Friday, July 10, 2009

rerun of op-ed on Ref C

Since we are right back in a budget "crisis" and I just sat through two days of hearings on long term fiscal stability (more to come on that soon), I thought it would be appropriate to re-post what I wrote in opposition to Ref C in 2005.

Here it is, from the way-back machine of 2005:

I’ll be voting no on Referendum C on November 1st.

It is important to recognize that we have a difficult budget situation in the State of Colorado now. For that matter, it was difficult to balance the State’s budget for all of the three years that I served in the House. Spending expectations have exceeded available revenue every year. Sounds a little like my farm budget, come to think of it.

This gets pretty complicated, but if you read through, I promise to boil it down to something understandable.

The spending expectation for next year is calculated by increasing this year’s spending by 6%. When spending expectations exceed available revenue, we have what is called at the Capitol a “structural deficit”. Mrs. Brophy and I routinely have structural deficits in our household budget, so I understand these things.

The Taxpayer Bill of Rights or TABOR is a revenue limiter that was added to the State Constitution in 1992. It allows the state to keep only as much money as was collected the year before (this is the TABOR base) plus an additional amount equal to the increase in state population and the official inflation rate added together. Any time the state collects more in taxes and fees than TABOR allows the state to keep, the money must be refunded to the taxpayers.

Next year, the structural deficit for Colorado will be $492.7 million. At the same time, we will have a TABOR refund of $560.3 million. Over the next five years, the structural deficit is $720.6 million, while the total TABOR refunds will be $3.576 billion, almost five times as much as the structural deficit.

That’s not all, the Gallagher Amendment, the school equalization lawsuit, Medicaid expenditures, and Amendment 23 combine with TABOR and the 6% rule to make budgeting a perpetual challenge for the State of Colorado.

Referendum C asks the voters to allow the state to retain and spend all of the revenue that comes in over the next five years. In other words, the state would keep all of the TABOR refunds that would normally be returned to taxpayers, that’s the $3.576 billion. It also sets the TABOR base for future calculations at the highest point reached in revenue collections during the next five years.

It is really important that readers understand what it means when I say that the highest amount of revenue will establish the new TABOR base. This is the part of Ref C that gives the State an incentive to maximize taxes and fees.

To put it in personal terms, TABOR is like a diet for government, Ref C is a temporary break from the diet and Ref C is written to encourage binge style eating before resuming the diet in five years. The size of government will bloat like a wrestler’s tummy right after the state tournament!

The state will maximize revenue in the easiest possible way. They will increase cash fees to the greatest extent possible and they will likely use the Public Employee Retirement Account deficit as the first of many excuses to increase every fee that they can. Want to pay more to go to a state park, have your scale inspected or maintain your cosmetology license? Vote for C and that is exactly what you’ll get.

By the way, as long as there is a TABOR surplus, cash fees will not be raised. Higher fees just make the refund larger, so it won’t happen.

The principle behind Ref C is that the problem is a lack of money and that there is nothing wrong with the State’s spending formula. That principle is wrong.

Ref C is the State equivalent of a family refinancing their house to pay off their credit cards without cutting up those credit cards. It solves the problem for a while, but eventually the spending will catch back up with you.

We have to address the spending side of this equation while the motivation exists to do it. Think about it, if C passes or you refinance your house, what incentive do you have to address those things that have caused the problem in the first place?

Americans are capable of doing great things, but most of the time, we only act when we absolutely have to take action. We have reached the time to take action to address the six main causes of the budget problem.

I do not know that the State’s budget problem can be solved only through a reduction in spending, but I do know that without the pressure applied by the structural deficit there will be no attempt made to reduce spending or even to reduce the rate of growth in spending, especially when the additional revenue exceeds the structural deficit by a factor of five!

I do know that we can balance next year’s budget without closing the universities and without closing down the State’s parks; the warnings of Chicken Little not withstanding.

Colorado’s taxpayers deserve a better deal, one that addresses the rate of growth of spending in state government, a deal that seeks a long-term solution to the conflicting mandates in spending and revenue retention, and a deal that ultimately only asks the taxpayers for the amount of money that the State absolutely has to have, after the Legislature has truly done everything that can be done to address the way government spends money.

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