Voters scammed by Ref C ’shuffle’

by | Aug 29, 2007 | Capitol Review, Notes

Two years ago, lawmakers asked voters for a "timeout" from the spending restrictions of the Taxpayers Bill of Rights (TABOR) in order to allow the state budget to rebound from the recession of 2001-2002.

Referendum C, which passed by a narrow 52 to 48 percent margin, erased the TABOR spending limits for five years and permanently increased spending caps thereafter. Voters were promised that K-12 education, colleges and universities, and health care would split the lion’s share of the resources if the measure passed.

Following the 2005 vote Colorado Senate President Joan Fitz-Gerald said, “‘We already agreed, if Ref D failed, it would be 33 1/3, 33 1/3 and 33 1/3,’ for schools, colleges and health.”

But a funny thing happened after the election. Spending on programs not associated with Ref C has grown more than twice as fast as spending on education and health care. Now, voters have cause to believe they were sold a bill of goods.

According to the Joint Budget Committee, nearly $3.2 billion from the Ref C windfall has indeed been split between K-12, higher ed and health care.

However, as any economist knows, money is fungible.

Since the 2005-06 budget, passed prior to Ref C, general fund spending has increased by $1 billion, or 16.1 percent. Spending K-12, higher ed and health care has grown by just 11.9 percent, or $557 million. Meanwhile, the remainder of the general fund, which wasn’t targeted for a Ref C infusion, has grown by 28.7 percent, or $446 million.

Advocates for loosening the state’s remaining spending limits complain that the six-percent cap on annual growth in general fund spending is too restrictive. Yet even with this limit, lawmakers chose to shift spending away from Ref C beneficiaries and into other programs.

The first "Excess State Revenue Report," mandated by Ref C as a report card to measure whether legislators kept their promises to the voters, explains: "While (programs not identified in Ref C) may have received funds that would not have otherwise been available, they did not receive funding directly from Referendum C."

After Ref C passed, lawmakers approved a fiscal shell game, reducing K-12, higher ed and Medicaid spending from existing sources, then replacing those funds with money from Ref C. In some instances, education and health care actually received less money immediately after Ref C passed.

The Joint Budget Committee’s 2006-07 Appropriations Report details what happened. After Ref C passed in November 2005, the legislature cut $306 million in K-12 spending from the general fund and "replaced" it with $261 million from Ref C. A similar cut-and-switch took place in Medicaid. Higher ed initially absorbed a $271 million general fund cut, mostly offset by a $253 million Ref C appropriation.

Such maneuvering gave the legislature a free hand to divert ordinary resources to other programs. Not surprisingly, some who expected their programs to be bolstered are now frustrated by the "Ref C shuffle."

University of Colorado President Hank Brown, widely credited with convincing moderate Republicans and Democrats to support Ref C, recently told higher ed leaders, "I would not use the terminology that higher ed gets 30 percent of Ref C. We are not getting 30 percent."
Brown has cause to feel double-crossed and so do Colorado voters.

Prior to Ref C, the state’s annual subsidy to colleges and universities was cut from $750 million to $498 million – with students and parents taking up the slack by paying higher tuition. For 2007-08, general fund spending on higher ed is $746 million — still below pre-recession levels.

Ironically, Ref C’s health care beneficiaries have fared even worse. General fund spending on "medical services premiums" has actually decreased since Ref C passed, despite receiving over $1 billion in "excess revenues."

By contrast, K-12 education, which was shielded from cuts even during the recession by its sugar daddy, Amendment 23, has reaped a $359 million general fund increase.

It’s fair to assume that Colorado voters expected that education and health care spending would fare better than those programs not identified with Ref C. Since that clearly has not happened, convincing voters to approve new taxes for higher ed, transportation and health care — as leading Democrats have proposed — will be a tough sell.

Download the Independence Institute Backgrounder.


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