Proposition 103 in Colorado to Test Voters' Willingness to Raise Taxes

When Colorado voters go to the polls November 1, the only statewide issue on the ballot will be Proposition 103 , a measure that would increase sales and income taxes to provide money for public education. The controversial measure, which would generate $2.9 billion over the five years the tax increase would be in effect, is lauded by supporters as "standing up for better schools" and vilified by opponents as a "job killer."

Proposition 103 is the nation's most high-profile tax measure on the ballot in this off-year election season, and the outcome is likely to be viewed as a barometer of attitudes toward the tough fiscal choices states have ahead. Like many recession-weary states, Colorado has made large cuts to education to balance its budget and many worry that the cutting has gone too far. At the same time, nobody in Colorado wants to slow the recovery of a job market that has been picking up a bit lately, putting the state's unemployment rate below the national average at 8.3 percent.

The citizen's initiative, sponsored by Democratic state Senator Rollie Heath, enjoys support from many of the state's local school districts and labor groups. But it has not won the backing of the core of business leaders, conservative Democrats and moderate Republicans whose influence is crucial when tax-related measures come to the ballot in Colorado. Democratic Governor John Hickenlooper, fresh off his own election last year, has vowed to neither support nor oppose the measure. "I made the commitment not to support any tax increases in the first year, that I wouldn't get involved in any," Hickenlooper told a group of reporters last week. 

Major state-level elections in 2011
(voting on November 8 unless noted)
Source: Stateline reporting by Vicki Kleger
The vote in Colorado foreshadows tax-related ballot measures expected to come up in several states next year. Activists in Arizona , Arkansas , South Dakota and Idaho are working to put tax increases on the 2012 ballot.

Close outcome expected

Colorado voters appear split on Proposition 103. The most recent poll , taken in August by the group Public Policy Polling, showed opposition to the measure leading by a margin of 47 percent to 45 percent — well within the four percent margin of error. Floyd Ciruli, a Colorado pollster who did not conduct the August poll, says this will be a very difficult year to pass a tax increase in Colorado. That's partially because turnout in the off-year election is expected to be low. But it's also because the state's political establishment has not come out in support of it.

Ciruli notes the role that the Denver Chamber of Commerce and other business interests played last year when Colorado voters bucked a national anti-tax trend and voted down three big tax cuts. The measures included a nearly 50-percent reduction in property taxes that would have saved taxpayers about $2 billion but cost school districts dearly. "It shows that people can be responsible about rejecting completely pie-in-the-sky initiatives that only fringe groups supported," Ciruli says. "But the better lesson from that was (the tax reductions) were defeated with the overwhelming, across-the-board opposition of the establishment, which spent about $5 million to defeat them."

Another factor in Colorado is the Taxpayer's Bill of Rights , or TABOR, an amendment added to the state's constitution in 1992 limiting how much revenue the state may take in. Back during the boom economy of 1999, when Colorado brought in more revenue than TABOR allowed, legislators lowered the sales tax and income tax rates. Proposition 103 would return Colorado to its pre-1999 tax rates, lifting the sales tax rate from 4.63 percent to 5 percent and the income tax rate from 2.9 percent to 3 percent. Carol Hedges, director of the Colorado Fiscal Policy Institute, which supports Proposition 103, says TABOR has exacerbated Colorado's budget problems since the recession began. "We were already skinny before this diet," Hedges says.

Republicans, however, have railed against the idea of raising taxes. "We believe Colorado's elected leaders must provide a united front in standing against policies such as Proposition 103 that will harm Colorado's economic recovery," GOP leaders wrote in an open letter to Hickenlooper and the two top Democrats in the legislature. "The unemployment crisis is the wrong time for statewide income tax and sales tax increases."

Others have expressed concern about how the new revenue would be distributed if Proposition 103 passes. While the measure specifies that the money go toward public education, it would leave the details up to state legislators. According to an analysis by the Colorado Legislative Council, it would be possible for the legislature to allocate most of the money to higher education and virtually ignore K-12 — or fully fund pre-K and leave out higher ed. As a result of the uncertainty, the Council could not estimate the impact for school districts or higher education institutions.

Evie Hudak, vice-chair of the state Senate's education committee and a supporter of the Proposition 103, says she expects the bulk of the money would go to K-12 education, but says there's a long process the allocation would have to go through before decisions would be made. Hickenlooper has said he would veto any attempt by the legislature to re-appropriate the excess funds to other places in the budget.

'It will be very telling'

Others worry that the measure does not go far enough. They point to a structural budget deficit made more severe by TABOR and other budget amendments that need more serious fixes than what Proposition 103 would do. "We have a huge structural problem in our revenue system," says Hedges. "The problem is that those kind of structural changes require lot of conversations, and a lot of people to get to a consensus."

Between now and when the tax increase would run out in 2016, Hedges and others are hoping that there will be more conversation and action on how to address the larger issues in Colorado's fiscal policy. For now, Senator Heath sees the vote on Proposition 103 as a good signal to the rest of the country about the public's mood concerning taxes.

"We're the only state that's asking voters if they're willing to step up and support a tax increase, in this case to support our education system," says Heath. "It will be very telling to the rest of the country about how people are feeling."