School Finance Basics
Public school investment in Colorado
Colorado invests in K–12 public schools through a combination of local property taxes and state revenues. Historically, local property taxes made up the majority of funding. However, since property taxes decrease and will continue to do so based on the impact of the constitutional Gallagher amendment, the state has been required to fill in the amount that local property taxes used to cover.
Amendment 23 was passed by voters in 2000 to reverse a decade of budget cuts experienced by Colorado school districts throughout the 1990s. During that decade, Colorado’s education investments did not keep pace with the inflation rate. Per-pupil investment in education was (and still is) well below the national average. Amendment 23 requires the state’s K–12 investment to increase by the rate of inflation plus 1 percent from 2001 to 2011 and by inflation after that. It is intended to bring K–12 investment closer to the national average. Yet if Amendment 23 is honored through 2011, the state essentially will invest as much per child in real dollars as it did in 1989.
The Gallagher amendment, passed in 1982, was designed to maintain a constant ratio between the property tax revenue that comes from residential and business property. To simplify a set of very confusing formulas, the effect of Gallagher was to reduce the assessment rate (the percent of property value that is subject to taxation) whenever statewide total residential property values increased faster than business property values. As a result, the assessment rate for residential property has declined by more than two-thirds over the years because of Colorado’s population growth and because of increases in real estate values. (Colorado now has among the lowest residential property tax rates in the country.)
TABOR is the Taxpayer Bill of Rights, passed in 1992. TABOR prohibits any tax increase without a vote of the people. It places the strictest limits in the nation on how much revenue the state can keep and how much it can invest. Under TABOR, the state can increase operating expenses by just 6 percent from one year to the next. Any revenue collected in excess of TABOR’s revenue limits must be refunded to the taxpayers. (This provision of TABOR has been suspended at the state level until 2011 as a result of the passage of Referendum C.)
The downturn in the economy from 2001 to 2003 required deep cuts in essential state services that already had been pared down. Because TABOR prevents the state from investing more than 6 percent of what it did the previous year, the state cannot restore cut services to pre-economic downturn levels once the economy begins improving. In response, a bipartisan coalition referred Referendum C to the ballot, and Colorado voters approved it in 2005. It is basically a five-year time-out from TABOR’s annual state revenue collection and investment limits. Had Referendum C not passed, the state would have been forced to make deep cuts at the same time it refunded hundreds of millions of dollars to taxpayers. During this five-year Referendum C time-out from TABOR, the state is allowed to keep all the revenue it brings in from Colorado’s tax rates (already among the lowest in the nation). That allows the state to fully invest the minimum increase to K–12 education as required by Amendment 23. In 2011, TABOR’s strictest-in-the-nation revenue limits will be put in place again.
Source: Great Education Colorado