THE COLORADO REVENUE LIMIT: THE ECONOMIC EFFECTS

In November 2005, Colorado residents voted to suspend for five years the state’s self-imposed revenue caps as outlined in the state’s Taxpayer Bill of Rights (TABOR). TABOR, which was passed as a consti-tutional amendment in 1992, limits the growth rate of revenues to population growth and inflation. The effects of TABOR on government spending and economic growth have been hotly debated in recent years. Proponents attribute much of Colorado’s economic prosperity in the period immediately follow-ing adoption of the law to the limit and its effect on government spending and taxes.1 Opponents of TABOR argue that TABOR-induced reductions in government spending have led to curtailed govern-ment services, including those that voters and businesses care most about.2 To understand TABOR’s effect on Colorado’s economic health and growth, we compare Colorado to other states, controlling for prior history and economic and demographic characteristics in order to disentangle the effects of TABOR from other factors influencing Colorado’s economic performance. We begin with a description of TABOR and Referendum C, the measure enacted in November 2005 that suspended TABOR for five years and modified some of TABOR’s requirements. We compare TABOR to Tax and Expenditure Limits (TELs) in other states. TABOR is by many measures the most binding TEL in the country. We also describe how TABOR interacts with other Colorado budget rules