Fiscal folly? Colorado can't claw its way out of a severe fiscal crisis because of its TABOR amendment, which has the state slashing programs while refunding taxes. Although it has its supporters, others say it has to change. And with new party control, it just might.

Three years after Colorado's budget began to sink, revenues have started to come back bigger than expected. That should be good news. But in Colorado, budgeting has little to do with logic, thanks to two conflicting constitutional amendments that have hamstrung state spending.

Over the last four years, officials have slashed about $1.1 billion from the state budget and are facing an additional $263 million in cuts when they return to Denver this month.

Legislators have a number of options to balance the budget, none of them pleasant. They include removing some elderly patients from nursing homes, closing state parks or imposing huge college tuition hikes. Lawmakers could also try to generate cash using methods like selling state buildings and leasing them back. But that kind of Band-Aid solution would leave the underlying reasons for the shortfall untouched.

Like most states, Colorado's economy took a hit during the recession. In March 2001, Colorado's economic growth was second in the nation only to Nevada. In 2004, Nevada still topped the list, but Colorado dropped to No. 40, according to the June issue of State Policy Reports.

The topple from a top performer to barrel bottom wreaked havoc on the state's budget as lawmakers desperately plugged holes caused by sinking revenue. This was exacerbated by the permanent tax cuts the legislature made in the booming years of the late '90s. Economists estimate those cuts alone cost the state $480 million this budget year.

But by late 2004, state economists released figures that would, at first blush, seem to indicate Colorado's fiscal recovery--larger than expected growth in state tax collections. But that doesn't mean the state can spend the money. In fact, Colorado will refund more than $459 million to taxpayers while it will likely cut $263 million in programs and services.

Sound strange? Welcome to The TABOR Zone.

TABOR, or the Taxpayer's Bill of Rights, is a voter-approved, constitutionally imposed tax limitation that, among other things, prevents state revenue from bouncing back after a recession. Instead, it can create situations where lawmakers are forced to make cuts while giving money back to taxpayers.

ALONG CAME AMENDMENT 23

The state's fiscal crunch is further complicated by another voter-passed constitutional provision--Amendment 23, which requires annual spending increases in primary and secondary education. So while TABOR has locked in recession-level spending, Amendment 23 requires lawmakers to spend an increasingly larger share of available money on education.

Lawmakers are left to balance the budget on the backs of programs not protected by constitutional requirements, like public colleges and universities and Medicaid.

The crunch had gotten bad enough by 2003 that four college presidents warned leaders that expected state funding would be so insignificant by 2009 that public colleges and universities would either be forced to close or privatize.

"If something is not done through legislation or creation of a new funding mechanism, public higher education as we know it today in Colorado will become an endangered species," University of Colorado President Betsy Hoffman said at the time.

During the 2004 legislative session, lawmakers passed a plan that allows colleges and universities to raise tuition to cover expenses, something they were unable to do under TABOR. But, the law doesn't provide more money for higher education. In the words of the bill's prime sponsor, it just "keeps our higher-ed system alive."

The collision of TABOR and Amendment 23 has lawmakers in both parties worried. In July, Republican Governor Bill Owens called it "the most critical challenge facing us fiscally." Republican state Treasurer Mike Coffman and a bi-partisan group of legislative leaders have talked of impending fiscal disaster.

Republicans, who tend to favor TABOR, and Democrats, who generally support Amendment 23, spent much of 2004 trying to find a solution that would garner support from two-thirds of the state's lawmakers--the requirement needed to put constitutional reform on the ballot. But state leaders failed to find a compromise for myriad reasons including philosophically entrenched partisans, a factious Republican Party and a lack of leadership.

DEMOCRATS TO TAKEOVER

But those power dynamics were shattered on Election Day when Colorado voters gave Democrats the majority in both chambers for the first time since 1960. Both House Speaker-elect Andrew Romanoff and Senate President-elect Joan Fitz-Gerald have said mending the state's budget problem is important.

"Our top priority is restoring Colorado's leadership in job growth. To do that you need to rescue higher education from the brink of financial extinction and shore up our crumbling transportation infrastructure," Romanoff said. "To do either of those things ... you need to solve this fiscal crisis."

How they do that is an open question. Both Democratic leaders and Governor Owens have suggested using a provision of TABOR to ask voters to allow the state to keep some of the money that would otherwise be refunded to taxpayers--a move that would take a simple majority to put on the ballot.

Lawmakers may also consider putting constitutional reform in front of voters, which would require approval from two-thirds of each chamber. But it's unclear whether the constitution allows a reform measure to be voted on in an odd-numbered year.

VOTERS FINALLY SAID YES

To understand where the state is now, it's important to better understand TABOR and how it came to be the fiscal force it is today.

Coloradans had voted against at least seven tax-limitation measures over almost three decades before TABOR passed in 1992. But the organized push for TABOR-like reform started in 1986 with Amendment 4, which would have required voter approval of any tax increase. The proposal died after getting only about 37 percent of the vote.

The Amendment 4 campaign introduced California transplant and anti-tax maven Douglas Bruce to Colorado's tax limitation crowd. Bruce would become the face of TABOR and architect of three campaigns.

During the campaigns, Bruce, a relative unknown, faced opposition from then-high profile politicians including Republican U.S. Senator Bill Armstrong and state Senate President Ted Strickland as well as Democratic Governor Roy Romer and U.S. Senator Tim Wirth. Four ex-governors also opposed the measure.

But it wasn't just politicians opposing Bruce's plan. The education and business communities were also firmly against it including Coors Brewing Company, the now defunct telecommunications provider U.S. West and the state's largest business group, the Colorado Association of Commerce and Industry (CACI).

George Dibble, CACI president from 19851998, chaired the opposition to three tax limitation proposals between 1986 and 1990. The organization opposed Bruce's proposals and its predecessor because, Dibble said, it "strangleholds" state and local governments.

"If you looked at it from a business standpoint, it was essential that we have flexibility in government to address infrastructure needs, address the need to maybe offer some incentives--tax incentives--to companies to relocate here," he said. "You can sell the scenery all day long, but you've got to have something more to attract investment."

Real or threatened cuts to public colleges and universities, public safety and Medicaid services aren't attractive, he said.

The broad coalition, however, could not beat back Bruce's third attempt to pass TABOR in 1992. Dibble said he thought the measure passed because the roaring 1990s were just starting and economic growth appeared to be never ending.

For his part, Bruce said he thought it passed because people finally realized government would not limit itself.

TABOR DOES ITS JOB

Since that time, the state has refunded about $3.4 billion to taxpayers under TABOR's requirements. Between 1998 and 2002, the average taxpayer received an annual refund of between $56 and $269. Other groups, like farmers and businesses, also received tax breaks.

TABOR champions laud the amendment for keeping a check on spending during the booming '90s and preventing the kind of hangover California recently faced after years of spending growth.

"When you look at the decade since TABOR and compare it with the previous decade, clearly the goal of limiting the growth of government has been achieved," said outgoing Republican Senate President John Andrews. "Colorado has had its troubles but they have been very manageable compared to the deep hole that California ended up in."

But Rocky Scott, president of the Greater Colorado Springs Economic Development Corporation, said the state's "fiscal mess" is hurting its ability to provide "economic infrastructure," like good roads and colleges, and is going to put Colorado at a competitive disadvantage.

Critics especially criticize the TABOR provision that prevents the state from recovering from an economic downturn. Instead of returning to pre-recession spending levels if revenues allow, TABOR limits spending increases to a formula that includes population growth plus inflation.

Think of it, for example, like a reservoir that falls by half during a drought. When the rains return, the basin can't refill to its pre-drought capacity. Instead, the amount of water the reservoir can keep is based on drought levels.

TABOR sets the state's revenue limit in a similar way. Any money that comes in above the limit must be returned to taxpayers.

That frustrates lawmakers on both sides of the aisle who want to restore service and program cuts, but must refund hundreds of millions of dollars to taxpayers while they continue to cut programs.

"We've cut to the point now that every cut we do is going to cause ... elimination of some service that's been provided in the past," Republican Representative Brad Young, former chairman of the legislature's budget-writing committee, has said. "You can't just do things more efficiently. We're beyond that."

Young, a conservative Republican, is one of TABOR's biggest critics. And while he has said he believes in tax limitations, TABOR's limits just aren't practical because they shrink government relative to the economy.

Last session, Young introduced a proposal that would have changed the state's revenue limit from inflation plus population growth to a percentage of the state's total personal income--a limit many believed better reflected the economy. The measure was killed in the Senate.

Young's proposal was one of at least a dozen the General Assembly considered last year. There was also a citizen's initiative to reform TABOR that supporters had planned to put on the ballot before pulling the plug at the last minute.

In order to get a two-thirds majority to reform TABOR and Amendment 23, Republicans and Democrats had to compromise. And while Senate Democrats played the spoiler once, it was often the Republican Party that couldn't get its members in line.

Republicans, who controlled both the legislative and executive branches in 2004, were split into three camps when it came to constitutional reform, said Republican Senator Norma Anderson, an 18-year veteran lawmaker:

* TABOR-lovers such as outgoing Senate President Andrews, who believed the amendment was fine.

* Outgoing House Majority Leader Keith King and his supporters, who were willing to change TABOR if it was done on their terms.

* And Governor Owens, who is waiting on lawmakers to devise a solution.

"When you've got one party in control, you need somebody who ... can pull everybody together," Anderson has said. "We're divided as a party, Republicans are; it's as simple as that. And neither side gives," Anderson said.

During the 2004 legislative session, a closely divided Senate became the killing field of constitutional reform. The more conservative House passed a number of proposals that were promptly killed in the tipper chamber. Critics charged that the proposals either changed too much of TABOR or Amendment 23 or too little.

The other dynamic in play was a planned citizens' initiative. The initiative was similar to budget committee chairman Young's plan, which proposed tying the state's revenue limit to a percentage of total state personal income.

Senate Democrats favored Young's plan, but many Republicans thought it went too far. Republican Senate President Andrews sent Young's plan to an unfriendly committee where it was promptly killed. Supporters tried to resurrect the measure by including it in another bill, but failed.

Democrats were unwilling to vote for anything that strayed much from Young's plan. If they couldn't get what they wanted through the legislature, they reasoned they could get it through the initiative.

The session ended without reform, but Republican and Democratic leaders continued to negotiate throughout the summer. Those talks reached a breaking point in July when House leadership did not poll its members on the latest proposal. Lola Spradley, then Republican House speaker, said her leaders never agreed to count. Other players in both parties thought otherwise.

Aside from a few more sputtering efforts, the talks were dead. But the summer's greatest surprise was yet to come.

NOTHING ON THE BALLOT

In July, supporters of the citizens' initiative to reform TABOR decided at the last minute to pull the plug. The group didn't have the money and support needed to educate voters about such a complex issue.

A poll done earlier that month for initiative supporters showed almost a tie between those who would change TABOR and those who wouldn't. According to the poll results, 48 percent of those polled believed school districts--not state government--were the hardest hit by the recession. Supporters said the finding means K-12 funding, and by extension Amendment 23, will be untouchable in the future.

With no reform to vote on, citizens will have to rely on lawmakers to try and salvage funding for programs and maybe, just maybe, offer them a solution to consider next election. Meanwhile, initiative supporters say their plans are not dead.

Former Republican Senate President and County Commissioner Ted Strickland offers this advice to states contemplating a TABOR-like measure.

"Think very hard before you try it," he said, adding that the effect of TABOR isn't felt until an economic downturn, when flexibility is most needed.

And don't, Strickland said, constitutionalize the measure. The constitution is far too rigid to allow policymakers to respond to emergency needs.

A lesson Colorado leaders have learned from experience.

THE TAX-INATOR

Douglas Bruce. Mention the name in Colorado political circles and you're likely to get one of two reactions--swear words or accolades.

Bruce is the author of the state's constitutional tax-limitation measure, the Taxpayer's Bill of Rights or, as it's known in these parts, TABOR. Among other things, the limitation prevents Colorado from bouncing back from a recession.

This means that state lawmakers in 2005 will be forced to cut about $263 million in programs and services while they refund about $459 million back to taxpayers because that money exceeds the spending limits set by TABOR.

Depending on whom you're talking to, Bruce is either an anarchist who doesn't understand the role of government or the taxpayers' best friend.

For his part, Bruce said that any tax money that directly benefits individuals and not the general public is "stealing."

"I can't go to you and pick your pocket and take $20 to buy a meal. But I hire a politician to pick your pocket, take the $20 and then he spends $10 on a bureaucratic overhead and gives me $10 for a meal," he said. "That is stealing."

If this was Bruce's world, government would not fund programs like higher education or Medicaid. Instead, he would leave those services to the market and charities.

"We could cut at least half or more of government spending and 95 percent of the people wouldn't miss it. They wouldn't notice the impact on their lives," he said.

Bruce doesn't like people to use the word "cut" to describe what's happening to state programs. They can't be cuts, he argues, if state revenue is growing. He doesn't view things like caseload increases as a "need."

If legislators want to keep more money, Bruce said, they can exercise a provision of TABOR and ask voters for permission.

Former Republican Senate President and County Commissioner Ted Strickland said he has "a difficult time assigning any credibility to Douglas Bruce. The man does not understand that there are necessary services that have to be provided by government."

Bruce's new role as a county commissioner, Strickland said, could be the best exposure for TABOR's "insidious ramifications."

"Let him address the needs of those citizens with his attitude, 'Well, they don't need those services; we can cut taxes.' He'll understand in the wink of an eye what his brainchild has done to local government and state government," he said.

One of Strickland's successors, former Republican Senate President John Andrews, however, praises Bruce and TABOR.

"Douglas Bruce is the best friend Colorado taxpayers have ever had. Like many other gifted individuals, he can be personally difficult but in the conservative movement for Colorado, or any state of the last several decades, he's just one of the real heroes."

NO CHOICE BUT HIGHER ED

Colorado's public colleges and universities have taken a beating since the economy began to tank in 2001. Since then, lawmakers have cut more than $150 million from higher education.

Those cuts are largely due to two conflicting constitutional amendments that have choked state spending. The Taxpayer's Bill of Rights, known as TABOR, limits state revenue while Amendment 23 mandates annual spending increases in primary and secondary education.

When the recession hit and revenues sank, the state was still forced to increase K-12 funding. And now, as state economists predict larger than expected revenue gains, lawmakers are still chopping because TABOR limits how much of that money Colorado can keep.

With such strict constitutional budgeting requirements, lawmakers were forced to balance the budget on the backs of programs like higher education, which are not constitutionally protected.

That led college presidents in 2003 to warn that state funding for higher education would be so insignificant by 2009 that institutions would be forced to privatize or close their doors.

Faced with such dire consequences, and without the political will for constitutional reform, lawmakers passed an escape hatch for higher education--college vouchers.

The voucher or stipend sends state money directly to students instead of to the institutions. In the first year, students will receive $2,400 to attend any state school and $1,200 to attend several private schools.

Before the stipend, the state sent money directly to schools, which meant tuition was subject to TABOR's revenue limits. But by sending state money through the students, college tuition is no longer capped by TABOR.

Even with its controversial funding of private school tuition, the plan passed, in large part, because it allows state schools to raise tuition to cover expenses. College and university presidents supported the plan.

Critics argue that the stipend provides no new money for higher education--and in fact much less to the bigger schools such as The University of Colorado and Colorado State University. So in effect, students and their families will be paying higher tuition.

The bill's prime sponsor, Republican Senator Norma Anderson, said while the stipend helps in the short-term, there has to be constitutional reform. Without it, the stipend's $2,400 value will fall.

"We're using it to bridge the gap on TABOR," Anderson said of the stipend. "If we don't reform TABOR, this state's in big trouble at some point, particularly higher education."

Chris Frates covers the Colorado General Assembly for The Denver Post.