3 hours Ago By By Lang Sias
Since 2018, Colorado taxpayers have benefited from two reductions to the state income tax that together have brought the rate from 4.63% to 4.4%, for an aggregate reduction of 0.
23%. These reductions have been much heralded by state government leaders and have elicited approving comments from a wide range of observers. The applause for these tax cuts, however, has obscured a separate tactic that state leaders increasingly have used to extract revenue from Coloradans in amounts that dwarf the income tax reductions.
During the last two decades, Coloradans have seen a steady increase in the fees paid to a wide range of state enterprises. The pattern has accelerated dramatically since 2018. According to a recent Common Sense Institute study, fee-based revenue to enterprises has increased since 2018 by an amount equivalent to a 0.
51% increase in the state income tax — so, more than double the recent tax cuts. If Colorado’s fee enterprises, minus higher education, were instead funded by the state income tax, the state income tax would increase to 7.68%, a 75% increase over the current rate of 4.
4%. Why the transition to fee-based revenue? In part, because it enables legislators to raise revenue, and spending, without obtaining voter approval. Under Colorado’s Taxpayer Bill of Rights (TABOR), a part of Colorado’s state constitution since 1992, voter approval is required for tax increases and for spending that exceeds population growth plus inflation.
Since TABOR was enacted, voters at the county and municipal level have in fact, on hundreds of occasions, approved tax increases and spending that exceeded these limits, and in 2005, voters statewide approved a five-year suspension of TABOR to fund education, health care, and transportation. In these instances, proponents of increased taxing and spending successfully advocated to voters. In other words, TABOR yielded a dialogue between voters and their elected representatives, in which elected representatives earned the trust of citizens to tax and spend in excess of normal constitutional limits.
But by collecting revenue via fee-based enterprises, leaders circumvent the requirement for voter approval, and avoid this dialogue. Under TABOR, an “enterprise” is a government–owned business that receives revenue in return for the provision of a good or service. Enterprise fees do not require voter approval.
Nor does enterprise fee revenue count toward the TABOR limit calculation. Thus, the revenue can be spent without triggering the requirement for voter approval of spending increases that are in excess of population growth plus inflation — or the requirement for taxpayer refunds if voters say no. To say that fee-based enterprise revenue has increased is a dramatic understatement.
The first year after the passage of TABOR, there were four enterprises generating $742 million. As of 2023, there were 27 state enterprises, and their revenue had increased by over 3000%, far beyond population growth plus inflation, to $23.3 billion.
Voters’ attempts to limit enterprise growth generally have been unsuccessful. Proposition 117, passed in 2020, required new enterprises projected to generate revenue above $100 million over their first five years to receive voter approval. Undeterred, the Legislature’s response was to establish eight enterprises and expand an existing enterprise.
In a seeming attempt to skirt Proposition 117 requirements, four of these enterprises were created in the same 2021 bill, with revenue raised by each enterprise calibrated to fall just short of the $100M threshold that would have triggered the requirement for voter approval. Surprisingly to supporters of Proposition 117, the bill survived judicial challenge. All told, the expansion of enterprises since 2020 cost Coloradans $88.
3 million in 2023. The massive growth of fee-based enterprises is of concern for at least two reasons. First, the growth of enterprise fees has occurred in concert with other cost increases impacting Colorado families and businesses.
These include substantial increases in the cost of housing, insurance rates, and regulatory costs, as well as a sharp rise in property taxes, each of which are analyzed in Common Sense Institute reports published in 2023 and 2024. Property taxes, which will continue to increase despite a recent legislative compromise, albeit at a slower rate, are particularly onerous because they essentially are a tax on unrealized capital appreciation. Together, these cost-drivers increasingly have helped make Colorado a more expensive place to live and do business.
Net inward domestic migration has slowed, as explained in a recent Common Sense Institute report. A 2024 CNBC ranking of America’s top states for business ranked Colorado 46th out of 50 states in cost of living (a grade of F), and 39th out of 50 states in cost of doing business (a grade of D+), both five-year lows. So, while Colorado remains an attractive place to live and work, particularly for well-compensated professionals in sectors such as professional services and technology, the cumulative impact of costly policy choices risks undermining our state’s competitiveness.
Second, the growth of fee-based enterprises increasingly has disenfranchised Colorado voters. In 1996, only 46% of state spending was TABOR exempt ($5,027 per Coloradan in 2023 dollars), but in 2023, in large part due to the growth of enterprises, 71% of state spending was exempt, amounting to $8,442 per Coloradan. As increasing percentages of revenue generation and spending circumvent voter approval, citizens are losing an important input into how leaders are raising and spending revenue taken from family and business budgets.
Given the chance, voters would perhaps have approved the creation of so many enterprises, the associated fees, and the increased spending. Or perhaps not. But Colorado’s leaders denied voters the opportunity to review these decisions.
This disenfranchisement of voters has been exacerbated in recent legislative sessions by another development that reduces TABOR refunds. In the 2024 legislative session, for example, over 100 bills were introduced that would diminish TABOR refunds by redirecting funds toward targeted tax credits, tax incentives, and/or transfer payments. Collectively, the bills that did pass are projected to cut TABOR refunds by $3.
5 billion over three years, a 55% cut. Perhaps voters would have approved these transfers as sound policy, if given the opportunity. But we will never know.
What is clear is that legislators substituted their judgment for voters’ judgment regarding how to spend substantial sums that would otherwise have been refunded to taxpayers. TABOR refunds were transformed into TABOR redistributions. This stifling of taxpayer input would be less troubling if legislative actions appeared mostly in sync with public opinion on fiscal matters.
But that might not be the case. To begin with, TABOR is popular; for example, a 2024 poll by the nonpartisan Colorado Polling Institute found 69% of respondents felt that instituting TABOR, with its revenue limits, refunds, and requirement that voters approve tax increases, was a “good thing.” Further indications that voters are less than satisfied with legislative actions regarding revenue generation and spending include the failure of Proposition CC in 2019; the passage of Proposition 117 in 2020; the strong rejection of Proposition HH in 2023, and the pressure of looming tax-cut ballot measures in driving the legislative compromise on property taxes in 2024.
Colorado leaders would be wise to carefully consider the net impact of their actions in driving up costs for Coloradans, and how those costs impact our competitiveness. Colorado voters and interested outside observers, meanwhile, should consider the aggregate impact of our leaders’ policy choices. Income tax cuts are a positive, but in Colorado they do not tell the whole story of government’s impact on family and business budgets.
Lang Sias, who represented District 27 in the Colorado state House from 2015 to 2019, is a Mike A. Leprino Fellow with the Common Sense Institute. He has served in the Navy as a fighter pilot and Topgun instructor and holds a master’s degree from the London School of Economics and a law degree from the University of Michigan.
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