During the 2005 legislative session, Gov. Bill Owens and state lawmakers crafted a compromise proposal to help state government deal with massive budget cuts. The cuts were forced because tax revenues sharply declined during the 2001-03 recession.

But while the state’s economy began to rebound by 2004, the “ratchet effect” in the TABOR amendment prevented state government from using the rising tax revenues to restore funding. The bipartisan compromise was a package of measures to be referred to voters in the November election, called Referenda C and D. In the election, voters approved Ref C, but defeated Ref D.

Referendum C

Ref C gives Colorado state government a five-year reprieve from the spending limits of the TABOR amendment, from FY 2005-06 through FY 2009-10. Ref C funds are to be specifically used for public K-12 education, higher education, health care, and transportation.

Ref C was originally expected to raise state revenues by as much as $3.7 billion over the five years. Colorado’s economy has rebounded at a stronger rate than expected, and as of December 2006, the five-year total is estimated to be $5.7 billion.

Referendum D

This would have allowed state government to issue up to $1.5 billion in bonds to catch up on transportation projects, maintenance, and repairs for school and college buildings, and to fill police and firefighter pension funds. Had Ref D passed, about 10 percent of the Ref C funds would have been used to pay off the Ref D bonds.

Taxpayers will still get refunds when their state withholding is higher than the income tax they actuallyt owe, but they will not receive TABOR rebates from the state as they did from 1993 through 2000. Loss of the TABOR rebates is projected to cost a single taxpayer $450 and joint filers $1,250 over the five-year period.

For the Bell Policy Center, which had been researching TABOR impacts since 2002, the value of Refs C and D was clear. The package offered a short-term fix to Colorado’s budget crisis, which had forced painful cuts in many areas, particularly higher education and health care.

Ref C also permanently eliminated the so-called “ratchet effect,” one of the four flaws that make TABOR so damaging to Colorado’s fiscal health.

With voter approval, the state government was able to retain all taxes collected — retroactively to July 1, 2005 — and apply much of this money to restore cuts made during the 2001-03 recession. In the General Assembly’s 2006 session, legislators applied Ref C funds as supplementals to the 2005-06 budget, and used the funds in planning for the 2006-07 budget.

In 2006, legislators wanted to explain how they were spending the Ref C money. In cooperation with the Bell Policy Center, legislative leaders launched the 2006 Accountability Tour, which made 11 stops along the Front Range from February through April.

After working through the 2006 session on how best to budget the limited amount of Ref C money for FY 2006-07, the legislature’s Joint Budget Committee (JBC) released this statement on April 12, 2006:

Promises Made, Promises Kept: Democratic Leadership Reaches Agreement with Governor on School and State Funding

Children will have repaired schools. Students will have affordable college tuition. Low-income Coloradans will have access to improved health care.These are some of the results of a budget agreement between Democratic leadership and the governor.

“The investments we are able to make in our kids, our schools and our infrastructure show how much Ref C is helping us down the road to economic recovery,” said JBC Chair Tom Plant, D-Boulder. “However, we are only two years into our overall five year economic rebuilding plan. We have to continue to exercise fiscal restraint and account for every dollar to taxpayers.”

The agreement also includes the biggest economic development plan in a decade. The plan invests $25 million and will create jobs in fields ranging from bioscience to tourism.

The budget agreement divides the Ref C money exactly as voters intended. These are promises made, promises kept. Joint Budget Committee member Abel Tapia, D-Pueblo, added, “Because of the passage of Ref C, schools can afford to take steps toward improvements.  We have additional money in the state and we will honor Ref C to repair and properly finance Colorado’s schools and universities.”

Here are some of the specifics:

• $30 million to make vital health and safety repairs to school buildings
• $15 million to help more children attend preschool
• $15 million to help uninsured Coloradans afford health care
• 2.5 percent cap on tuition increases at all Colorado colleges and universities
• $25 million to help schools pay for special education, which will help all students by freeing up more general fund money in school districts
• Property tax relief for senior citizens under the Homestead Tax Exemption
• $120 million to make critical repairs to state buildings
• $4 million for after-school programs
• 500 percent increase in funding to fix crumbling schools, colleges and health care facilities

Here is a list of how many people these programs will help:

• At-risk preschool/kindergarten children no longer on waiting lists for crucial education: 2,000
• Children, aged 3 and under, with developmental disabilities who will no longer have to wait for early intervention services: 613
• Colorado seniors who will qualify for the Homestead Tax Exemption: 140,000
• College students, at 2-year and 4-year state institutions, who will see their tuition more affordable because of increases to the Colorado Opportunity Fund: 124,000
• Estimated economic impact from tourism-related promotions: $2.6 billion
• Low-income households that will receive help with their heating bills and energy efficiency improvements for the future: 110,00
• Children who will receive improved special education instruction: 80,000
• Uninsured Coloradans helped because of investments in community health centers: 50,000
• Transportation projects green-lighted: 36