Current Issue

Colorado’s Economic Future

Colorado’s economy is in good health. Most economists agree that the state has recovered from a turn-of-the-century economic downturn and is seeing more jobs and higher tax revenue. In November, voters passed Referendum C, temporarily loosening some state constitutional restrictions on spending, freeing policy makers from the chronic pain of budget cuts and giving state programs and infrastructure a five-year, $3.5 billion infusion of cash.

But these changes provide only passing relief from the state’s long-term fiscal infirmities, according to the Colorado Economic Futures Panel (CEFP) convened by the University in 2004. Without fundamental reform of the state’s policymaking process, panelists conclude, the prognosis for continued economic health is questionable. The state could, they say, face a future of deteriorating roads and schools and a weaker business environment, among other ills.

They recommend major surgery.

“The promise of Colorado is in peril,” says CEFP Chair James Griesemer, dean emeritus of DU’s Daniels College of Business. “Without fundamental changes to the processes of fiscal policymaking and governance, the panel believes that the Colorado of tomorrow may be at much greater risk than is apparent on the surface today.”

Painful proposals

The nonpartisan panel — comprised of 16 civic, business and academic leaders — completed the first comprehensive review of Colorado fiscal policies in more than 50 years. After studying reams of data and dissecting decades of fiscal policymaking, the CEFP released a report on Jan. 4 recommending significant steps to ensure the health of Colorado’s economy.

First and foremost, the panel suggests removing fiscal restraints from the state’s constitution and shifting voter-initiated amendments — which can hamstring fiscal policymaking — to state statutes. The panel also proposes several measures to achieve financial accountability and rebuild voter trust.

But that’s only the first major operation. In order to ensure fiscal flexibility in the face of increasing economic competition, the panel recommends doing away with term limits.

Strong medicine, indeed. Panelists realize how politically painful their proposed remedies may be, Griesemer says, but believe that to keep Colorado economically fit, legislators must work to remove constitutional obstacles, strengthen representative government and rebuild public trust.

The report has been well received at the state Capitol. Lawmakers are poring over the findings and Speaker of the House Andrew Romanoff has invited Griesemer to testify before legislative committees.

What legislators are likely to hear is that the crux of Colorado’s fiscal difficulties is its cobbled-together constitution. Colorado is second only to California in the movement toward direct democracy, reflected in the ease and popularity of successful voter-initiated constitutional amendments. Since 1990, the Colorado Constitution has grown by more than 21,000 words — three times the size of the U.S. Constitution, including the preamble and all 27 amendments.

“Our constitution has grown too large,” says panelist Marguerite Salazar, president and CEO of Valley-Wide Health Systems in Alamosa. “We really don’t have anyone to blame but ourselves.”

Amendments combine to create what Salazar calls a “serious drug interaction.” Like drugs that work well separately but can produce serious side effects when taken together, Colorado’s conflicting constitutional requirements can lead to an unhealthy economy and impede fiscal remedies, Salazar says. The Gallagher Amendment shifts the property tax burden from homeowners to businesses, gradually reducing property tax revenues for local school districts and forcing the state to backfill the loss with money from its general fund. At the same time, Amendment 23 mandates school spending increases that pull additional money from the fund. And while these two amendments are pulling more cash from the general fund, Taxpayers Bill of Rights (TABOR) restrictions limit the amount of sales and income taxes going into it.

During the go-go 1990s, these constitutional constraints put regular refunds in taxpayer pockets but didn’t have a huge impact on state programs. But after the telecom bubble burst and the 2001 terrorist attacks curtailed travel and tourism revenue, Colorado’s economy took a nosedive. As revenue declined, lawmakers were forced to cut more than $1 billion from the state budget to meet constitutional mandates.

Faced with the impending constitutional conundrum of deeper cuts and more tax refunds, voters approved Referendum C, giving the state permission to spend revenue in excess of TABOR limits for five years. But, legislators say, the reprieve does not address fiscal obstacles looming on the horizon.

State Budget Director Henry Sobanet says Referendum C is allowing Colorado’s budget to return to a pre-9/11 level of health. But, he says, about two-thirds of the new money is committed to state- and federally mandated spending. And, Sobanet predicts more budget pressure from future increases in Medicaid, transportation, prison and school funding.

Romanoff agrees. Mandated spending increases and constitutional revenue restrictions leave little money to invest in the state’s human and physical infrastructure, he notes. Without loosening those restrictions, he says, Colorado will continue to lag behind other states in education, health care and transportation. That leaves little but Colorado’s beauty, he says, to draw new business.

“We should take charge of our economy,” says Romanoff, a DU law student. “There’s no reason in the world we should not be leading the nation.”

To whit, the panel recommends removing fiscal policies from the state constitution via constitutional convention. CEFP also suggests making it more difficult to amend the state constitution by more than doubling the number of signatures required to place an amendment on the ballot and requiring a supermajority of voters to pass such an amendment.

State officials balk at both recommendations. Romanoff, for one, agrees that it should be harder to amend the state constitution but wants to hear more from the panel and state legal experts before endorsing a convention. Sobanet worries that special interests would dominate such a convention, further mucking up the constitution with amendments on everything from abortion to gun control. Even if it could be constrained to fiscal matters, he says, such a convention could actually make matters worse without the careful deliberation that occurs in the legislative process. Sobanet is more optimistic about finding a solution via referenda. As the constitutional conflict worsens — which, he assures, it will — legislators will propose and voters will adopt fiscal fixes that allow conflicting constitutional amendments to work together.

The CEFP considered that option, Griesemer notes, but concluded that anything less than a comprehensive solution would likely do more harm than good.

Give it time

CEFP’s term-limit recommendations may prove to be even more fractious than the constitutional debate. Over the years, Colorado voters have instituted a number of reforms to keep the state legislature fair and open. In that tradition, in 1990 Colorado became one of the first states to impose term limits on elected officials. But, panelists discovered, Colorado term limits have not had the desired effect. Before term limits, the average tenure of legislators was 5.2 years, according the state’s legislative council. Since term limits were enacted, however, average tenure has risen to 6 years. And despite voter intentions to blunt the advantages of incumbency and shake up the demographics of the deliberative body, more than 90 percent of incumbents are re-elected and the gender and ethnic makeup of the legislature remains unchanged.

Meanwhile, legislative experience has plummeted. The number of representatives with six or more years in the House has dropped from 28 percent in 1997 to 12 percent in 2003, and the number of senators with 10 or more years fell from 51 percent to 26 percent. Since term limits were imposed, the legislature’s powerful Joint Budget Committee went from one new member every three election cycles to three new members every two years.

The CEFP recommends eliminating term limits because, panelists say, such high turnover creates weaker, more partisan legislative leadership and gives more power to lobbyists and the executive branch. Long-term legislative solutions, consequently, give way to short-term political fixes.

“We believe that strong and responsive representative government is at the heart of effective governance,” Griesemer says.

Romanoff, a Democrat, and Sobanet, a Republican, are pessimistic about the political popularity of eliminating term limits. They both see a benefit in the fresh faces and new energy that comes from limiting legislative terms. But, they admit, term limits do let lobbyists and staffers exert more influence and don’t always lead to the most experienced economists guiding fiscal policy. Instead of eliminating term limits, Romanoff and Sobanet support lengthening legislative tenure from eight to 12 years.

“The best legislators over time have been those who have experience with fiscal policies,” Sobanet says. Voters’ willingness to restrain government spending and tenure comes from a growing mistrust of politics and politicians, CEFP concludes. But term limits and voter-initiated fiscal restraints, the panel claims, have actually contributed to mistrust born of weakened legislative leadership and heightened political polarization.

To reverse that downward spiral, CEFP proposes improving legislative accountability and information.

With 2,600 taxing entities statewide, taxpayers are hard pressed to know what they’re paying for. So, the panel recommends that all major state agencies provide a report card to communicate money spent on services provided. Panelists also support creation of an Internet-based taxpayer information center to provide each taxpayer with an estimate of his or her annual tax burden and a summary of the programs and services supported by those tax dollars. Finally, the panel calls for an independent, nonpartisan, non-governmental organization to conduct ongoing fiscal research and provide information to government officials on economic trends and the fiscal impact of proposed legislation.

Sobanet says much of the information the panel seeks is already available, but not in the simple, comprehensive format the panel recommends. A nonpartisan analysis group already exists in the state’s legislative council, departments already report their success against legislative priorities and the state’s Web site is rich with economic information. He says he understands the need for more easily accessed taxpayer information, but notes that state departments would need more resources to provide it.

Romanoff, on the other hand, says performance reports are an idea whose time has come. With the passage of Referendum C, Romanoff is eager to prove to voters that legislators are not on a spending spree.

“Folks gave us more resources,” Romanoff says. “I’m eager to be held accountable.”

Cautiously optimistic

Despite Colorado’s current economic health, Romanoff says, there are fiscal forces looming on the horizon that could bankrupt the state if legislators aren’t careful. And while he’s politically pessimistic about the panel’s proposed purge of constitutional restraints, he’s optimistic about the state’s ability to create sound fiscal policy.

Sobanet is equally optimistic. Legislators and taxpayers respond when faced with a fiscal crisis, he says, and can be counted on to face future economic obstacles by enacting sensible, accountable economic reforms.

The panel’s work is done, Griesemer notes, and while the CEFP is willing to communicate its findings to policy makers, it will be up to “an uncommon coalition” with “particular determination” to implement the kind of fundamental reforms the panel recommends. Failure to follow the panel’s prescribed remedies, he warns, could endanger the economic health of Colorado.

“What comes of the CEFP’s findings and recommendations depends on the will and resolve of our leaders and citizens of Colorado,” says DU Chancellor Robert Coombe. “The economic future of Colorado,” Griesemer adds, “will be written in the choices we make.”

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