The paramount challenge Democrats face as they take full control of Colorado state government next year: the gap between the ambitious agenda they promised voters and the limited money they have to spend.
In interviews with The Colorado Sun, top Democratic lawmakers say they’re already brainstorming ideas big and small to close that gap — including passing legislation to increase the state revenue cap by $200 million, an idea that would go a long way toward funding Gov.-elect Jared Polis’ promise of all-day kindergarten for every child.
But there’s no clear consensus on the right approach, and any measure to tweak the Taxpayer’s Bill of Rights, better known as TABOR, may face significant political hurdles.
On the one hand, the Democratic leaders now in complete control at the statehouse could use their newfound political power to rewrite the state’s constitution and tax code to fund a major expansion of public services, if voters allow.
Other party officials are preaching caution, preferring to legislate with restraint after their last stint in charge ended in voter backlash over perceived overreach.
As it stands today, here’s an analysis of five ideas that Democratic leaders say they are considering to find new money:
Raise the state revenue cap by $200 million
“It carries a little bit of legal liability, but it was an act of the legislature to lower it. I think the legislature is completely in its right to raise it again. And if we do that, we have some flexibility to make those investments that voters are expecting of us,” said state Sen. Dominick Moreno, D-Commerce City, who is expected to be the next chairman of the Joint Budget Committee.
The pitch: The state revenue limit under the Taxpayer’s Bill of Rights was $200 million higher just one year ago. But lawmakers voted to lower it – as part of a deal with the Republican-led Senate at the time.
The compromise measure exempted a state hospital fee from the TABOR revenue cap, which made more room for spending. But now the state is back at the spending cap sooner than many expected, and Democrats are considering amending their 2017 deal with Republicans and raise the cap. The move could eliminate upwards of $300 million in expected taxpayer refunds over the next two years, and instead, allow lawmakers to spend the money.
The opposition: It’s politically and legally fraught. Lowering the TABOR cap was the lynchpin that convinced Republicans to agree to the great bipartisan compromise of 2017, Senate Bill 267. Republicans likely would brand this a political betrayal, and an unconstitutional subversion of TABOR to boot.
It’s not clear if it’s legal for the legislature to do so unilaterally, or if it would need voter permission. Moreno said the legislature’s attorneys are looking into it.
Analysis: It wouldn’t be the first time lawmakers looked to legally murky tactics to avoid TABOR refunds. And the courts have historically given the legislature a lot of leeway on these matters, much to the dismay of fiscal conservatives.
The bottom line: Assuming the attorneys sign off, expect this one to gain traction in the coming months, especially with the incoming chair of the powerful Joint Budget Committee is pursuing the idea.
MORE: Read more politics and government coverage from The Colorado Sun.
Repeal and replace Gallagher
“Skyrocketing property values in Denver are bankrupting rural fire districts, and that’s a major problem. It has to be fixed,” said state Rep. Jeff Bridges, Democratic leader and a member of the interim committee on the Gallagher Amendment.
The pitch: The Gallagher Amendment is a constitutional provision that is causing residential property tax rates in recent years to steadily shrink thanks to the Front Range housing boom. The measure is providing tax relief to homeowners but squeezing public services in rural areas and shifting costs onto the state.
With Gallagher expected to cut property taxes by another 15 percent in 2019, there will be urgent demand for lawmakers to act. A legislative interim committee endorsed three possible solutions with bipartisan support, including a “repeal and replace” plan that would preserve some tax relief in places where property values are rising the fastest.
The opposition: Legislative Council, the committee that oversees the interim session work, rejected the repeal bill and a measure to assist special districts that lose funding due to Gallagher. The oversight committee did approve the replacement plan that would apply the Gallagher formula on a regional basis instead of statewide, but that could create new problems down the road.
Not all Democrats are enamored with the regional replacement plan backed by Rep. Bob Rankin, a Carbondale Republican.
Analysis: At a minimum, Democrats say to expect more conversation around Gallagher than in years past. But the legislation would need voter approval – a big political lift that requires bipartisan supermajorities in the legislature to put it on the ballot and a massive public education campaign to convince voters to pass it.
And while top lawmakers and the governor say they want Gallagher addressed, it’s unclear whether state leaders will treat it as an urgent priority, or as one of many competing issues that may not rise to the top at the beginning of a new administration. Regardless, this wouldn’t raise new revenue to pay for Democratic priorities — but it would prevent cuts that drive up school backfill costs for the state.
The bottom line: There’s a reason no one has mounted a major effort to change the Gallagher Amendment before now. It’s technically complicated and politically fraught, which makes for a toxic combination at the Capitol and the ballot box.
Revamp TABOR spending caps
“It doesn’t seem to make logical sense to prevent the state budget to grow with the state’s economy — especially when there’s a very well acknowledged need that the money we’re going to be paying out in refunds really could be used to fund highway and transit improvements or community colleges and higher ed or K-12,” said House Speaker-elect KC Becker, D-Boulder.
The pitch: Democrats have been railing against TABOR almost from the moment it passed in 1992, and voters just elected a governor who says he’s committed to revamping the constitutional language. Voters don’t like tax hikes, but it’s possible they could be convinced to allow the state to keep more of the money it’s already collecting.
Moderate Republicans in the past have endorsed changing the formula to allow state revenue to grow with the economy, rather than with population and inflation, which is the current standard. And a CU-Boulder study found that voters are much more likely to approve so-called “de-Brucing” measures that allow government agencies to keep excess revenue, than to approve a tax hike.
The opposition: TABOR is the third rail of Colorado politics. Republicans aren’t likely to help Democrats change it, and voters aren’t likely to pass it without leaders in both parties making a really persuasive case why it’s needed.
Analysis: TABOR reform is the holy grail for Democrats who want more flexibility to spend on public services. The last time lawmakers took a swing at TABOR was Referendum C in 2005, a herculean effort backed by a Republican governor that gave the state a five-year timeout from the revenue cap amid a fiscal crisis.
The bottom line: Becker says it’s too early to say whether TABOR reform will be on the docket in the next two years. Other Democrats agree, suggesting it will likely take more time to build the coalitions needed for major constitutional reforms. Either way, Polis says he doesn’t want to repeal the ability of voters to approve tax hikes.
Try, try again for new taxes
“The stakeholder groups were not big enough for either (Amendment) 73 or (Proposition) 110. Time and time again since 1992, those kinds of efforts have just fallen woefully short of getting the support needed from the general electorate. I think we need to go back to the drawing board and really look at the way we ask voters for new revenue,” said House Majority Leader-elect Alec Garnett, D-Denver.
The pitch: If Democrats are serious about paying for all-day kindergarten, universal pre-K, $9 billion in transportation needs and universal health care, this is the route the state constitution prescribes.
It’s possible voters would be more amenable to a tax question if it had a broader coalition in support, or if it came straight from their elected officials instead of special interests. It’s also possible that regressive sales taxes earmarked for transportation, as proposed by Proposition 110, or a complicated rewrite of the state constitution to boost education spending, as stated in Amendment 73, were just not the way voters wanted to do it.
Cons: Voters just rejected two statewide tax hikes this month in the most favorable climate for Democrats imaginable, so any new ask would be tough, to say the least.
Analysis: The most likely proposals include a small, specific ownership tax hike for roads or a tax on sports gambling. Trying to install a progressive income tax system, such as Amendment 73, or attempting to become the first state with a carbon tax would be the progressive dream, but awfully ambitious in a state that won’t even pass a half-cent sales tax hike for transportation.
The bottom line: Such an effort faces difficulties, but if money is hard to find, a tax hike on the 2020 ballot may draw support from a range of stakeholders,from school advocates to business groups.
Raise fees instead of taxes
“I’m not sure there’s going to be a whole lot of an appetite for just continuing to tack on fees for everything. I’m really wary that we’re going down this path of a pay-on-demand government structure, which isn’t the right way to do this. … We saw how unpopular the FASTER fees were, how unpopular they still are. I think we want to be mindful of the fact that voters — they would be very annoyed at us continuing to try to go around them when they make a decision that we don’t agree with,” said Moreno, the Democratic budget writer
The pitch: Democrats need new sources of revenue to fund their priorities, and higher fees are one of the few ways they can create those revenue streams without voter approval.
The House has passed at least two fee hikes in the last two years that were rejected by the GOP-led Senate: a documentary fee on real estate to fund affordable housing, and a payroll fee on workers to fund a paid family medical leave program.
The opposition: People don’t like feeling nickeled and dimed — especially not at a time when the rising cost of living remains a potent issue for middle class voters, as even Democrats acknowledge. In addition to being politically unpopular, fees aren’t viewed favorably from a policy standpoint, either.
They’re typically more regressive than taxes — meaning they hit the poor and middle class harder than the wealthy — and requiring Coloradans to pay more for things like parks, college tuition and social programs without regard for their income is a surefire way to exacerbate income inequality.
Analysis: Expect lawmakers to tread carefully on the prospect of fees, but it would be surprising if the legislature didn’t pass some sort of paid family medical leave bill, after its primary sponsor last year, Rep. Faith Winter, won one of the state Senate seats that tipped chamber control to the Democrats.
The governor-elect, too, has endorsed such a program. But it remains to be seen whether the legislature will endorse the same payroll fee structure as last year’s FAMLI Act, which would cost anywhere from $231 to $693 a year for a household making $70,000 a year, according to a Sun analysis of the bill’s fiscal note.
The bottom line: Raising fees won’t address the structural problems with Colorado’s tax code, and would exacerbate many of the problems with the status quo.
But higher fees are one of the predominant features of the TABOR era: Lawmakers have turned to them again and again when they want more money.
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