Why Budgets Matter

On Friday, July 19, 2019 I wrote a blog post for Kim Monson of Americhicks and went on her radio show to discuss Colorado’s Taxpayer’s Bill of Rights (TABOR) and why it matters. Here is the link to the blog and the podcast. As part of my research for that post, I took a look at Colorado’s state budgets for the 27 years since TABOR passed in 1992. This companion post reviews my findings, offers some observations and finishes with a call to action.

We’ll start with a quick overview of the legal framework and the process. Colorado’s constitution requires the General Assembly to pass a balanced budget every year. Unlike the federal government, the state doesn’t allow for budget deficits. Article 10, Section 20 of the Constitution, also known as TABOR, defines how much the budget is allowed to grow. The Gallagher Amendment places limits on how much governments can collect in property taxes, which adds an upward pressure to other revenue sources such as sales and income taxes. Amendment 23 places an upward pressure on education spending, which used to be funded primarily by property taxes but is now majority funded by the state.

Every year during the January to May legislative session, the Joint Budget Committee (JBC) prepares and presents a budget to the General Assembly for passage. The JBC is composed of three representatives and three senators from each party. The annual budget bill, known as the “Long Bill” is introduced in alternating chambers each year and signed into law by the governor after passage. The state’s fiscal year (FY) is from July 1 to June 30 of the following year. Each fiscal year will be denoted as base year-next year, e.g. FY 2009-10 for 2009 to 2010.

Because of the nature of the JBC – equal representation by both parties and no majority by either party – the growth of our state’s budgets over the years is the result of bipartisan cooperation. One fiscal conservative or one “tax-and-spend” progressive alone cannot move the dial very much. This is something to keep in mind as we dig into these numbers.

A note on sources: every year, the JBC staff prepares a document titled “Budget in Brief” which shows revenues and appropriations, sources and uses at a high level. The link to the Budget in Brief pages is here. Unless otherwise noted, all data, tables and graphs are prepared by the author from this source.

One of the arguments in favor of TABOR is that it limits the growth of government, which leads to greater prosperity for the state. As we’ll see here, Colorado state budgets have grown substantially – by over 300% – since TABOR was passed. One can only wonder by how much they would have grown without TABOR.

In FY 1993-94, the year after TABOR was passed, Colorado’s population stood at about 3,560,900 people and the state’s budget called for total appropriations of $8.0 billion, or $2,247 per capita. Fast forward 27 years to FY 2019-20, when the total appropriations amount is $32.5 billion. With a population in 2019 of about 5,695,600, that equals a per capita amount of $5,709 per resident. This represents a 154% increase in the cost of government per Colorado resident.

Before we look at what all that money Is being spent on, let’s look at the funding sources for our state government.

Sources of Funds – “Revenues”

First and largest is the “General Fund”. This is how the state describes it in the Budget in Brief glossary: “A fund that consists of general tax revenues, such as state sales and income tax revenues, as well as any other revenues and money not legally required to be credited to a specific fund. The General Fund is used to pay for a variety of state programs and services. General Fund revenue and expenditures are restricted by both TABOR and a statutory provision that restricts annual state General Fund appropriations to an amount equal to 5.0 percent of Colorado personal income.”

The three main categories of revenues for the General Fund are Excise Taxes, Income Taxes and Other Sources. Excise Taxes consist of Sales and Use Taxes, Marijuana (starting in FY 2019-20), and “sin taxes” – Cigarette, Tobacco Products and Liquor. These taxes have grown by 250% since FY 1993-94 and represent 30% of total General Fund revenues.

Income taxes are just that – taxes levied against individuals and corporations, and of the two, the individual income tax is by far the biggest revenue source for the state government. In FY 1993-94 the individual income tax represented 55.5% of total general fund revenues and has grown to be 65.7% of total general fund revenues in FY 2019-20. Let’s repeat: Fully 2/3rds of general fund revenues are derived from individual income taxes. Income taxes in total represented 59.9% of total general fund revenues in FY 1993-94 and have grown to be 66.4% of general fund revenues in FY 2019-20.

Other funding sources include insurance, interest, estate taxes, gambling related taxes, court receipts, Medicaid (until FY 2000-01) and Other. Taken as a whole, they accounted for 7.1% of general fund revenues in FY 1993-94 and only 3.2% in FY 2019-20.

The next source category is “Cash Funds” and “Cash Funds Exempt”. The two funds are described in the Budget in Brief glossary as follows: Cash Funds are “Specific funds created to receive earmarked revenues, such as fees and fines. These funds typically pay for the programs for which the revenues are collected. For example, the Highway Users Tax Fund.”

Cash Funds Exempt (used in FY 1993-94 through FY 2007-08) are “A category added in the FY 1993-94 Long Bill for cash funds appropriations that are exempt from the provisions of Article X, Section 20 of the state constitution (Amendment 1). [TABOR] Examples of exempt appropriations are those paid for from donations and from reserves in a cash fund.” This category was discontinued in FY 2008-09 because it was prone to misinterpretation and generally not useful for policy makers and the public.

Cash Funds sources include the Highway Users Tax Fund and other transportation related revenues (reported as “Transportation Related”), higher education tuition, the hospital provider fee tax, the Unemployment Insurance Trust fund, severance taxes, gaming fund, and others. The table below shows that the revenues going into the cash funds have grown by 58% over the last 27 years as well.

“Reappropriated Funds” are defined in the glossary as follows: “Reappropriated funds are amounts of General Fund, cash funds, or federal funds that are appropriated more than one time in the same fiscal year. For example, funding may be initially appropriated to a department as federal funds and then appropriated to another agency for the payment of services. In the recipient agency’s Long Bill appropriation, this is shown as reappropriated funds.” This category was added in FY 2008-09 to add transparency to this category of funds.

Finally, the last category of state revenues is “Federal Funds”. The glossary defines them as: “Funds from the federal government. Some federal funds are grants for limited purposes, while other federal funds support ongoing state-federal programs and may require matching state funds”. In other words, they are tax revenues funneled from other taxpayers through the United States government to the state government.

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A note on state “revenues”. Governments do not create wealth. What governments do is take money from the productive in society who create value and use it to provide public goods and services, as well as transfer payments, i.e. taking money from one person and giving it to another.

Any “revenue” the state collects is taken from citizens, usually by force. It is not the same as “revenues” earned by a for-profit business that receives the money through the provision of goods and services in voluntary transactions.

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Uses of Funds – Appropriations

Now let’s take a look at where all the money is going. By far the biggest line items on the Appropriations side are Health Care, Public Health and Human Services, K-12 Education and Higher Education. Next in the pecking order is Transportation followed closely by Corrections and the Judicial System.

Health Care, Public Health and Human Services are the biggest line items, accounting for 30% of the budget in FY 1993-94 and growing to a whopping 42% in FY 2019-20, so we’ll take a look at them in detail.

In the FY 2019-20 budget, the largest single appropriation ($10.689 billion or 33% of the entire budget) was for Health Care Policy and Financing (HCPF), a category which did not exist in the FY 1993-94 budget. What did this money go to? Here’s the breakdown:

Source: FY 2019-20 Budget in Brief

From the table, we can see that fully 72.5% of this appropriation, or about $7.8 billion, goes to pay medical premiums for some residents. As the table below shows, the majority of those premiums are for Medicaid, the government program to pay healthcare costs for the poor. The medical services paid for the 1.3 million clients was $5,092, or almost the same amount as the per capita budget per person in Colorado.

Another $1.2 billion goes to fund Behavioral Health Services and Intellectual and Developmental Disabilities, serving over 1.3 million residents, or 22% of our state’s population.

Source: FY 2019-20 Budget in Brief

Human Services (or “Social Services” and “Institutions” as they were called in FY 1993-94) round out the human spending categories, totaling $2.2 billion in FY 2019-20 and only growing from FY 1993-94 by 7%.

Leaving aside the question of whether these departments are legitimate functions of government, the HCPF category is particularly troubling. While Colorado voters may have said “No” to single payer healthcare in 2016, it seems that almost 25% of our state’s residents are dependent on government for their healthcare coverage. This one line item is going to bankrupt our state.

The next two big dollar categories are K-12 Education and Higher Education. The majority of the state’s FTE work in these departments, and together they accounted for 39% and 34% of the total appropriations in FY 1993-94 and FY 2019-20, respectively. While these two categories have not grown as much as the overall budget, they still show 255% growth. The entire debate as to whether or not government should be in the education business is beyond the scope of this blog post, but the facts are what they are, and this function accounts for fully a third of our state budget.

What I would consider the “core” functions of government ((c) on the table above), Corrections, Governor’s Office, Judiciary, Attorney General, General Assembly, Military and Veterans Affairs, Public Safety, Revenue and Secretary of State totaled a mere $3.4 billion in FY 1993-94 and only grew by 78% to $6.0 billion in FY 2019-20. As this growth rate is only slightly higher than the population growth over that time frame, I don’t see a huge problem here, but would like to see the growth here more closely match population growth.

The final categories on the table noted as (d) are functions I do not believe should be done by government and are not necessary. These functions wasted $278 million in FY 1993-94 and $1.6 billion in FY 2019-20. While they only accounted for an average of 4% of the total appropriations, eliminating them would save taxpayer money.

The final point I want to talk about is Transportation. While most people consider transportation to be a core function of government, I treat it separately because it is such a hot-button issue, and the reason tax-raisers of both parties want to raise taxes.

Appropriations for Transportation have grown from $496.9 million in FY 1993-94 to $2.1 billion in FY 2019-20), Transportation appropriations as a percentage of the total has averaged only 6.7% over the years, and in the latest year represents only 6.5% of total appropriations. To put this into perspective, health care, public health and environment have averaged 35% over the years, and in the latest year represent 40.1% of the total. When politicians pay lip service to funding transportation, remember this: 6%. Transportation is just not that important to them. Maybe their consistent underfunding of this key area gives them political cover to raise taxes.

Conclusions and Call to Action

This deep dive into the budget has been highly instructive, and the more I look at these numbers the more questions I have. I plan to research some of these budget items further and will write a follow-up blog post to go through them.

What I think is the biggest takeaway from this analysis is that our state budgets have grown considerably in the years since TABOR was passed in 1992. While budgets may be mind-numbingly boring, there are a lot of questions here, such as:

  1. Is paying medical premiums for 22% of the population really a legitimate function of government? Is there a way these people can be better served through private sector actions and organizations?
  2. Are all the other “Human Services” programs legitimate functions of government? Again, can these people be served as well or even better through the private sector?
  3. Are Agriculture, Natural Resources, Labor and Employment, Local Affairs, Regulatory Agencies all fulfilling legitimate functions of government? Can they be eliminated or reduced in size and scope?
  4. Why do our elected representatives continually treat Transportation as an unwanted stepchild, allocating an average of 6% over the last 27 years to this important function while Colorado’s population has grown by 75%?

I encourage everyone reading this to ask questions. Ask your elected representatives and senators. Call into talk radio programs and discuss your questions with the hosts. Study and learn more about TABOR. Learn more about (and vote “No”) on Proposition CC.

The bottom line is this: The government is taking the money you’ve earned by force and using it to spend on all these programs. You have every right to know how it is used, and you have every right to receive refunds of excess revenues under TABOR. Without TABOR, there is no statutory limit to how large our budget can grow, and research shows that larger government means less prosperity.

By Richard D. Turnquist

July 21, 2019

Want to learn more?

Vote No On CC

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TABOR Primer: Everything you ever wanted to know about the Taxpayer’s Bill of Rights

Download the TABOR Powerpoint – the graphic history of TABOR and how efforts to weaken it have impacted Coloradans.

And this is WITH TABOR…

Note: Updated on July 31, 2019 to add a revised “Comparative Appropriations Budgets by Department” table reflecting formula and grouping corrections. The previous table is invalid and should not be used.