The opponents of Proposition HH, the 10-year property tax relief plan on the November ballot, say the measure would “end” refunds owed to Coloradans’ by the state under the Taxpayer’s Bill of Rights. Supporters argue the initiative would “preserve” them.
Both claims are misleading.
Here’s a Colorado Sun fact check of how Proposition HH would affect TABOR refunds:
What are TABOR refunds
TABOR was a constitutional amendment approved by Colorado voters in 1992. It requires voter approval for all tax increases but it also caps government growth and spending each year at the annual increase in population and inflation.
Any tax revenue collected over that cap must be refunded to taxpayers unless voters agree to let the government increase the cap or waive their refunds altogether.
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On the state level, the cap has been increased by voters just once, when Referendum C was approved in 2005. In 2019, Colorado voters soundly rejected an effort led by Democrats to eliminate the cap through Proposition CC.
Most of the money subject to the state TABOR cap is income tax revenue, but it also includes sales, fuel, insurance, severance and most excise tax revenue. Most fee revenue collected by the state is also subject to the TABOR cap.
When the cap is exceeded — which isn’t guaranteed every year — the legislature has broad power to decide how to refund the excess, and over the years the state has used several different refund mechanisms.
Currently, TABOR surplus is first refunded by reimbursing local government for any property tax exemptions claimed by local seniors and disabled veterans. That’s a few hundred million dollars, at most, a relative drop in the drop.
If there is still surplus to be refunded, it’s distributed through checks mailed directly to taxpayers. The size of the checks is based on six income tiers, with higher earners receiving bigger refunds and lower earners getting less.
(Note: If Proposition HH passes, the refund checks sent to taxpayers in 2024 will be the same for everyone — $832 — under a bill passed by Democrats in the legislature this year. The change is only in effect for one year, however, so in 2025 the six-tier refund mechanism would resume unless state lawmakers decide otherwise.)
What causes the cap to be exceeded?
Economic conditions — and the way TABOR was written.
The cap has only been exceeded six times since the state’s 2005-06 fiscal year, including in each of the last three fiscal years.
The recent TABOR surplus has a lot to do with high inflation in recent years. That’s because the inflation rate used to calculate the TABOR cap is six months old by the time it affects the state budget.
In the 2022-23 fiscal year, the TABOR cap was set based on the 3.5% consumer price index inflation rate in the Denver-Aurora-Lakewood metro area in the 2021 calendar year. By the time the fiscal year began July 1, 2022, however, inflation had risen above 8%. Higher wages mean more income tax revenue, and higher consumer prices produce more sales taxes.
The TABOR cap was exceeded by $3.6 billion in the 2022-23 fiscal year, which ended June 30. By comparison, the cap was exceeded in the 2021-22 fiscal year by $3.7 billion and in the 2020-21 fiscal year by $500 million.
As inflation eases, TABOR surplus is expected to decrease in future fiscal years.
For the current, 2023-24 fiscal year, which began July 1, the cap is expected to be exceeded by $1.7 billion. The surplus is forecast to be about the same amount in the 2024-25 fiscal year.
By the 2025-26 fiscal year, the cap is expected to be exceeded by $2.3 billion.
State economists always caution, however, that economic conditions can change quickly and that their estimates are just that. They’ve been off about tax revenue by billions of dollars in recent years because of the effect of COVID-19 and inflation.
In other words: Just because the weather forecast calls for rain, it doesn’t mean there is going to be rain. And in may ways, economic forecasting is even less predictable than trying to forecast the weather.
Proposition HH: What you need to know about the Colorado property tax relief plan
How would Proposition HH affect the cap?
Proposition HH would increase the state TABOR cap by 1 percentage point each year and direct that extra revenue to reimburse schools and local governments for all or some of the revenue they would lose out on because of the property tax reductions in the measure.
Assuming the tax revenue and economic forecasts from nonpartisan legislative staff are correct, that’s expected to increase the cap by $170 million in the current fiscal year and $360 million in the next fiscal year.
That’s money that would have otherwise been refunded under TABOR. (More on that below.)
So will Proposition HH really “end” Coloradans’ TABOR refunds?
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Not outright — or permanently — but Proposition HH would increase the chance that the TABOR cap won’t be exceeded in a given year, which would in turn prevent refunds from being issued.
Since the 1 percentage point increase in the cap has a compounding effect over time, that chance of the cap not being exceeded increases the longer Proposition HH is in effect.
For at least the next two fiscal years, however, the 1 percentage point increase in the TABOR cap is not expected to exceed the tax revenue forecast to be collected by the state — although less money would be refunded if Proposition HH passes.
Under estimates from nonpartisan legislative staff, there would still be about $1.5 billion that would have to be refunded at the end of the current fiscal year and about $1.4 billion that would have to be refunded at the end of the 2024-25 fiscal year.
State economists only forecast economic conditions and tax revenue for three fiscal years because there are too many variables to try to accurately predict what will happen beyond that timeframe. But if inflation averages 2.5% over the next decade and population growth projections are met, Proposition HH would grow the TABOR cap by more than $2 billion by 2032, when the measure would either expire or be renewed by the legislature.
Opponents of Proposition HH say their claim that the measure will eliminate refunds is based on the assumption that tax revenue will grow linearly by its 20-year geometric mean annual growth rate of about 4.2%. Under that scenario, however, the refunds still wouldn’t go away for many years.
“I’m just going off typical growth and I think that’s the safest thing to use,” said Michael Fields, who leads Advance Colorado Action, a conservative political nonprofit that is running ads opposing HH and claiming that the measure will eliminate TABOR refunds.
Proponents of Proposition HH point out that if the state’s tax revenues grow by 5% each year there will be enough TABOR surplus for refunds through the 10 years that Proposition HH is in effect. They concede, however, that such an economic circumstance is an “optimistic scenario.”
While it’s certain that Proposition HH would reduce the amount of TABOR surplus available for refunds each year it is in effect, only a crystal ball would be able to answer the question of whether the measure would prevent there from being TABOR refunds in a given year.
Economic conditions are the deciding factor.
And keep in mind that just because there aren’t TABOR refunds in one year doesn’t mean there won’t be refunds in the next — and vice versa.
Does Proposition HH “preserve” TABOR refunds?
No.
There are no explicit protections for TABOR refunds in Proposition HH.
Again, the measure, if it passes, increases the chance that the TABOR cap won’t be exceeded in a given year. And since the 1 percentage point increase in the cap has a compounding effect over time, the chance of the cap not being exceeded because of the measure increases the longer Proposition HH is in effect.
At the very least, Proposition HH would diminish how much money Colorado taxpayers will receive each year.
The chart below shows estimates from nonpartisan legislative staff of how much less money Colorado taxpayers would receive in refunds over the next two years, based on their income levels, if the measure passes:
What happened the last time the state’s TABOR cap was raised
As we mentioned above, the state TABOR cap has only been raised by voters once since TABOR was adopted by voters in 1992.
Referendum C, passed in 2005, paused the state TABOR cap for five years and reset the baseline on the highest amount of annual revenue collected by the state during that five-year period. In essence, that allowed state spending to recover from the ensuing economic downturn, rather than being capped at a new low.
Since then, the state has been able to keep about $35 billion in revenue that it would have had to refund if Referendum C hadn’t passed. Even with that increase in government growth and spending, however, TABOR surpluses have persisted.