Colorado taxpayers could get a potential TABOR refund worth hundreds of dollars over the next three years — or not.
How much the state returns to taxpayers depends on two major questions, one that Democratic leaders will answer and another that voters will decide.
The two combine to form a political puzzle for Democrats and a test case for critics who want to weaken the Taxpayer’s Bill of Rights, the state’s only-in-the-nation limits on government spending.
The first question is whether Democratic Gov. Jared Polis and top lawmakers will call a special legislative session to raise the TABOR revenue cap. Democratic leaders acknowledged Wednesday that it’s an option being discussed, and if it happens, it could substantially reduce projected taxpayer refunds for 2020.
The second is a ballot question in November, Proposition CC, that asks voters’ permission to remove the existing TABOR cap on tax revenues, which would mean the state no longer issue refunds after next year.
To understand the factors at work — and whether you will get money back in the future — here’s what you need to know.
First, it’s important to know how Colorado arrived at this point.
Added to the state constitution by voters in 1992, TABOR limits the size of government by capping new tax revenue at population growth plus inflation. (Find a more detailed explanation of TABOR and state finances here.) Any tax collections in excess of the cap must be returned to taxpayers, unless they vote otherwise.
Colorado tax revenues exceeded the cap in the 2017-18 fiscal year, so the state issued refunds in 2019 for the first time since 2016. But the amount was so small — $39.8 million — that it went entirely toward property tax breaks for seniors and disabled veterans.
But in the next three years, the combined excess revenue is estimated to be much larger, between $1.2 billion and $1.5 billion, according to two forecasts presented Wednesday to the Joint Budget Committee by economists from the governor’s office and legislative council.
What’s driving the increase in tax revenues? For one, Colorado’s economy is doing well, so that increases sales tax and corporate income taxes paid. But other factors are at play, too. The federal tax cuts signed into law by President Donald Trump are giving the state a tax windfall. Colorado now requires online retailers to pay state sales tax, boosting collections. And a new law approved earlier this year caps a tax credit for retailers, so large companies will pay more in sales taxes.
Looking ahead, it’s important to note that economists expect the state’s economic growth to slow and other uncertainties, including tariffs, cloud the projections. The next forecast is released in September.
Based on the latest numbers, here’s how TABOR refunds would work.
The refunds are returned to taxpayers according to a formula created by state lawmakers. In 2017, a bipartisan bill put property tax breaks for seniors and disabled veterans as the first priority. So the state sends the first bucket of excess revenue to local governments to offset their losses in property taxes.
The second mechanism is a sales tax refund distributed in six tiers depending on a taxpayer’s adjusted gross income if it’s more than $15 a taxpayer.
But in years with major excess revenue collections, a temporary individual and corporate income tax rate cut is triggered first, reducing the rate from 4.63% to 4.5%. It’s never happened since it was created in 2005, but it will take place in the 2019 tax year. The total refund is estimated between $446 million and $575 million, according to the two forecasts, and taxpayers will see the break in calendar year 2020.
In calendar year 2021, the TABOR refund is estimated at $310 million to $412 million, and in 2022 it is projected at $342 million to $623 million. In both these years, the refunds will go toward property tax breaks and sales tax refunds, but no income tax cut because it’s not large enough.
So what does that mean for you? Here’s a look at projected refunds expected in each of the next three years, according to the Legislative Council forecast. (Note: The governor’s budget office estimates are different.)
But here’s where it gets interesting.
Democratic leaders are considering a move that would reduce the size of the refund scheduled for calendar year 2020.
Sen. Dominick Moreno, the state’s chief budget writer, said they are discussing a bill that would increase the revenue limit in TABOR by $200 million, meaning the state could pay out smaller refunds. It would require a special session because the General Assembly adjourned in May.
The $200 million figure is intentional. In 2017, the bipartisan legislature agreed to sweeping bill that lowered the cap by the same amount. Moreno said a legal opinion from the legislature’s attorneys indicates lawmakers could increase the cap without going to the ballot for a vote. (TABOR requires all tax hikes to get approval from voters.)
“I am in favor of looking at all alternatives to try to address this issue,” Moreno said. “The reality is — to issue TABOR refunds at the same time we are not fully funding education or transportation, or a variety of other government services, is something that I think the legislature should address.”
Through a spokesman, Gov. Jared Polis, who would call the special session, declined to answer questions Wednesday about whether he supports increasing the TABOR cap, or a move to ask lawmakers to return to Denver.
The conversation is taking place as Democrats prepare to campaign to support Proposition CC on the Nov. 5 ballot. The question asks voters to let the state keep the excess taxes it collects in future fiscal years.
Polis and Democratic lawmakers — with support from one Republican, Sen. Kevin Priola of Henderson — approved the measure for the ballot earlier this year, and passed a companion law that requires any additional money to go toward education and transportation.
And now we know the stakes for Proposition CC.
The new revenue forecasts estimate how much money the state would keep it if the ballot question succeeds and how much in refunds taxpayers would get if it fails.
The calendar year 2020 refund is not affected by Proposition CC, but the next two years would be impacted — an estimated $652 million to $1 billion.
“That is the big story to take from this (revenue forecast),” Moreno said. He pointed out that earlier projections showed no excess revenue in future years, raising questions about the need to go to the ballot. Now it’s more clear. “This very much makes the case to voters that if permission is not given we will be issuing refund for the foreseeable future in multiple fiscal years,” he said.
Sen. Bob Rankin, a Carbondale Republican and budget writer, argues that TABOR has helped Colorado’s economy and he opposes Proposition CC.
“I think we need to be very careful about throwing out TABOR just to get those numbers,” he said. “They are uncertain in the first place and they are not going to change life in Colorado. … They are not going to solve our transportation and education problems.”
Amy Oliver Cooke, the executive vice president of the fiscally conservative Independence Institute and a member of the coalition opposing the ballot question, said the new numbers strengthen her side’s argument. She notes that lawmakers can change the law to redirect the extra money in the future. “This is going to be nothing more than a slush fund for the state legislature to do with it what it wants, and voters will not get a right to … their refunds again,” she said.
But House Speaker KC Becker, a Boulder Democrat and lead sponsor of the referendum, said the numbers also help supporters make the case. “Even with a strong, booming economy, we are still scraping at the bottom of the barrel to boost our investments in these areas,” she said. “This highlights the critical importance of Prop CC, so that our state’s economic growth can benefit the key needs of Coloradans – better funded schools and improved infrastructure across the state.”
The political picture will become more clear once these two wildcard questions are answered. But in the meantime, voters now have a better idea about the money at stake in the decisions ahead.