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Ritter’s Tax “Freeze” Plan is Melting: New Education Spending Proposal Needs Voter Approval

The heat of public pressure has begun melting a new plan to raise taxes for early education, and rightly so. Close scrutiny shows the proposal stretches fiscal logic and challenges Colorado’s constitutional tax and spending limits.

On March 12, Governor Bill Ritter unveiled the “Colorado Children’s Amendment.” The $84 million education spending package mostly would fund new kindergarten and preschool students. In order to pay the bill, the Governor wants to “freeze” school district mill levy rates from dropping as scheduled. Such a change to the School Finance Act would result in bigger property tax bills next year for many home and business owners.

The size of the potential increase is tied to which school district the property owner pays his taxes. The owner of a $300,000 home or business would lose an extra $45 in Denver, $50 in Sheridan, or $60 in Englewood. Retired homeowners on fixed incomes would be among the hardest hit.

Legislative analysts estimate the tax hike would net almost $65 million in new revenue. The proposed spending on new programs costs $20 million more. Yet the Governor has said his plan somehow would spare cuts in other areas of the state budget.

For Ritter’s proposal to succeed, he needs to clarify the dueling claims. But he could do even better by helping schools work more wisely with the growing funds already dedicated to education.

Despite the popular mythology, Colorado’s per-pupil expenditures outgrew inflation during the 1990s. The state voted in 2000 to add more funds to public schools, and to put yearly increases on autopilot. Amendment 23’s mandate created problems when recession came and revenues fell. K-12 education started absorbing greater shares of the state’s general fund.

In 2005, backers sold Referendum C as a $3.7 billion remedy for a looming budget crisis. The Governor’s office now says the measure will raise $5.35 billion. The majority party still is looking for more taxpayer money to spend.

The average public school student’s piece of state dollars rose by 28 percent during the first five years of Amendment 23. Officials worry that the state’s share of funding K-12 education is growing too quickly. Even so, most school districts continue to reap more revenue from local property taxes.

The numbers from the state’s education agency tell the story. Colorado school districts collected $1.97 billion in property taxes in 2001, and $2.46 billion in 2005. In four years, local property taxes gave districts 8.5 percent more real dollars per student.

Even where homeowners would face the biggest increases, many school districts have collected more property tax dollars per student. From 2001 to 2005, revenues grew 6.5 percent in Denver, 13.8 percent in Englewood, and 32.3 percent in Sheridan.

Voters in these and other school districts should be asked first before their individual tax bills go up. Section 4 of the Taxpayer’s Bill of Rights (TABOR) says “districts must have voter approval in advance for…a tax policy change directly causing a net revenue gain to any district.”

The Governor and some supporters believe an election would be redundant. They say voters in 174 of the state’s 178 school districts already agreed to suspend some or all of TABOR’s spending caps. But those elections didn’t necessarily address changes to property tax rates.

A member of Ritter’s party, Sen. Ron Tupa (D-Boulder), expressed the same concern. According to the Rocky Mountain News, Tupa said: “Explain to me how this is not a constitutional problem – because taxes will go up for somebody….”

While the School Finance Act sailed through the Senate, Democrats held back the amendment to seek further legal opinion. Senate Minority Leader Andy McElhany (R-Colorado Springs), though an opponent, introduced Ritter’s amendment so lawmakers could debate it. The tax increase lost on a 33-1 Senate vote.

The Governor still hopes to see his amendment approved in the House. But some legislative Democrats have acquired cold feet. Supporters would need a lot of time to begin convincing voters that a tax hike is essential to finance more preschool and full-day kindergarten.

The proposal still lives, for now. Even though the money is advertised to serve the “children,” supporters are reluctant to incur the voters’ wrath. The taxpaying public may prefer to fix spending priorities in their state and school budgets instead.

Legislators’ hesitation to push the proposal is just one more example of how TABOR works.

For more information on the facts and myths surrounding education funding in Colorado, read Ben’s issue backgrounder .