It’s a deal only a government could love: If Proposition HH passes, the owner of a $500,000 house might enjoy a $185 reduction in property taxes next year. In return, he would give up over $5,000 in Taxpayer’s Bill of Rights (TABOR) refunds over the next decade. And even then, property tax bills will remain at historic levels.
Property taxes are high in Colorado because voters believed claims that repealing the Gallagher Amendment in 2020 would make them fairer. That didn’t happen. Now, Proposition HH on this fall’s statewide ballot would keep property taxes elevated for the long term because it doesn’t include checks on rising property taxes like those that were in the now-repealed Gallagher Amendment.
Gallagher required business and residential properties to bear roughly equal portions of the state property tax burden. When residential property values inflated faster than the business share, residential assessments — the amount of a home’s value that could be taxed — were reduced. Falling assessment rates kept residential property taxes in line and limited the damage to homeowners’ budgets.
Because neither homeowners nor commercial property owners could make the other group pay a higher fraction of taxes, Gallagher gave both groups an incentive to resist tax increases. Gallagher also required uniform property tax assessment rates.
As opponents predicted, steep increases in residential property tax bills followed the Gallagher repeal. Ending the constitutionally protected uniform assessment rates also opened the door to favoritism in property tax treatment, an invitation to corruption Colorado elected officials have begun to make use of.
Like the Gallagher campaign, the Prop HH campaign is riddled with half-truths. Some proponents say that taxpayers are only giving up their TABOR refunds for 10 years. While technically true, the problem is that the Prop HH language gives the legislature the sole power to determine whether taxpayers lose their TABOR refunds permanently after the 10 years is up.
When has a Colorado legislature voluntarily opted to reduce its spending? If Prop HH passes, voters will have no say, and TABOR refunds are probably gone forever.
Bigger doesn’t mean better
If the legislature chooses to retain TABOR refunds after the first 10 years, state revenues would increase by up to $65 billion over the two decade and nearly $200 billion over the next three decades. This, of course, means higher taxes for Coloradans, but it doesn’t necessarily mean better government.
People dependent on government programs often assume that if government gets more money, they will benefit from the increased spending. Unfortunately, larger governments with bigger revenues create more — and more powerful — interest groups.
Those interest groups seek to enrich their members, often without regard for the harm they do to important programs. When interest groups become too powerful, people dependent on government services may be better off if the money stays in private hands. Private charities and schools often provide better-targeted, more responsive, support and services.
This year’s Colorado Medicaid figure setting includes an example of new spending that primarily benefits a specific interest group. At a time when state government’s proposed average increase in the reimbursement paid for providing medical care to Medicaid beneficiaries will generate losses for providers because it is below the FY 2022-23 inflation rate, state officials plan to divert Medicaid money to doulas.
Doulas provide emotional support for women in labor. Anyone can be a doula, no training required. After decades of research, a 2017 Cochrane Review states that the claims of improved birth outcomes generated by doulas still rest on “low quality evidence.”
State officials propose spending $1,500 per Medicaid client for 6-12 doula visits. Initial spending will be limited to $2.2 million in FY 2025-26. Citing a doula shortage, the Joint Budget Committee recommends spending $10,000 more on a doula training and scholarship program. At $500 a person for a virtual or in-person weekend training course, this is enough to create an interest group of 20,000 certified doulas. Every last one of them will attest that they provide an essential service deserving of a secure place on the Medicaid payroll.
This is just one of many examples of why Coloradans are better off keeping their TABOR refunds rather than handing the money over to politicians to spend for them. If taxpayers keep their refunds, those who want to hire doulas can do so, but the majority of Coloradans who would prefer to use that money elsewhere are not forced to pay for doulas for a select few.
Let TABOR work
Without Prop HH, Coloradans can keep their TABOR refunds and homeowners might still be able to get some property tax relief. The Colorado Property Tax Deferral program lets homeowners defer property tax payments in years when their property tax liability grows by more than 4% from the average of the last two years. The state pays local government now, and the property owner pays the state when the property is sold, up to a limit of $10,000.
The benefits of applying spending limits to make government focus on its core responsibilities, and limit spending on frivolous causes or interest group priorities, cannot be overemphasized. In states like New York, California, and Illinois, state governments have become inefficient, invasive, and unfocused. They gobble up 13.5, 12.0, and 11.1% of state personal income. Productive people leave these states because their obese governments make it too hard to live there and get things done.
In 1977, Colorado state and local governments were overweight, collecting almost 11% of personal income. After TABOR passed in 1992, the share of personal income taken by government dropped to less than 9 percent and stayed there for two decades. The revenue limit focused state government on providing core services. The Colorado economy boomed as a result of TABOR’s limitations on taxation on government spending.
Since 1992, a great deal of effort has gone into devising methods for evading TABOR restrictions on spending and into circumventing state constitutional limits on debt. State courts have agreed fees are not taxes even when they operate exactly like taxes.
Obligations like Certificates of Participation (COPs), debt issued by off-budget enterprises, and tax or revenue anticipation notes issued by state authorities are not considered constitutionally prohibited debt. The state’s net pension liabilities continue to grow and its overall debt is large enough that severe spending cuts could be required during a significant recession. A 2019 study by John Merrifield and Barry Poulson estimated that even with reasonable fiscal restraints, it would be two decades before Colorado’s state debt reached sustainable levels.
Keep government in check
The problem for voters is that there will never be enough money to satisfy the 4,953 active governments in Colorado. There was never enough money for the government of the Soviet Union, and it owned all the property and controlled all of the wealth produced in a country with a surface area almost twice as big as the entire U.S.
Despite steadily growing revenue inflows, the fraction of personal income collected by Colorado state and local governments has been inching up since 2014. State officials want more.
They have proposed Prop HH — which gives the government your TABOR refunds and guts limitations on government growth — and disguised it as a property tax reduction measure. Because they lack the money to fund their ambitions, state and local officials want more of yours.
For their own good, Colorado governments need to be kept in check. It is up to voters to do it.
If proposition HH fails, TABOR refunds going forward will exceed Prop HH’s estimated property tax reductions. Limits on state government spending will remain, and maybe state officials will instead devote their attention to repairing the property tax protections the Gallagher repeal destroyed.
That’s a deal almost everyone can love.
Linda Gorman is an economist with the Independence Institute, a free market think tank in Denver.
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