Colorado, California taking different roads to ruin
California is broke. Staggering under a $26 billion budget deficit, the state government last week began issuing IOUs in place of state checks. Its bond rating is BBB, two notches above junk status. Its economy is in the toilet.
Colorado is not broke. Its economy is weak in the current recession, but performing better than most states. The state government’s credit rating is AA, one notch below prime. Colorado’s budget shortfall is only $385 million at the moment, far less than California’s even taking into account the huge size difference between the two states.
Nevertheless, many worry that Colorado’s budget will also fall into the sea. A report released last week by the University of Denver said Colorado had been hit by a “budget tsunami” and should expect more of the same. The report was one of several warnings delivered to a special commission that began hearings in Denver last week in an effort to come up with long-term solutions to the state’s frequent budget migraines.
Barry Poulson was not part of that chorus. “Colorado is not California,” said Poulson, a senior fellow at the Independence Institute, a conservative think tank in Golden. “Colorado is not experiencing a fiscal crisis. The state is not issuing IOUs. We don’t have our bonds downgraded.”
In remarks to the commission on Thursday, Poulson attributed this state’s relative fiscal health in large part to “an effective tax and spending limit.” He was referring to the Taxpayer’s Bill of Rights, a touchstone for those who want to shrink government and a target for those who say the state is strangling itself.
Under Colorado’s TABOR, approved in 1992, governments in the state must limit their revenue increases to the sum of population growth plus inflation, or win voter approval to keep more money.
Poulson told the commission on Thursday that with TABOR, “it’s up to voters to decide how much taxes we pay, how much government we want and are willing to pay for.” He said TABOR needed to be bolstered, not repealed.
“We’ve seen a number of bills and statutes and gubernatorial edicts that have basically eroded our tax and spending limits,” Poulson said. “If we continue along that path, I tell you we’ll start to look like California. In the absence of effective tax and spending limits, we will see government grow more rapidly than the private sector, which is exactly California’s fatal flaw.”
There are some parallels between the two states. By requiring voter approval of tax increases, Colorado makes it unusually difficult to increase state revenue. And by requiring a supermajority vote to approve the budget, California makes it harder to produce accord.
California also has Proposition 13, the 1978 measure that limits property taxes to 1 percent of assessed value. But Poulson argued that Prop 13’s spending-limiting sibling, the Gann Amendment, has been weakened and no longer serves as a brake on budget growth. California has spent itself into a budget deficit.
“Basically the government there has grown much more rapidly than the private sector,” Poulson said. “Businesses are leaving, people are leaving, and they’re going to states like Colorado.”
Appearing with Poulson, Wade Buchanan disputed the notion that TABOR was the only thing standing between Coloradans and a California-style abyss.
“There are a lot of reasons why California is in the mess it’s in,” said Buchanan, president of the Bell Policy Center, a liberal think tank in Denver. “Frankly it had a lot more to do with the burdens placed on representative decision-making.”
He said TABOR was “a rigid formula that really prevents us from responding to some really fundamental needs in our state.”
“This idea that the TABOR spending limit allows government to grow at the pace of the economy is just dead wrong,” Buchanan said. “Population plus inflation is not the ordinary pace of economic growth. If it were, we’d never get richer. We’d never have economic expansion. We’d just stay in place.”
The commission had its first session on Wednesday. Its members, a mix of legislators and private-citizen appointees, expressed their goal in variations on the theme of “What kind of state do we want? How much will such a state cost? And how do we pay for it?”
“We’re slowly slipping into insolvency,” said state Sen. Greg Brophy, a Republican member of the commission. But that’s about the extent of the agreement between the two sides. One faction, pointing to Colorado’s low ranking among the states in total state taxes, argues that the state is starving itself to death. The other group says the state needs only to give up its free-spending ways.
State Sen. John Morse, a Colorado Springs Democrat on the commission, talked about the nearly $1 billion the Legislature will have to cut to meet current estimates of the state’s budget shortfall in the fiscal year that begins July 1, 2010. “We are looking at what I consider to be a budget catastrophe, not crisis,” he said.
State Sen. Moe Keller, chairwoman of the Joint Budget Committee, raised some eyebrows in the hearing room when she talked about the possibility of removing the state’s colleges, parks and motor vehicles offices from the public dole and letting them charge users what they need to maintain operations.
Rep. Don Marostica, a Loveland Republican who sits on the Joint Budget Committee, said the insistence by the conservative groups like the Colorado Union of Taxpayers and the Independence Institute, two conservative lobbying groups with seats on the commission, that the state budget is full of lard will put them in a tough spot when they’re forced to declare what programs they’ll cut. “They’ve been telling the lie for so long,” Marostica said. “It’ll be interesting to see them set priorities.”
“This group is in the eye of the storm,” said state Sen. Rollie Heath, the Boulder Democrat who chairs the commission.
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