Podcast: Referendum C and the Colorado Budget
by Ari Armstrong, August 15, 2005
This is Ari Armstrong, and this audio file (or podcast) is copyright 2005, by Free Colorado, home of the Colorado Freedom Report at www.FreeColorado.com. Permission is granted to reproduce and distribute this podcast, so long as the complete, unaltered audio file is included, including this notice. [The same conditions apply to this text transcript.] Please enjoy, and please visit www.FreeColorado.com for news and views about Colorado politics and culture from a pro-liberty, individual rights perspective.
Referendum C is a massive net tax increase, estimated at $3.74 billion for the first five years, that will appear on this November's ballot.
This is a state-wide ballot measure in Colorado.
Supporters of Referendum C have claimed we're in a budget crisis. Yet total state spending has increased every year under TABOR.
When TABOR passed in 1992, total state spending was $6.34 billion. This year total state spending is $14.61 billion. That's a budget increase of $8.27 billion, or a 130 percent increase.
Total spending is up $580 million in the past year alone. We'll discuss the budget in greater detail later.
Referendum D is a $3.225 billion debt measure, to be repaid with your taxes.
Referendum D is dependent on the passage of Referendum C.
Just in case you're wondering, yes, I will get to the examples of wasteful state spending involving 12 Dildos on Hooks and lesbian sheep.
But more important, I want to set the context of the Taxpayer's Bill of Rights, or TABOR, the Colorado budget, Referendum C, and then alternatives to Referendum C.
THIS IS IMPORTANT
If you live in Colorado, this debate is important to you because Referendum C is a massive net tax hike that will take money out of your pocket and hand it over to politicians to spend.
Referendum C would totally wipe out all TABOR-related refunds for five years.
Referendum C is estimated to raise net taxes by $3.74 billion for the first five years alone.
Referendum C would also permanently increase the base of spending, so that state spending would be higher every year into the future, after the initial five-year period.
Thus, Referendum C permanently ratchets-up state spending.
This debate also has national implications. Reformers across the nation look to Colorado's TABOR as a model they hope to copy in their own states.
Referendum C would severely diminish TABOR here in Colorado.
The debate over Referendum C is also part of a broader fight over ideas.
Our side believes in economic liberty.
Our side believes individuals have the right to spend their income as they choose.
Our side believes the proper purpose of government is to protect individual rights, not forcibly redistribute wealth.
Our side believes that free markets and economic liberty are the keys to economic success.
The other side believes that a more powerful government that controls more of our resources is the answer to our problems.
The other side believes that politicians can spend your money better than you can.
The other side believes in more centralized state planning of the economy, and less economic liberty.
COSTS OF REFERENDUM C
Referendum C would take $3.74 billion out of the productive, voluntary economy during the first five years alone.
Referendum C, ludicrously called "The Economic Recovery Act" by its supporters, would in fact damage the economy and hurt Colorado businesses.
There are 4.3 million people in Colorado, so Referendum C raises $870 of additional taxes per person, on average, or about $3,500 per family of four.
The blue-book language says Referendum C "amounts to $1,163 per taxpayer over five years."
The blue book also states, "The sales tax refund accounts for about 42 percent of all TABOR refunds and is distributed based on income levels. Taxpayers are expected to receive an average of $491 in sales tax refunds over the next five years."
While the amount of refund per family will vary, Referendum C would eliminate TABOR refunds by an average of around $3,500 per family of four, over the first five years.
What could your family do with the TABOR refunds?
For my family, the refund represents several mortgage payments.
Would you rather pay higher taxes, or make additional house payments?
Would you rather pay higher taxes, or contribute thousands of dollars to your child's college fund?
Would you rather pay higher taxes, or spend thousands of dollars on your family's health care? The TABOR refund will buy numerous trips to the dentist and doctor, purchase a lot of eyeglasses, or buy a lot of medicine.
Do you really believe that politicians can spend that $3,500 better than you can, and better than other people who earn that money can?
MORE ECONOMIC COSTS
Let's talk about jobs.
$3.74 billion over five years is around $750 million per year, on average.
If we assume that decent jobs pay around $50,000 per year, Referendum C wipes out the equivalent of around 15,000 jobs in the market economy every year.
When taxes are higher, people have less money to spend with local businesses. When Colorado businesses earn less money, they have more trouble turning a profit and making payroll.
The most vulnerable jobs will be cut.
Referendum C would destroy real wealth, throw people out of jobs, hurt local businesses, and drive some businesses away from the state, by taking billions of dollars out of the pockets of taxpayers.
(By the way, some of these ideas came from an August 10 discussion with the Austrian Economics Study Group, organized by Ken Riggs in Lakewood.)
TAXPAYER'S BILL OF RIGHTS
Let's review the Taxpayer's Bill of Rights, or TABOR.
TABOR was an amendment to Colorado's constitution approved by the voters in 1992.
The author and one of the main supporters of TABOR was Douglas Bruce, who currently serves as a County Commissioner in El Paso County.
TABOR has two main provisions:
First, TABOR limits automatic growth of government spending to inflation plus population growth. This applies to state and local governments.
Second, TABOR allows additional spending only if approved by voters.
What is the TABOR refund? If the state takes in more taxes than it's allowed to spend under TABOR, the state must refund the excess money to taxpayers.
Referendum C would completely wipe out all TABOR-related refunds for five years.
The state would keep and spend more tax dollars, and that is the most relevant fact.
Thus, Referendum C is a massive tax increase.
Because it also permanently ratchets-up state spending, Referendum C is also a forever tax increase.
When supporters of Referendum C claim it would not increase taxes, they mean it would not increase the rate. But Referendum C would definitely increase the amount of taxes kept and spent by the state.
Those who suggest the state can spend a bunch of new money without raising taxes just aren't telling you the truth.
REACTION AGAINST TABOR
TABOR was passed by voters and remains popular.
TABOR has never been popular among those on the left.
For instance, then-governor Roy Romer said that defeating TABOR was the "moral equivalent of defeating the Nazis at the Battle of the Bulge."
Romer also said TABOR would be like posting a sign, "Colorado is closed for business."
Those quotes are from a November 6, 2002, article by Michael New.
Obviously, Colorado did not close for business in 1992.
TABOR helped Colorado move ahead economically, and TABOR helped ease the pain of the national recession.
Unfortunately, hysterical language against TABOR continues to this day.
The March 18 Rocky Mountain News includes a quote from the Democratic Colorado Senate President Joan Fitz-Gerald:
"If we lived in anticipation and fear of Douglas Bruce we would do nothing. We would provide no services. We would have a state that essentially turned into a Third World nation."
The economic ignorance shown by Romer and Fitz-Gerald is astounding.
Obviously, Third World Nations are NOT kept poor because politicians fail to impose high taxes on citizens there.
Third World nations are kept poor because of massive government corruption and a lack of individual rights.
A sound economy depends on free markets, low taxes, and the protection of property rights.
So don't be hoodwinked by the hysterical claims of tax-and-spend politicians and activists.
DOES REFERENDUM C COMMIT TAX DOLLARS?
In referring the ballot measure, the legislature claimed that the additional money would be spent for health care, education, retirement plans, and transportation.
But there are two problems with this language.
First, these are vague, poorly defined categories.
Basically this money can be spent however the legislature wants, without additional input from taxpayers.
But there is a more fundamental criticism: all the money goes into the same pool, and thus the alleged allocations are merely a shell game.
Consider this analogy. The numbers aren't to scale, but they make the basic point.
Let's say Cliff is a college student.
Cliff plans to spend $10 on pizza and $10 on beer.
But then Cliff gets a clever idea. He calls his father and says, "Dad, I'm suffering from a structural deficit, and I need to spend $10 on pizza. If you give me $10, I promise to spend all of it on pizza."
Of course, Cliff does spend the $10 on pizza, and he can even hand his father a receipt -- $10 for pizza.
Of course, then Cliff spends his original $20 on beer.
A clever father would reply something like this: "Look, Cliff, I know you already have $20, so why don't you spend $10 of that money on pizza? In fact, why don't you give up beer for tonight and study for the test I know you have tomorrow? Now that I think about it, why don't you spend $10 on healthier food?"
The point is that there are no practical restraints on how the legislature can spend the extra tax money.
Here's the giveaway line from the legislation. It claims that the fund "shall consist of an amount of moneys EQUAL TO the amount of state revenues in excess of the limitation" defined by TABOR.
The shell game doesn't hide the fact that there are practically no limitations on how that money must be spent.
THE COLORADO BUDGET
Let's briefly review the Colorado budget.
The total state budget has gone up every year from 1992-93 to 2005-06.
The total state budget is up $580 million from last year to this year.
During fiscal year 1998-99, when Governor Bill Owens was elected, the total budget was $10.48 billion.
This year, the total budget is $14.61 billion.
That's an increase of $4.13 billion, or a 39 percent increase.
Where does this money go?
There are 22 state departments. (You get a gold star if you can name more than four of them.)
Here's a partial breakdown:
First on the list is the Department of Education, with $3.6 billion, or about 25 percent of the budget.
Second is the Department of Health, which includes Medicaid. It brings in $3.3 billion, or about 22 percent of the budget.
Third is the department of higher education with $2.1 billion, or 15 percent of the budget.
In fifth place is the Department of Transportation, at 6 percent of the budget.
The Department of Corrections gets 4 percent, and the Judicial Department gets 2 percent.
For more details, see the article, "Colorado Budget Overview," at www.FreeColorado.com.
THERE IS NO BUDGET CUT
So total state spending has increased every year under TABOR.
It is true that the general fund, about 40 percent of the budget raised by Colorado taxes and most under legislative control, was reduced in 2001-02 and 2002-03.
The general fund is also expected to increase to new highs by next year and every year after that, under current rules, without Referendum C.
Economists from Legislative Council predict that "actual appropriations," a portion of the total budget related to the general fund, will increase modestly from $6,123,300,000 this fiscal year to $6,154,700,000 in 2006-07.
By 2009-10, "actual appropriations" are expected to grow to $7,172,000,000, an increase of more than a billion dollars from this year's level. That's a 17 percent increase under current rules, without Referendum C.
However, in a quote for the August 7 Denver Post, Governor Bill Owens's spokesperson Dan Hopkins claims, "We are going to have to cut $400 million from the next state budget if Referendum C doesn't pass."
Henry Sobanet is the governor's economist who threw out the $400 million figure in a July 12 letter to The Denver Post. His office, State Planning and Budgeting, predicts that "total funds available" will increase from $6,750,400,000 in 2005-06 to $6,923,900,000 on 2006-07. That's a $173.5 million increase.
However, expenditures show $159 million more for the "TABOR Refund" and $65.8 million more for the "Homestead Exemption," a property tax credit that the legislature reduced to zero from 2003-04 through 2005-06. If we subtract those figures, we get a budget cut of $51.3 million from this year to the next.
Yet Sobanet's office shows that "general fund appropriations" is cut by $207.8 million. Where did he get that extra "cut" of over $150 million? He assumes the legislature must increase spending on the "year-end general fund reserve" from $84.1 million to $238.8 million.
And where does Sobanet get the extra $200 million to make the $400 million "cut?" He assumes spending on Medicaid and K-12 education "will have to grow by some $200 million."
Under Sobanet's assumptions, then, the budget will have to be cut by around $50 million next year. The rest of his $400 million "cut" is really an increase in other parts of the budget.
But does Referendum C ask for an extra $50 million in taxes, or even an extra $208 million? No. It asks for an estimated $3.74 billion over the first five years alone. That's about 70 times the amount of money needed to cover the cut.
Sobanet's office shows "general fund appropriations" increasing after next year to $7,078,800,000 in 2009-10. That's nearly a billion dollars more than this year's level, a 15 percent increase under current rules, without Referendum C.
The fact is that the budget is already expected to increase over the next five years, with a possible minor exception next year, depending on which assumptions you accept. There is no $400 million budget cut. It is a myth. It is spin. It is propaganda intended to con you into supporting a massive tax hike that will help special interests, tax-and-spend politicians, and bureaucrats -- but hurt the economy.
ALTERNATIVES TO REFERENDUM C
So what are the alternatives to Referendum C?
How can the legislature learn to live within already-increasing budgets?
I'll discuss four broad areas of reform.
First, the legislature could refer a measure next year to fix Amendment 23.
Amendment 23 increases K-12 spending faster than the rate of inflation, even during recessions.
K-12 education already gets more money than any other section of the budget. It doesn't need disproportionate increases that strain other parts of the budget.
Second, the legislature should reform Medicaid.
Priority Colorado, a paper published by the Independence Institute, estimates the state could save $45 million to $90 million by instituting Medicaid reforms.
We should also examine potential fraud and abuse in Medicaid.
The Associated Press reported in June that Colorado's Medicaid program spent $2,013 to supply "Viagra and other impotence drugs to five registered sex offenders."
That practice was stopped following the report.
However, State Senator Dan Grossman, a Democrat, told the AP: "The fact that our system is so loose and so ad-hoc that it would allow sex offenders to receive sexual enhancers at public expense is not that surprising, but it [is] outrageous nonetheless."
Medicaid fraud has been a problem elsewhere.
The New York Times published an article on July 18 titled, "New York Medicaid Fraud May Reach Into Billions."
We should see if similar problems exist here.
Finally, other states such as Florida have looked at ways to restructure Medicaid. We might be able to use some of those ideas.
Third, Priority Colorado lists other possible ways to save money.
The paper estimates potential savings of between $300 million and $600 million.
In addition to Medicaid reform, the paper suggests reforms such as selling off unused buildings and lands, reforming prison sentences for non-violent offenders, and cutting administrative personnel.
For more details, please see www.IndependenceInstitute.org.
John Ziegler, who works for the legislature's Joint Budget Committee, said the paper vastly overstates savings, according to the Rocky Mountain News.
However, even if some of the suggestions won't work, we should implement whatever reforms are possible.
Fourth, the legislature should cut wasteful and low-priority spending.
During the period of the alleged "budget crisis," the legislature wasted millions of dollars.
Here is a partial list of wasteful expenditures, taken from various media reports and direct research:
* Viagra for sex offenders.
* Corporate welfare.
* An art grant based partly on the work, "12 Dildos on Hooks."
* A state-funded student project that included an internet discussion about a self-described "radical feminist" theory of orgasms, antiwar classroom exercises, and web pages that featured poetry about self-mutilation and lesbian sheep.
* Fun-colored condoms that were not highly rated for reliability.
* Participation in a military-style raid on low-stakes, recreational card players.
* Part of Ward Churchill's salary.
* $1,000 office chairs.
* A $200 million computer system that did not work that that required millions of dollars more in repairs.
Ultimately I would recommend more fundamental reforms, but that discussion would take us outside the context of Referendum C.
Here are my concluding remarks.
There is no "budget crisis" -- there is only a crisis of legislative accountability.
The legislature can learn to live within already-increasing budgets.
Taking more tax money out of the productive economy and handing it over to politicians to spend will only hurt the economy.
The legislature should make government more efficient and cut wasteful and low-priority spending.
For more information about this subject, see taxincrease.org, NoOnRefC.com, DouglasBruce.com, saveTABOR.com, and ActColorado.org. And of course also see www.FreeColorado.com.
Thank you for your attention to this important matter --