Proposition 103 FAQs

Q: What does Proposition 103 do?
A: Prop 103 would restore state income, corporate and sales taxes to their 1999 levels for the benefit of education:
• Corporate income tax and personal income tax rates would increase from 4.63% to 5%.
• The state sales tax rate would increase from 2.9% to 3%.
• The initiative would raise an anticipated $532 million per year.
• The new funds would go toward preventing further cuts to education — preschool through higher education – and, depending on the economy and recovery, could begin restoring funding for some of the devastating cuts of the past three years.
• The new rates would be in effect temporarily for five years, beginning in January 2012.

Q: Why is the Heath initiative necessary?
A: Over the past two decades years, funding for Colorado’s schools, colleges and universities has been slipping ever-farther behind the national average and behind our peer states. By 2008-09, Colorado was $1,809 behind the national average and ranked 48th in funding of higher education. By then, Colorado already lagged the nation in student teacher ratios, technology in the classroom, and competitiveness in teacher salaries.

Colorado’s investment in education was already at this compromised level when the “Great Recession” began in 2008. When revenues plummeted, the legislature faced a fundamental budget challenge: Under Colorado’s constitution, the legislature is required balance the budget every year, and under TABOR, taxes can be increased only by a vote of the people. As a result, the legislature had to balance the budget almost exclusively by cutting programs.

Because education makes up almost half the budget, K-12 and higher education sustained drastic cuts. Over three years, the legislature has made cuts averaging several hundred dollars per pupil, from Colorado’s already low funding levels. The result has been larger class sizes, teacher layoffs, shorter academic years, narrowed curriculum (loss of foreign languages, advanced science and math classes, art, music and physical education), and a loss of support professionals like counselors, special education teachers, literacy coaches, and school nurses.    You can read representative stories from around the state here.

At the same time, higher ed has sustained deep cuts even as demand for higher education has been exploding. Tuition and fees have increased substantially — by 142% and 76%, respectively, between 2006 and 2010.

Looking ahead to the 2012-13 year, it is expected that state revenues will not be large enough to fund the current 2011-12 level of state services. As a result, experts are predicting cuts of about $200-300 million for K-12 and $50-100 million for higher education.

Proposition 103 provides the only opportunity to give Colorado voters the chance to prevent a fourth year of deep and disastrous cuts to schools, colleges and universities.

Q: How do we know that the revenues raised by this tax will be used for education?
A: The clear intent and language of the Heath initiative is that all the dollars raised by the increased tax rates will be used for preschool, K-12 and higher ed.  The title states:

ALL REVENUES RAISED BY THE INCREASE IN TAXES IMPOSED PURSUANT TO THIS MEASURE SHALL BE APPROPRIATED BY THE GENERAL ASSEMBLY ONLY FOR THE COSTS OF PUBLIC EDUCATION FROM PRESCHOOL THROUGH TWELFTH GRADE AND PUBLIC POSTSECONDARY EDUCATION AND SHALL BE IN ADDITION TO AND NOT A SUBSTITUTE FOR MONEYS OTHERWISE APPROPRIATED BY THE GENERAL ASSEMBLY FOR THE COSTS OF PUBLIC EDUCATION FROM PRESCHOOL THROUGH TWELFTH GRADE AND PUBLIC POSTSECONDARY EDUCATION THE AMOUNT OF WHICH APPROPRIATION SHALL BE NOT LESS THAN THE AMOUNT APPROPRIATED FOR SUCH PURPOSES FOR FISCAL YEAR 2011-12.

The guarantee that the new funds will be used for education is as ironclad as a statute can be.  Even more, on October 24, 2011, Governor Hickenlooper closed the door on any possibility that the dollars could be directed anywhere other than education when he told reporters:

“If [Proposition 103] passes, I would certainly veto an effort to take that money away from education. If the voters of Colorado say they want something, my job is to make sure they get what they voted for.”

Moreover, Great Ed Action will stand ready to defend that intent and language from amendment or misinterpretation.

Important: Even though this initiative will result in $500 million in new revenues for education, we shouldn’t expect that funding for preschool, K-12 and higher ed will increase by $500 million. That’s because these new funds will be used in great part to prevent future cuts. For instance, experts expect that local funding for schools will decrease in the next couple of years because the value of property has declined so much during the recession. New revenues from the Heath Initiative would “fill in” for that lost property tax revenue that pays the local share of school funding.

How much of the new revenues will be used to prevent cuts and how much might be used to start reversing past cuts? That depends on the speed and nature of Colorado’s economic recovery, changes in the value of property, and other variables.

Here’s what we DO know:
• If Prop 103 is not passed, Colorado’s schools and students stand to lose the most; education is the largest part of the budget, and will therefore suffer the largest hit from budget cuts.
• Colorado students will benefit significantly from this initiative, because it will prevent a fourth year of deep cuts.
• Proposition 103 is the ONLY opportunity to prevent short-sighted and irresponsible cuts to our schools in the 2012-13 school year.

Q: Why are current tax rates lower than they were in 1999?
A: First, a little background. In 1992, Colorado passed the TABOR amendment, which created the strictest spending and revenue limits in the nation. Back in 1999, the economy was performing so well that the state was going to exceed its “TABOR revenue limit” – that is, state revenues were growing at a greater rate than TABOR’s limit of “inflation + population growth.”

Even though Colorado’s overall state tax rates were already among the lowest in the nation in 1999, state leaders decided at that time to reduce tax rates in order to collect less revenue, to stay under the TABOR limit. Ultimately, the personal and corporate income taxes were reduced from 5% to 4.63%, and the state sales tax was reduced from 3% to 2.9%. Colorado has since experienced two recessions, and the loss of revenue from these tax rate reductions have resulted in substantial cuts to services over the ten years.

Colorado currently ranks 49th in state taxation.  No state tax of general application has been raised in Colorado since 1992. (Voters did approve an increase in tobacco taxes in 2004).  If Proposition 103 passes, state tax rates will be set where they were in 1992.

Notably, most taxes in Colorado have declined as a percent of income over the past decade. The exception is the tobacco tax; a 2004 ballot initiative increased those taxes in order to improve children’s health services.

Colorado Tax FY 1998-99 FY 2008-09 Change
Individual Income $23.69 $20.74 -12.50%
Sales/Use $14.73 $10.89 -24.20%
Corporate Income $2.54 $1.55 -39.00%
Gas $4.35 $2.90 -33.30%
Liquor $0.22 $0.17 -22.70%
Tobacco $0.57 $1.02 78.90%

Q: Why is Prop 103 limited to five years?
A: Over the past three years, the legislature has cut over $3 billion from state services. This addition of $500 million per year does not come close to allowing the state general fund to meet the state’s education, health care and public health and safety needs.

In addition, as documented by recent studies from the University of Colorado, Denver School of Public Affairs and the University of Denver Center on Colorado’s Economic Future, Colorado is in need of fundamental, long-term fiscal reform because of rigid and conflicting formulas in Colorado’s constitution.

The proposal’s five-year limit is intended to ensure that the initiative cannot be viewed as a permanent solution either to Colorado’s public education funding crisis or to our need for meaningful fiscal reform. This initiative is like a tourniquet that will prevent more irreparable cuts while providing a few years (and a deadline) to build broad consensus on a long-term, sustainable fiscal fix.