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Gov. Jared Polis speaks at a kickoff event in support of Proposition CC, a 2019 ballot measure regarding TABOR spending caps. (John Frank, The Colorado Sun)

In one of the most significant potential changes to state fiscal policy in decades, Colorado voters this November will be asked to permanently eliminate a revenue cap that has both restrained and reshaped state government since 1992.

The ask of voters is relatively modest: Forgo the occasional refund under the Taxpayer’s Bill of Rights — estimated to be worth between $20 and a few hundred dollars for the typical household, according to the latest economic forecasts.

Nonetheless, the referendum known as Proposition CC backed by Gov. Jared Polis has the potential to be nothing short of a watershed moment in Colorado politics.

To supporters, it’s a long overdue change to TABOR that will allow the state to reinvest in essential public services that have atrophied over two recessions even as budget demands have grown. To opponents, it’s an unwelcome expansion of a state government that they view as too large already, thanks to an explosion of fees in the TABOR era.

And to both sides, it represents a critical battle in a broader ideological war over the proper size and scope of Colorado’s state government.

Here’s what you should know about the referred measure before you vote.

What does Prop. CC ask?

You can read the voter’s guide known as the blue book here, and a nonpartisan fiscal analysis here. Here’s how the ballot language for Prop. CC reads:

“Without raising taxes and to better fund public schools, higher education, and roads, bridges, and transit, within a balanced budget, may the state keep and spend all the revenue it annually collects after June 30, 2019, but is not currently allowed to keep and spend under Colorado law, with an annual audit to show how the retained revenues are spent?”

The question is likely familiar to many long-time Coloradans. Dozens of local governments have made similar requests of their voters, in a process known as de-Brucing. (The nickname is a reference to TABOR co-author Douglas Bruce, a former Republican lawmaker who opposes Prop. CC.)

Voters have allowed the state to temporarily set aside its spending cap in the past, adopting a five-year timeout in 2005 under Referendum C. That has allowed the state to retain and spend billions in revenue since then that otherwise would have been refunded to taxpayers.

Back then, lawmakers were trying to buy themselves some fiscal breathing room to bounce back from an early 2000s recession that caused the TABOR cap to drop, severely restricting the subsequent recovery. This time, lawmakers are seeking to permanently eliminate the caps, allowing them to increase spending during economic booms.

MORE: Colorado Voter Guide 2019: What you need to know about propositions CC and DD before you vote

How does the TABOR revenue cap work?

The TABOR cap allows certain government revenues to increase from year to year at the rate of inflation plus population growth. When affected tax and fee collections grow faster than that, the money must be refunded to taxpayers in a manner determined by the state legislature unless voters give lawmakers permission to keep the money — which is what they are seeking in Prop. CC. Historically, this money has been returned through a mix of tax breaks, refund checks and income tax cuts.

Over time, critics say, the cap has the effect of squeezing government budgets. The costs of goods and services the state buys, like asphalt and health care, often grow faster than the consumer price index, which is the benchmark that TABOR uses to measure inflationary increases. The annual cap also makes it harder to cope with up-and-down economic cycles, forcing the government to absorb cuts in downturns while preventing comparable spending increases during good economic times.

This hasn’t stopped the state government from growing since 1992. But it has fundamentally changed how government is funded. As taxes have fallen to keep revenue below the cap, lawmakers have turned to fee-based government enterprises that can grow outside the state’s spending limits.

MORE: Is Colorado’s 2019 ballot question about TABOR spending caps really a tax hike? The answer is sort of.

How much in refunds is at stake and what would it mean for your taxes?

Don’t get lost in the campaign messages from supporters or critics. One side will you tell you it’s a tax hike. The other swears it isn’t. There’s some truth to both points of view.

What you need to know is this: As the ballot language states, your tax rates won’t go up. You’ll pay the same state income and sales taxes next year whether it passes or not.

However, your overall tax liability has the potential to go up in some years. Under current law, the state has to issue refunds when it collects more revenue than the cap allows. By eliminating the cap, the state will be able to spend all of the taxes it collects. And by eliminating potential TABOR refunds, voters would effectively be opting out of future tax cuts in economic boom times like now.

The $428 million in excess taxes collected in the 2019 fiscal year will get refunded as scheduled, unless lawmakers take action. But taxpayers would miss out on any refunds owed in 2021 for taxes collected this year and into the future.

Under the latest projections by legislative economists, Prop. CC would prevent anywhere from $20 to $62 refund checks for single filers in 2021, and $40 to $124 refunds for joint filers, depending on a person’s income. In 2022 and 2023, the state would still go over the TABOR cap under the legislative forecasts, but not enough to trigger refund checks. By law, the first dollars collected above the cap are sent to local governments to reimburse the cost of a senior homestead property tax break.

A September report from the Colorado Legislative Council shows the estimated taxpayer refund if Proposition CC fails at the November ballot. The estimate is lower than projections from the governor’s office and the figures don’t include property tax breaks for seniors and disabled veterans. (Screenshot)

Gov. Jared Polis’ office, which is more bullish on the state’s economy, is projecting average refunds of $248 for single filers and $638 for joint filers over three years if Prop. CC failed.

A September report produced by Gov. Jared Polis’ Office of State Budget and Planning outlines the high end of the average TABOR refunds expected in the 2020-21 fiscal year and beyond if Proposition CC fails in November. (Screenshot)

A few important caveats to keep in mind:

  • Prop. CC would not affect the state or federal income tax refunds you get when filing your tax returns each year. It only eliminates TABOR refunds, which have been issued only a handful of times since the cap took effect.
  • Prop. CC would not impact local governments. Cities, counties and other taxing districts that have not de-Bruced will continue to owe TABOR refunds. Those that have de-Bruced will continue to be exempt from the cap if it fails.
  • Prop. CC doesn’t change TABOR itself, which would require a constitutional amendment. That means other restrictions on government spending will stay in place, including voter approval for tax hikes and bonding.
Gov. Jared Polis speaks at a kickoff event in support of Proposition CC, a 2019 ballot measure regarding TABOR spending caps. (John Frank, The Colorado Sun)

How much money would go to schools and roads, and how would it be spent?

That all depends on Colorado’s economy. The blue book expects the state to exceed the TABOR cap by $310 million in the 2020 fiscal year and $342 million in the next, based on outdated economic forecasts by Colorado Legislative Council made in June

In the newest projections from September, the legislature’s economists lowered their expectations in the face of troubling business indicators. Now they’re forecasting $541.7 million over the next three years. Because the governor’s office is more optimistic, it is projecting $1.7 billion in potential refunds over the same three-year span.

A companion measure, House Bill 1258, dictates that the money from the ballot question would get split evenly between three areas: K-12 schools, higher education and transportation.

The transportation money will be sent to the state highway fund, which distributes 60% to state transportation projects, 22% to counties and 18% to cities. Of the state’s share, at least 15% is earmarked for transit projects and the remainder for highways.

The referred measure leaves up to the legislature how to spend the higher education-related dollars, while the K-12 money will be distributed to school districts on a per-pupil basis to spend on nonrecurring expenses, in case the Prop. CC money isn’t sustainable.

Some critics say this is unfair, and the money should be distributed through the existing formulas that seeks to apportion money more equitably based on things like the local cost of living, the number of students with special needs and geographic factors that drive up costs per student.

However, both the K-12 and higher education formulas have come under fire for not doing enough to help districts and colleges in need, and lawmakers are considering changes to both. In higher education, for instance, Joint Budget Committee lawmakers routinely allocate funding outside the formula to help financially struggling colleges.

As with any other law, the General Assembly in the future could change how the money is allocated through new legislation, or by shifting money around in the rest of the budget. But the three areas designated for funding were chosen because both parties view them as priorities.

The state auditor must release an annual audit of money kept and spent under Prop. CC. And it’s important to keep the money in context. It’s a fraction of the $30 billion annual state budget.

MORE: The political stakes for Proposition CC are huge. It’s a test case for a major fiscal overhaul in Colorado.

Why are the stakes so high, if TABOR refunds are usually so small?

Small refunds can add up over time, as the experience of Ref. C has shown. The five-year timeout ended in 2010, but it continues to mean big money for state government because it raised the cap permanently. Since 2010, the state has been allowed to retain nearly $2 billion a year on average under the new revenue cap. The majority of that money has gone to K-12, health care and higher education, according to legislative analysts.

Both sides also view Prop. CC as a critical initial skirmish in the broader fight over Colorado’s public sector. To the political left, TABOR’s spending cap is just one thread in a fiscal knot that advocates hope to untangle in order to expand public services and build a more progressive state. To many conservatives, the cap is a critical line of defense against a leftward lurch in the state’s politics and unwanted government growth.

Brian Eason writes about the Colorado state budget, tax policy, PERA and housing. He's passionate about explaining how our government works, and why it often fails to serve the public interest. Topic expertise: Public finance, tax policy,...