We’re addressing Proposition 116 and Proposition 117 in the same editorial because they both affect the state’s ability to deliver services and they’re intertwined as far as potential impacts and outcomes.
Proposition 116 would reduce Colorado’s state income tax rate from 4.63% to 4.55% and that reduction would affect the current tax year. On average, individuals will pay about $37 less in income taxes for the 2020 tax year if 116 passes.
The arguments for and against 116 revolve around the same pole. Because of COVID-19, taxpayers deserve some tax relief to help make ends meet, but reducing the state’s main source of revenue affects its ability to deliver services when vulnerable citizens need them most.
As with most tax relief measures, there’s a question of fairness. Everyone gets a break, but about 75 percent of the state’s taxpayers will receive a tax cut of less than $50 per year. But those with incomes over $500,000 — representing less than 2 percent of taxpayers — will receive more than half the total tax savings.
In our view, Proposition 116 is neither a boon for the average taxpayer nor a huge drain on the state. As the blue book points out, even with the tax reduction, state revenue is expected to increase in the next budget year. But the state has already had to reduce spending to deal with the fallout of the pandemic and reducing state revenue will compound the impact of cuts already being made to education, transportation and health care. And with most of the benefits going to higher-income earners, we question on balance whether it’s an effective measure.
Here’s where Proposition 117 comes into the mix. We’re all familiar with the Taxpayer’s Bill of Rights, which requires voter approval of tax hikes and defines which sources of revenue count toward the state’s revenue cap. When the state collects more revenue than the cap allows, it has to refund the excess.
Fees for service aren’t considered a tax and don’t count against the TABOR cap. They’ve emerged as a way for the state to provide certain services without those revenues contributing to the refund threshold.
Critics of TABOR argue that fee-based enterprise funds are critical to providing services that the government wouldn’t be able offer due to TABOR restrictions. But TABOR supporters say enterprises are an end run around TABOR and Proposition 117 closes a “hole” that violates the spirit of the Constitutional amendment.
Michael Fields, the director of Colorado Rising State Action, which supports passage of 117, wants certain new enterprises to be subjected to the same voter approval as tax increases.
Proposition 117 would require voter approval of state enterprises projected to collect more than $100 million in fees or surcharges in their first five years. It’s a statutory measure, which means it gives the legislature some latitude to amend it. It’s not baked into the Constitution like TABOR.
“We didn’t want to deal with anything already in existence and nothing on the local level — only new programs,” Fields said. “Only state programs.”
“The reason this matters right now is that there’s a budget shortfall at the state and so (lawmakers are) going to try to increase revenue without asking voter approval,” he said.
The issues committee Protect Colorado’s Recovery opposes both 116 and 117. Members of the committee contend they’ll hamstring government’s ability to respond to the needs of communities impacted by the recession caused by COVID-19.
Proposition 116 offers no benefits to “everyday Coloradans” when they factor in the cuts that will have to be made to offset lost revenue, said Adam Fox, director of strategic engagement for the Colorado Consumer Health Initiative.
Proposition 117 is particularly risky for health-care funding, he added. Enterprise funds are one of the primary mechanisms the state uses to fund expanded Medicaid. The wording of 117 leaves some question as to whether it could affect existing enterprises created within the last five years. If that’s the case, it could threaten the hospital provider fee and could lead to cuts to rural hospitals that face an outsized impact in the COVID environment. The state’s ability to create a public health care option, which would likely be formed as an enterprise, may ride on 117 as well.
“Looking at the risks and how Proposition 117 could affect our health-care system, it’s really almost as if this proposition were crafted as a disguise attack on Coloradans’ health care,” Fox said.
Fields insists that’s not the case but those unanswered questions leave us uneasy. Enterprises allow the state to innovate in a very deliberate and targeted manner. They already have to meet strict standards as allowed under TABOR. Proposition 117 then seems to tighten fiscal handcuffs which we already find overly restrictive.
We should be able to trust our elected statehouse representatives to fund essential programs without forcing them to get taxpayer approval on proposals that already must operate within the law.
If voters want to approve tax relief, fine. But to do that and also limit the state’s ability to devise solutions to a drop in revenue will only complicate a problem already made worse by the pandemic. Of the two, rejecting Proposition 117, we think, is the priority.