residential property owners more than $11 billion in taxes by 2006.

The increased tax burden that Gallagher places on businesses means that Colorado Springs cannot guarantee the business community either a perpetually low tax burden or a city with great services.

"At the same time you're making it easier for someone to buy a house," City Councilor Scott Hente says, "you're making it harder for them to get a job."

#5: No one (and everyone) is to blame

The great thing about indirect democracy is that when someone screws with your money or liberty, you get to kick their asses out of office in the next election.

But, in a way, TABOR has taken even that joy away. Because when it comes to the big money decisions, our elected leaders aren't calling the shots. We are.

Sure, it was City Council that decided this year to close 17 public bathrooms in the parks. But the fact that Councilors were staring down a $40 million budget shortfall? That's part you, part me, and part the economy.

So the next time your kid pees himself at the playground, you might want to direct your tirade at yourself.

From a fiscal standpoint, Colorado has become a direct democracy. And it's a mess. Because unlike the ancient Greeks, most of us don't want to spend our days in a stadium hashing out the transportation budget. Even in Athens, only a select group actually did that. And even then, it didn't work.

Bruce says that the public has a "desire to follow the money."

Do we? All the time? Obviously, most of us just don't understand the city budget. Hente says citizens ask him all the time why the city paid to purchase the White Acres property for open space, or why it just built a new skate park, when funding for police is being cut.

"Is having adequate police and fire more important to me than having a skate park?" Hente asks. "You bet it is."

What the public doesn't understand, he says, is that Council doesn't set the funding priorities all the time. Laws do that. And, even in hard times, there's nothing Council can do about it.

A few years ago, 16 business and civic leaders formed the University of Denver's Colorado Economic Futures Panel to seek nonpartisan solutions for the state's money mess. Its final report recommended putting lawmaking back in the hands of lawmakers, bringing back property tax in a meaningful way, and greatly increasing government transparency.

"Central to the problem is the practice of making fiscal policy by public referendum through amendments to the Colorado Constitution," the report states. "It is a haphazard approach where citizens are asked to make major fiscal decisions in isolation, based on one-sided 'facts' provided by proponents and opponents. Making fiscal policy by referendum is a process where over-simplification and under-analysis are the established norms; where conflicting policies and unintended consequences are the logical outcomes."

Not being experts on government fiscal policy, we've set up city government to consume itself. At the state level, it's even worse. Like the city, it has TABOR and Gallagher, but the budget-strapped state is also tripping over the Arveschoug-Bird limit, which only allows state general fund spending to increase by 6 percent a year, and Amendment 23, which says the city must increase spending on K-12 education by inflation plus 1 percent every year until 2010, after which spending must still increase each year by inflation.

In sum: a matter of vision

It's not that TABOR's author is an unintelligent guy.

Bruce has been an able watchdog for the city over the years, giving the public a glimpse of wasteful (or what he sees as wasteful) government spending. But it's important to remember that Bruce wrote TABOR with his own utopia in mind. He wrote it to rid us of government that he sees as perpetually extravagant and careless with our money. Bruce thinks he's saving us.

"[City government] should provide the basic things that only a city government can do," Bruce says.

In other words, Bruce has no problem with privatizing all city services except police, roads, municipal courts, City Council, the city administrator and drainage — though he might give a little leeway for a smattering of parks, a city engineer and fire fighters.

That's it. No buses. No recreation. Fewer parks. No City Auditorium or Memorial Hospital or Colorado Springs Utilities. TABOR is taking down government because that's what it's designed to do.

This year, city parks won't get watered often enough to keep the grass from turning brown. Playground equipment that is damaged or vandalized will be partially or fully dismantled instead of being repaired or replaced.

Cuts to road repairs will mean residential streets won't be plowed until 6 inches of snow piles up. Bus routes will be cut substantially, and some services that ferry disabled residents to doctor offices, schools and workplaces will vanish.

Once the economy does pick up, businesses looking to expand or relocate in the city will face a hassle, because city staff won't be able to handle the demand. That likely will delay the city's economic recovery.

Meanwhile, police and fire department budgets could be cut further if the recession continues. This, despite both already being strained.

All this neglect doesn't bode well for the Springs. As a general rule, maintaining is cheaper than replacing. That's true when it comes to roads, cars and turf, but it's also true when it comes to intangible assets, like the city's safe and business-friendly reputation.

Is this what residents want? Some recent elections suggest otherwise. Vice Mayor Small notes that it was voters who approved TOPS, PPRTA and the Public Safety Sales Tax.

"[Voters] have always been there to support the needs once they had an understanding of what they were," he says.

Also, voters across the state often favor their city governments over TABOR's rule. The Colorado Municipal League found that between the years of 1993 and 2008, Colorado municipalities asked voters to keep revenues collected over the TABOR cap 508 times. Voters approved 87 percent of those requests.

Certain parts of it remain popular. In fact, not a single person interviewed for this story said they want to get rid of the right to vote on tax increases. That's a sacred right in Colorado, and it's hard to imagine that ever disappearing.

It's the rest of TABOR that many want to ditch.

In recent years, murmurs of repealing at least parts of TABOR have circulated. City Council briefly considered asking voters to kill the city's version of TABOR this year (the state law would have offered similar, if slightly less draconian, restraints), but quickly backed away from the idea when the anti-tax community roared.

Former House Speaker Andrew Romanoff pushed a state amendment in the 2008 general election that would have benefited education and wounded TABOR. But it was defeated.

Earlier this year, the state Legislature was mumbling about trying to repeal the law, or extending Referendum C, a law that gives the state a temporary break from TABOR's spending limit. Nothing's come of it yet. In fact, the greatest challenge to TABOR lately has resulted from Colorado Supreme Court rulings that appear to weaken it at the state level.

In truth, the likelihood that Colorado Springs will ever escape from TABOR's claws most likely is tiny at best. Ours is the only Colorado city to have TABOR both as a state and a city law. So, when the recession ends, government services will only return in a slow trickle. Ground will continue to be lost.

"There's an old saying, 'Garbage in, garbage out,' and 'You get what you pay for,'" current Colorado House Speaker Terrance Carroll says. "And basically, by our inability to pay for quality services, you get garbage at the end of the day."

This is TABOR's future. And yours.


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