The Budget Battle

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The Budget Battle

by Ari Armstrong, July 19, 2005

It is a strange world where some who want massive spending hikes in the Colorado state budget call their opponents liars, then turn around and tell their own fish stories about the budget.

Bob Ewegen begins his July 9 column for The Denver Post this way: "There's an easy way to tell when opponents of Referenda C and D are lying. Just watch their lips. If their lips move, they're probably lying." Referendum C is the $3.6 billion dollar (estimated) spending hike over the next five years -- and forever spending increase -- that will be decided this November.

It's unclear why Ewegen thinks such hostile personal attacks are warranted. According to one poll commissioned by the Independence Institute and the Colorado Club for Growth, most voters don't want to weaken the Taxpayer's Bill of Rights (TABOR). A Denver Post poll released on July 16 showed that 42 percent of Colorado voters oppose Referendum C (with 15 percent undecided), and 49 percent support the Taxpayer's Bill of Rights (with 20 percent undecided). Ewegen's name-calling against many or most Colorado voters, along with the many independent voices who have publicly criticized Referendums C and D, is unwarranted.

Unfortunately, some of Ewegen's own claims are questionable. He offers some reasons why he thinks the total state budget for fiscal year 2005-6 isn't sufficiently large. But his conclusion that "the state budget was cut by $1 billion over three years" doesn't square with the revised budget figures from the state's economists.

Total State Spending

Here are the numbers for "total appropriations:"

1992-93$6.34 billion
1993-94$7.56 billion
1994-95$7.73 billion
1995-96$8.27 billion
1996-97$8.82 billion
1997-98$9.63 billion
1998-99$10.48 billion
1999-00$11.15 billion
2000-01$12.35 billion
2001-02$12.96 billion
2002-03$13.27 billion
2003-04$13.62 billion
2004-05$14.03 billion
2005-06$14.61 billion

Here's what that looks like on a graph:

The "state budget" has increased every year since 1992, and this year's total state budget is the largest budget in history. Ewegen is free to argue that the state budget has not been sufficiently increased, but he muddies the waters when he claims "the state budget was cut," when in fact it has grown every year.

General Fund

Ewegen argues, "Yes, the state administers about $14.6 billion in next year's budget. But less than half, $6.2 billion, is in the state's general fund, the key source for such vital programs as law enforcement and education. There is another $3.3 billion in federal funds that the state can only use for specified purposes such as highways and Medicaid. Finally, the state administers about $5 billion in cash funds, money paid by citizens but restricted to specific purposes."

Okay, so let's look at the general fund. Using numbers for past years of the general fund sent to me by a state economist, along with forecasts available from a June 21, 2005, memorandum (duplicated on this web page) from the economists at Legislative Council, here is the past and projected future of the general fund, under current rules:

1992-93$3,312,100,000
1993-94$3,675,700,000
1994-95$3,941,900,000
1995-96$4,230,800,000
1996-97$4,639,900,000
1997-98$5,348,000,000
1998-99$5,749,600,000
1999-00$6,257,500,000
2000-01$6,500,800,000
2001-02$5,519,800,000
2002-03$5,420,500,000
2003-04$5,719,700,000
2004-05$6,098,100,000
2005-06$6,482,800,000
2006-07$6,895,800,000
2007-08$7,326,100,000
2008-09$7,771,000,000
2009-10$8,209,100,000

Here are the figures for the general fund on a graph:

It is true that the general fund was reduced for two years. It is also true that the general fund has grown every year since 2002-03, and it is expected to keep increasing every year under current rules. Ewegen doesn't mention that fact.

Total Funds Available and Actual Appropriations

The numbers for the general fund don't tell the whole story, though. So-called "Total Funds Available" and "Actual Appropriations" vary because of TABOR refunds and other (somewhat convoluted) factors.

The June 21 document lists two tables, Table 1 and Table 2, that show a "General Fund Overview," with and without passage of Referendums C and D. (Either "referendums" or "referenda" is correct, by the way.) Following are the projected numbers and graphs for "Total Funds Available." (Of course, these projections may be wrong.)

Current RulesWith Ref. C&D
2003-04$5,986,200,000$5,986,200,000
2004-05$6,455,000,000$6,445,000,000
2005-06$6,508,000,000$6,730,800,000
2006-07$6,613,700,000$7,236,500,000
2007-08$6,871,000,000$7,680,400,000
2008-09$7,274,800,000$8,126,800,000
2009-10$7,700,000,000$8,601,200,000

And here are the figures for "Actual Appropriations:"

Current RulesWith Ref. C&D
2003-04$5,599,400,000$5,599,400,000
2004-05$5,935,200,000$5,935,200,000
2005-06$6,123,300,000$6,291,300,000
2006-07$6,154,700,000$6,668,800,000
2007-08$6,386,400,000$7,068,900,000
2008-09$6,769,600,000$7,493,100,000
2009-10$7,172,000,000$7,942,600,000

No TABOR Refunds with Referendums C and D

The same tables show the TABOR refund, with and without the referendums.

Current RulesWith Ref. C&D
Refund for 2004-05$116,700,000$116,700,000
Refund for 2005-06$490,500,000$0
Refund for 2006-07$618,700,000$0
Refund for 2007-08$799,100,000$0
Refund for 2008-09$784,300,000$0
Refund for 2009-10$881,500,000$0

Per-Capita Spending

Here's another set of numbers that might interest Ewegen. The state economists also released "per capita inflation-adjusted total appropriations" for the same time period. This is for the total state budget. From 2000-01 to 2003-04, those numbers dipped. Here are select numbers from that period:

1992-93$1,499
1993-94$1,668
1994-95$1,583
1995-96$1,574
1996-97$1,566
1997-98$1,614
1998-99$1,658
1999-00$1,681
2000-01$1,763
2001-02$1,738
2002-03$1,661
2003-04$1,647
2004-05$1,660
2005-06$1,707

Here are those figures on a graph:

So real spending per capital is down around 3% from its peak, according to the adjusted budget. (Interestingly, the figure for 2005-06 using the original numbers is $1,765.) Perhaps Ewegen will want to quote the per capita figures and claim that per capita spending should be higher. And his opposition will counter with arguments that include the following.

  • Good government does not require constant spending hikes.
  • Spending per capita has already increased for the past two years.
  • Total state spending is already set to increase every year under current rules.
  • The state should be able to find per-capita savings because of economies of scale.
  • And it's better to cut wasteful and low-priority spending than to take even more money from taxpayers.

What About the Tobacco Tax?

Ewegen makes another error in his complete closing: "So the state budget was cut by $1 billion over three years. This year, it grew just 2.5 percent from that severely depressed base. And that's the truth." We have already seen that the total state budget was not cut at all -- it consistently increased. Ewegen cites a 2.5 percent increase to the total budget, rather than the 4.2 percent now cited by the state's economists, because "those numbers include $227 million from the tobacco tax increase voters approved in 2004 and earmarked for new spending in health care programs." Yet those funds contribute to state spending and the tax burden, whether or not they are earmarked, so they should be included.

What About Tuition Hikes?

Ewegen argues, "The state has cut aid to higher education about 30 percent since the 2001-02 fiscal year. That forces colleges to sharply increase tuition charges... [T]he tuition increases... show up in the state cash fund accounting as an 'increase' in total state spending for higher education! Foes of Referenda C and D then use that 'increase'... to argue for the still more draconian cuts in aid to education that defeat of [Referendum C] would inevitably force."

Here Ewegen makes several errors. College tuition is actually "cash funds exempt," and thus not part of TABOR revenues, though it is part of the total budget. Recent tuition increases have not even taken effect yet. The tuition hike represents only a small fraction (less than 10 percent) of the total increase in the budget. Nothing is forcing the legislature to cut certain programs over others. The legislature has made politically expedient cuts. The legislature refused to consider a package that modified Amendment 23, which increases spending for K-12 education beyond the rate of inflation even during rough economic times. The legislature has failed to find efficient ways of reorganizing state government, and it has failed to cut wasteful and low-priority spending.

Likewise, colleges are also able to make adjustments to increase efficiency, cut wasteful and low-priority spending, and improve voluntary fundraising efforts. (For example, not having constant scandals would enable the University of Colorado to raise more money.)

So the tuition hikes are not relevant in the way Ewegen claims. But should the state increase its subsidy to colleges? This is a distinct question from whether voters should approve Referendum C. The legislature will already have constantly increasing budgets over the coming years, if Referendum C is defeated. Some might argue that the legislature should reprioritize subsidies to higher education under current budget rules. However, higher education is almost exclusively a private good, not a public good, and a good case can be made that state subsidies should be further reduced, not increased. But, again, one's position on college subsidies is separable from one's position on Referendum C.

Ewegen Versus Poulson

Ewegen suggests that other people are lying about the dip in general funds. But that's just not the case. For instance, a paper by Barry Poulson published by the Independence Institute in March, 2003, states, "In FY 2001-02 Colorado experienced the worst fiscal crises in more than half a century. In that year, general fund revenues fell almost one billion dollars -- fifteen percent from the previous year." During the same period, many Colorado taxpayers also saw a dip in their personal income.

But what Poulson adds, and Ewegen neglects, is the fact that "TABOR Revenues," which contain both the general fund and cash funds, began to grow again the next year, and they are expected to keep growing every year into the future under current rules. (Table 7 of the Council's memo does show a dip in "Total TABOR Revenues" from 2004-05 to 2005-06 because of a dip in cash funds. Table 7 also shows a dip in "Allowable TABOR Limit" from 2003-04 to 2005-06, because of the so-called "Growth Dividend Population Adjustment," which was phased out over that period. The "growth dividend" is related to the population adjustment based on the 2000 census. Critics have argued that spreading out the "growth dividend" over several years was an illegitimate move that allowed the legislature to increase spending more than what TABOR's rules allowed. At any rate, the table shows growth for "Total TABOR Revenues" and "Allowable TABOR Limit" for all future years.)

The Choice

State government is expected to continue to grow every year into the future no matter what. Under Referendum C, state government would grow much more. If the growth of state spending is restrained under current rules, taxpayers will get back significant TABOR-related refunds -- a total of $3.6 billion over five years. Under Referendum C, taxpayers wouldn't get back any TABOR-related refunds over the next five years, but the legislature would be able to spend even more money.

And that's the truth.

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