Is it true that more money means more problems?
Proposition NN’s plan to alter Colorado’s fiscal constitutional guardrails will increase state budget volatility, even as revenue climbs.
The TABOR Limit
Proposition NN attempts to change Colorado’s Taxpayer’s Bill of Rights (TABOR), the state’s fiscal safeguard, ironically in the name of more budget revenue and stability.
However, despite what some might claim, TABOR does not “unreasonably” limit the state budget or make it volatile. Instead, it simply limits growth in a portion of the state budget to a formula of population growth plus inflation, allowing government to grow reasonably as costs rise and more people move to the state.
Additionally, if the government wants more money, it simply needs to make its case to voters.
Whether people like the TABOR limit or not, it actually provides budget stability and predictability.
Good Reason for Guardrails
Without such constitutional guardrails, the budget would expand rapidly as the economy grows, with revenue rising largely from higher capital gains and investment income.
That might sound great in the short term, until the economy experiences a recession and all the new spending obligations created off the sugar high must be cut.
According to Chart 1 (from legislative staff), when Referendum C paused TABOR for 5 years, state government retained much more revenue than it would have if it had been subject to the traditional TABOR limit.
Because of the 2008 recession, the state’s retained revenue fell wildly by about $1.43 billion from the FY 2007-08 peak to FY 2009-10, whereas retained revenue would have fallen by only about $261 million had the TABOR limit been maintained.
Such instability is at least partially why Colorado is currently experiencing budget challenges.
Colorado received a windfall of TABOR-exempt one-time federal COVID-relief money and foolishly directed it to programs with ongoing funding needs, and then cried poverty when the one-time funds ran out.
Because of TABOR, when the economy booms, Coloradans benefit from refunds, and when the economy contracts, those reliant on government programs suffer less than in states lacking fiscal guardrails such as TABOR.
Yes, state government collects less revenue than big-spending budget-setters would prefer, but that also means drastic cuts are unnecessary when the economy struggles.
Proposition NN’s Limit
So, because Prop NN would permanently increase the TABOR revenue limit by about $4.6 billion above the current level in the first year, and would then increase faster than the existing TABOR formula, it would open the door to much greater budget volatility.
The sugar high comes with a sugar crash, and real people suffer when that happens.
Coloradans love TABOR, not because they are mean and don’t want to help people in need, rather, they understand that government will never be a better custodian of their money than they are themselves.
The same budget volatility Colorado experienced due to Ref C’s timeout and COVID-19 one-time money will only continue and worsen if Proposition NN passes.