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Funding Q&A

Updated on March 10, 2008

Why should all Coloradoans care about the level of education funding?

Colorado's economy depends upon a quality public education system. We don’t need experts to tell us that everybody—employees, employers, new and old businesses—benefit from a public education system that is solidly supported and producing great citizens.

We also know that prospective new employers looking at Colorado consider the public education system as one of the top infrastructure priorities. In fact, K-12 public education is a key economic development tool in any community’s growth and success. Adequately supporting K-12 public education is intimately tied to the future of Colorado.

Does more money mean better education?

The mission of Great Education Colorado is to act as a catalyst for improved investment in Colorado’s public schools. This means both increased investment and wise investment.

Too often, discussions about investing in public education become polarized between those who seek more funds and those who believe that “throwing money at the problem” will not improve schools. The truth is, better school funding is a necessary condition for making meaningful improvements in our school system—but it is not alone sufficient.

There is broad agreement that increased individual attention, by skilled, well-prepared, and experienced teachers is key to academic success. Additionally, as a state and as communities, we want our schools to provide children with a well-rounded education, via a breadth of quality curriculum—relevant vocational education, arts, civics, character education and physical education—in addition to the basic three Rs. We now require that schools be accountable for ensuring that children meet standards in those broad areas. Finally, parents rightly expect that their children will attend—at a minimum—facilities that are free of health and safety hazards, that are not overcrowded or detrimentally outdated and that provide access to the science and computer technology that is at the core of the economy our children will enter.

Progress toward these goals is impossible without a significant increase in school funding, particularly in Colorado where school districts have endured years of chronic budget cuts and underfunding.

We must also recognize, that funding alone will not allow us achieve all our goals: eliminating the achievement gap, reducing the dropout rate, and preparing all children for the 21st century. How money is used matters. In a time of budget scarcity, we are obligated to use new funds as wisely as possible—as determined by a public, democratic and representative process, informed by the best available data.

That is why Great Education Colorado supports efforts spearheaded by Governor Ritter and Speaker of the House Andrew Romanoff, to establish a vision and priorities for Colorado’s system of public education—from preschool to post secondary opportunities. A statewide conversation about our hopes and expectations for our public schools will provide the road map for strengthening our public schools. Once that process is complete, Great Education Colorado will be in the forefront of the fight to match that roadmap with the resources necessary for success.

MORE FAQs:

Adequacy Lawsuit

 

Why is the State of Colorado being sued for not funding our schools "adequately"?

Last year, the public interest law firm "Children's Voices" filed the Lobato vs. Colorado lawsuit, which asserts that the state isn't meeting its constitutional obligation to provide a "thorough and uniform" system of free public schools in Colorado. The suit is based on the theory that Colorado's educational content standards (such as those tested by the CSAPs) now define what "thorough and uniform" means. Colorado's current school finance scheme simply doesn't meet that standard.

Suits similar to the Lobato suit have been filed in 26 states around the country. So far, courts have ruled in favor of the children and school districts in more than 20 of those cases. These cases are often referred to as "adequacy lawsuits."

You can view the complaint and learn more about Children's Voices at http://www.childrens-voices.org/pages/2/index.htm.

What does "adequacy" mean in the context of school funding?

Imagine that you have decided to build a new home. You know that you want high-quality workmanship, reliable and safe plumbing and electrical fixtures, a certain number of bedrooms, bathrooms and square feet. Then you tell the contractor you will pay only $50,000 for the construction of the home.

That's how schools are funded in Colorado. We've set high standards of achievement for our children and our schools—as well we should. But the amount we give our districts bears no relation to the actual cost of ensuring that all our children—including those with disabilities, those from disadvantaged backgrounds, and those whose first language is not English—meet those standards.

In the real world, it doesn't work that way. Once you have provided the specifications, a contractor will cost out the materials and labor and provide a bid that approximates the actual cost of building the home. That's what "adequacy" is all about in school finance. We wouldn't decide on a price for building a house—or a highway—without "costing out" the job, so why should we do it for educating our children? That's why Colorado needed an "Adequacy Study."

Link here for more background on adequacy studies:
http://www.cosfp.org/AdeqUpdate/AdequacyWork/AdeqStudyLevel1FINAL.pdf

Has an Adequacy or "costing-out" study been completed in Colorado?

Yes. In 2002, the Colorado School Finance Project began the process of conducting an "adequacy study"—the first "costing-out" study ever done in Colorado. The study looks at the actual cost of educating children to the level of proficiency in state standards, taking into account the additional costs of meeting the needs of English Language Learners (ELL), Special Education and at-risk kids (those eligible for free and reduced lunch). The study also takes into account the differing per student costs faced by school districts of different sizes (i.e., per student costs are higher in small districts, because the overhead of running a district—heating, transportation, custodial services, etc.—is split among a smaller number of students).

http://www.cosfp.org/AdeqUpdate/AdequacyWork/AdeqStudyLevel2FINAL.pdf

The Adequacy Study concluded—using very conservative assumptions—that for the 2001-2002 school year (the year studied) the state spent between $568 and $841 million less than would have been required for school districts to bring all students up to required standards. The adequacy study has now been updated, to reflect increased requirements under No Child Left Behind and increased costs. Taking those factors into account, the study concluded that current funding is at least $630 million per year below what would be necessary to allow schools to meet current standards.

You can view the summary of the Adequacy Study at http://www.cosfp.org/pdfs/Report_3-10-04.pdf

The update to the Colorado Adequacy Study can be viewed at:
http://www.cosfp.org/AdeqUpdate/AdequacyWork/AdeqWorkUpdate2006.pdf

More information about the Study can be found on the Colorado School Finance Project website: http://www.cosfp.org/.

For further background on the concept of "adequacy" as it is being used in other states, check out the website of one of our counterparts in Wisconsin, the Wisconsin Alliance for Excellent Schools: http://www.excellentschools.org/adequacy.htm.

What's the theory of the lawsuit?

The basis of the Lobato suit is the "thorough and uniform" Education Clause of the Colorado Constitution, which reads: "The General Assembly shall... provide for the establishment and maintenance of a thorough and uniform system of free public schools throughout the state." The lawsuit asserts

That the General Assembly has given meaning to what "thorough" means, by enacting "standards-based education"—that is an accountability system that establishes what students should master for each year of their schooling; and

That the General Assembly is required to fund schools statewide in a way that makes them "uniform" so that rural, urban and suburban districts are equally able to help their students meet those standards.

Relying in part on the result of the adequacy study (see above), the lawsuit asks the Court to find that the State of Colorado is violating the Education Clause of the Colorado Constitution because its school finance scheme fails in two ways: it does not provide sufficient funds to provide for a "thorough" education and it does not ensure that funds are distributed in a way that provides for "uniform" (i.e., statewide) access to educational opportunities.

The suit also argues that—to the extent that the TABOR and Gallagher Amendments have contributed to this failure to fund schools adequately (see our Tabor/Gallagher FAQ)—the Education Clause takes precedence, and must be given priority over the provisions of TABOR and Gallagher.

Why does Great Education Colorado support this lawsuit?

As public school supporters, we all know that Colorado doesn't invest enough in our schools. It is a problem that has been building for over twenty years, and solving it for the long haul is no small task. We've got to use every tool available.

While Great Education Colorado is fighting for improved K-12 funding with political and legislative tactics, Children's Voices is adding a critical new tool to the battle: the legal system. Why is that good news?

The legal process, provides a formal, public forum to tell the story of schools and students struggling to meet standards without the essential resources they need, like appropriate individual attention, textbooks, course curriculum, equipment—or even a safe place to attend school.

The suit establishes that providing essential resources for our schools isn't just a moral duty—it's a legal requirement. The threat of a successful lawsuit will give public school supporters (including like-minded legislators) a stronger hand in fighting for better K-12 funding. 

As noted above, lawsuits similar to this one have been filed throughout the nation and courts have ruled in favor of the plaintiffs in the vast majority of the cases. In fact, in Kansas—where the issue was resolved by courts very recently—the State Legislature convened in special session to comply with the Supreme Court's decision by adding $148 million for K-12 funding.

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Amendment 23

 

What is Amendment 23 and why did it pass?

Amendment 23 was passed in 2000 to reverse a decade of budget cuts experienced by Colorado school districts throughout the 1990s. During that decade, Colorado’s education spending did not keep pace with the inflation rate. Per-pupil funding for education was well below the national average; in 2001, Colorado dropped to 50th in per-pupil funding as a percentage of our income.

Amendment 23 requires K-12 funding to increase by inflation plus 1% from 2001-2011 and by inflation after that. It is intended to bring K-12 funding closer to the national average. Currently, per-pupil funding is $500-$1000 below the national average (consider how this affects a school of 300 or 700 students). If Amendment 23 is honored through 2011, we will finally spend as much per child in real dollars as we did in 1989.

What does Amendment 23 do?

It guarantees minimum per pupil funding increases. Amendment 23 requires that the state legislature annually increase K-12 funding by "inflation +1 percent. " It requires funding for special education and transportation to increase by inflation +1 percent, as well. This is designed to restore the cuts experienced by public schools in the 1990s.

It allows additional K-12 spending at the discretion of the legislature. Amendment 23 authorizes additional spending (on top of the "inflation +1" increases) on other K-12 programs, such as textbooks, class size reduction, early childhood education, and teacher performance incentives. After two years in which no such additional funds were spent, the Legislature appropriated funds above the Amendment 23 minimum in the 2006-07 school year. Most of the extra money was used to increase the state share of special education costs. (Even with the additional funds, the State of Colorado reimburses districts for only a fraction of their extensive special education costs. Other nearby states reimburse states for nearly 100% of the costs of serving special needs children.)

It has a finance mechanism. Amendment 23 earmarks .33% of Colorado's income tax for deposit into the "State Education Fund." These funds are exempt from all TABOR limits. [See State Education Fund FAQ]

It creates and protects the State Education Fund. In order to ensure that the legislature would not simply use the State Education Fund to substitute for funds it has historically spent on education, Amendment 23 requires the legislature to increase general fund spending on K-12 by at least 5% each year before it can dip into the State Education Fund to meet the inflation +1 requirement. Notably, during the economic downturn earlier in the decade, the Legislature took advantage of a provision in Amendment gives the Legislature some leeway when state revenues drop. As a result, during those years, the State Education Fund was used to help balance the rest of Colorado’s very tight budget.

How does the "inflation + 1 percent" work?

Amendment 23 guarantees K-12 funding by requiring an "inflation + 1" increase in "base per pupil funding" for ten years. The base is run through a complex formula that includes variables such as school district size, local cost-of-living and the number of "at-risk" kids. These variables are called "factors" and they substantially increase average per pupil funding received by school districts. The factors exist to address the increased per pupil costs that result when, for instance, a high percentage of pupils are from at-risk populations or when the necessary costs of running a school and hiring staff are divided among a small student population in a rural district. Each year, the factors increase Colorado's total school spending by several hundred million dollars.

Is Amendment 23 sufficient to fund K-12 adequately?

No. A recent study by the School Finance Project found that, in order to meet the requirements of Colorado's school reforms, including CSAPs, and the federal "No Child Left Behind" Act, Colorado schools would need an infusion of funding far beyond that required by Amendment 23.

Amendment 23 was not designed to fund schools “adequately.”  Rather, it was designed to reverse cuts imposed over a decade because of Colorado’s constitutional budget constraints, which are generally recognized as the most restrictive in the nation. (See FAQs regarding TABOR and Gallagher). Amendment 23 requires “inflation + 1” increases, but the funding levels upon which those increases are based are simply not sufficient to meet the needs of children. For instance, while school finance experts estimate that it generally costs 20-58% more to bring an at-risk child to academic proficiency (as compared to a child who is not at-risk), Colorado gives districts only an additional 12% per at-risk child. And although experts estimate that it costs as much as twice as much to educate a child with moderate special education needs, the State generally provides districts with less than 20% of the funds necessary to meet those needs. Districts have to make up the difference by diverting funding from the rest of their budgets.

Likewise, even with Amendment 23, the State provides districts with less than $200 per year to bring non-English-speaking children to English proficiency. With schools facing significantly greater expectations for progress and proficiency, it is simply not enough to meet Amendment 23’s goal of catching up with 1989 inflation-adjusted spending levels.

If Amendment 23 is guaranteeing funding increases, why is my school facing cuts this year?

Amendment 23’s “inflation +1” takes into account the consumer price index (CPI), which consistently underestimates inflation in the things that school districts buy. For instance, the CPI doesn't give enough weight to increases in health care, energy, transportation and pension costs, which all tend to rise much faster than the CPI. In many districts, increasing heating and transportation costs have been larger than their entire Amendment 23 increase.

In addition, “declining enrollment” (i.e., a reduction in the number of district students) has made matters much worse for many districts (less students, less money). This is because a district’s costs usually do not decrease as much the loss of funding (for example, a school still needs to keep the same number of teachers, although it may have lost a few kids).

Is Amendment 23 here to stay?

Amendment 23 still enjoys popular support from a voting public that consistently supports increases in education funding. (For instance, an April 2006 poll indicated that 63% of likely voters wanted to see an increase in state education funding).

However, it is becoming increasingly clear that Colorado’s leaders and voters are going to have to take a next step in school finance, if we want to make progress toward providing all Colorado’s children with the tools they need to succeed in the 21st century. This is necessary both because, as discussed above, Amendment 23 itself does not provide “adequate” funding for schools, but also because one of the most important components of Amendment 23—the extra 1% increase—will sunset in 2011, after which, the required increase is only inflation.

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Funding Q&A — Ballot Initiatives

Will fixing our school funding crisis require a ballot initiative?

Yes. After a decade of tax cuts and TABOR, Colorado’s state budget simply is not large enough to fund schools adequately, while making appropriate investments in other parts of the budget: higher education, health care, transportation, and other critical state services. Because TABOR requires voter approval before any tax increase can be implemented, there can be no solution to our budget crisis without a vote of the people.

There are multiple discussions going on among state leaders, advocacy groups, foundations and other interested parties about how to raise revenues, where those funds should be used, and when (i.e., in what year) the resulting ballot initiative(s) should be put before Colorado voters.

Great Education Colorado has been convening and participating in these conversations for the past eighteen months. We will continue to work to ensure that voters have the opportunity—as soon as is pragmatically and strategically possible—to make wise and meaningful investments in our public schools.

Great Education Colorado is committed to working with state leaders and other education groups to develop long-term funding solutions that will allow Colorado to invest wisely and adequately in the education of our children.

To be a part of the effort, please contact us at info@greateducation.org.

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Funding Stabilization

What is Governor Ritter’s local funding stabilization plan that has been in the news recently?

Governor Ritter recently proposed a plan to correct a flaw in the 1994 School Finance Act that has had the effect of slashing local support for public schools for well over a decade—despite votes in 175 out of 178 school districts to prevent exactly those cuts.

The story starts with TABOR, which places strict limits on the amount of revenue a school district can keep.  Without a vote of the residents of the district, school districts must reduce their mill rates (the rate of property taxation) to stay under their TABOR revenue limits.  However, in 174 of Colorado’s 178 school districts, the voters did vote to allow the district to keep all the revenue they raised under the mill rates at that time in order to maintain local support for their schools. (These citizen votes are often referred to as “de-Brucing” elections).

Unfortunately, the 1994 Act had a provision that ignored and reversed all 174 decisions to “de-Bruce,” and, in effect, “re-Bruced” those districts, requiring them to cut their mill rates in direct contradiction of the people’s will.  That is, even though the people in 175 school districts asked to maintain local support, the state’s School Finance Act took away their right to do so.

This School Finance Act flaw has had drastic and lasting effects:

Governor Ritter’s plan would simply give effect—finally—to the will of voters who sought to freeze their mill rates several years ago.  Notably, the stabilization of local control will only freeze rates at their current levels—which, in many cases, is as much as 50% lower than they were when citizens voted to freeze them.  As noted above, the mill rates in 33 districts will actually drop, under the Governor’s current plan.

Great Education Colorado strongly supports Governor Ritter’s efforts to responsibly support public schools and the voters in 175 of 178 school districts.

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P-12 or Higher Ed? Both!

Which is more important: funding P-12 public schools or funding Colorado’s resource-starved system of higher education? 

The quick answer: “Both.”  And, as a state, we shouldn't have to choose.

Colorado’s public schools have been chronically under-funded for years—with detrimental consequences like high teacher-student and counselor-student ratios, outdated technology and textbooks, limited vocational education options and high drop out rates.  Nonetheless, K-12 funding has at least been protected from wholesale cuts by Amendment 23’s mandatory minimum annual per pupil increases.

Higher education, on the other hand, was not protected during the early years of this decade, when the recession forced deep cuts in funding for community colleges and state universities.  These cuts have left Colorado an estimated $832 million behind peer states in higher education funding.  Some have blamed Amendment 23 for those cuts.  [Falling mill levy rates are a more direct cause, as is discussed in a related FAQ].

It is, to say the least, a short-sighted and ill-conceived policy to force a state to choose between funding P-12 or institutions of higher learning.  In fact, Colorado’s zero-sum budget game has placed us at a competitive disadvantage with surrounding states that have chosen to fund both more adequately than Colorado.  Without a strong P-12 system, colleges and universities face tremendous remediation costs.  Likewise, the state suffers if graduating high school students do not have quality higher education institutions to attend. Moreover, Colorado's economy simply cannot thrive or compete without the kind of highly educated workforce and robust R&D institutions that attract and retain 21st century businesses.

Great Education Colorado believes that “great education” requires adequate funding for educational opportunities from pre-school through post-graduate degrees and everything in between.  Colorado’s students and economy will continue to suffer if we fund one level of education only at the expense of another.

Fortunately, Governor Ritter has announced his intention to create a “P-20 Council” to create a new vision for 21st century education in Colorado.  It is expected that the Council will seek widespread input for recommendations on how to build an education system that fosters excellence and seamless transitions from public schools to community colleges, vocational schools, and universities.

Creating a vision is only the first step, however. Great Education Colorado is committed to working with other members of the education community (early childhood, K-12 and higher education) to ensure that, this time, any education reform efforts are accompanied by sufficient resources to get the job done right.

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Public School Funding

How are public schools funded in Colorado?

K-12 public schools in Colorado are funded through a combination of local property taxes and state revenues. Historically, local property taxes have 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 (see TABOR/Gallagher FAQs), the state has been required to fill in the amount that property taxes used to cover. During the post 9/11 economic downturn, state revenues fell dramatically and the state contributed the bare minimum legally required. (Colorado is ranked 49th nationally in the percentage of the state's wealth devoted to K-12 public schools.)

Annual State Funding Increases:
2005-06: 1.1% | 2006-07: 3.1%

But state funding does not keep up with district costs. The amount of funding Colorado’s public schools receive is based on the formula: inflation + 1%. The intention of this formula is to allow K-12 schools to keep up with price increases (inflation) while adding the 1% to slowly bring the funding level up toward the amount we spent in 1989 (inflation-adjusted) and toward the national average. This modest formula was an integral piece of Amendment 23, approved by Colorado voters in 2000. This year, the inflation index increased by 2.1%:

2.1% + 1% = 3.1% increase in school funding for 2006-07

The inflation index is kept low mainly by decreases in the cost of housing and cars —two items school districts simply don't buy. On the other hand, this inflation index does not adequately take into account some of the items that are most important to school districts such as: energy costs for gasoline or electricity and health care insurance—which have experienced double-digit inflation for the last few years.

Just like it is more expensive to heat our homes or pay for family health insurance, schools have to deal with these skyrocketing costs, while receiving only a 3.1% increase in funding for the 2006-2007 school year.

How will schools cope? Since they must provide transportation for kids, heat the buildings, and provide benefits to their employees, most school districts will be forced to make cuts that affect the classroom: cutting programs and course offerings, increasing class sizes, deferring text book purchases, letting teachers and/or paraprofessionals go, and freezing their pay.

Are there other ways school districts can raise revenues?

School districts can raise additional revenues through local bond (capital) and mill levy (operations) elections up until a specified level, but the economic vitality of many communities cannot support money raised through local bonds and mills. On the other end of the spectrum, wealthier school districts bump up against maximum spending caps that limit the local ability to support schools—limits that were designed to prevent massive inequities between low-income and affluent districts.

What is the State Education Fund?

The State Education Fund was created by Amendment 23 in 2001 to help schools buy textbooks, reduce class sizes and retain critical staff, and to ensure that the State would be able to keep up with the mandatory Amendment 23 per pupil increases in later years. A small percentage of Colorado's income tax (.33%) is deposited into the State Education Fund. However, the State Education Fund was raided in the post 9/11 budget crunch in order to support general operating expenses. Great Education Colorado supports repaying the SEF if there are any surplus funds available.

Why are districts facing budget cuts even though state K-12 funding is growing and taking an increasing portion of the state budget?

Opponents of increased funding for public schools often point out that state K-12 funding is growing rapidly and accounting for an ever-increasing portion of the overall state budget. This seems to be at odds with the budget cuts we see each year in our own districts.

Both of these observations are true. Here are a couple of the main reasons why:

  1. More students in the State. Some of the increase in state funding comes from increases in the student population. This year, the state expects that an additional 8,000 children will be attending Colorado schools. Notably, while an increase in students results in more state dollars to a district, it also brings more costs.
  2. Less students in some districts. Much of the growth in the student population in Colorado is centered in a few districts. Many other districts—rural, urban and suburban alike—are experiencing declines in student enrollment. With each less student, the district loses in excess of $6,000, but the district’s costs don’t decline that much. For example, a loss of five students will cost a district well over $30,000—the cost of a district teacher. That district may have to cut a teacher slot, even though the remaining kids still need that teacher just as much as they did the previous year.
  3. Backfilling falling local property tax revenues. Colorado schools are funded primarily by a combination of state funds and local property taxes. Because of the interplay of the TABOR and Gallagher constitutional amendments (see related FAQs), the local share of funding has been falling steadily for about 25 years. In fact, unless the law is changed, the local share of school finance declines automatically in two ways: mill levies are cut and the assessment rate (the percent of property value that is subject to property taxes) falls every year. As a result, each year, tens of millions of state dollars go toward replacing the support once provided by local property taxes, rather than increasing total school funding. Put another way, the state spends tens of millions more each year—not for improved schools, but for property tax relief.
  4. As noted above, per pupil increases do not keep up with the costs incurred by districts.   So, even though state expenditures are increasing, district costs (especially health care, transportation and energy) are increasing faster.

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Referendum C

Did Referendum C fix Colorado school funding problems?  

First and foremost, the passage of Referendum C has prevented deep and irreparable cuts not just to public schools, but to colleges, public health programs, and other critical state services as well. What Referendum C did not do is address the underlying causes of Colorado’s inability to fund schools adequately.

Referendum C does make possible some modest investments in public schools above and beyond the funding required by Amendment 23 (the citizen initiative passed in 2000 that requires minimum annual increases in per pupil spending). Last year, for instance, the Legislature added some funding above the Amendment 23 minimum to expand early childhood education and increase reimbursement for special education costs. State leaders are currently discussing how to spend Referendum C funds for the 2007-08 fiscal year.

Notably, Referendum C also makes funds available that the State could use to comply with its legally enforceable promise (made in a settlement of the Giardino lawsuit several years ago) to spend about $190 million to fix some of Colorado's crumbling, unsafe and overcrowded schools. (To date, the State has met only a small portion of that original amount). Notably, these much-needed funds address only a fraction of Colorado's estimated $6-8 billion backlog in school building needs. Great Education Colorado believes that—in order to keep faith both with Referendum C as well as with the Giardino settlement—the Legislature should pay off the Giardino settlement as quickly as possible, particularly in light of skyrocketing construction costs that are reducing the value of the settlement with each passing year.

With your help, Great Education Colorado will fight to ensure that the voice of public school supporters (who make up the vast majority of voters) is heard loud and clear as the Legislature and Governor negotiate a budget plan, and that public schools get their fair share of funding from new Referendum C revenues.

Is there a simple formula that indicates how much of the Referendum C money should be spent on different programs and priorities?

Not exactly. A complex web of budget laws make it difficult to say exactly what it means to "comply" with Referendum C, especially because of the failure of Referendum D.

While Referendum C itself authorized funding for K-12 education, higher education, health care, and transportation and police and fire pension liability, the companion legislation (which went into effect on passage of C), House Bill 05-1350, focuses on earmarks for K-12 education, higher education, and health care. (Campaign literature emphasized the focus on these priorities, as well.)

Then there are other laws that have been on the books for years that further complicate the situation. For instance, one law requires certain spending on road construction, when General Fund expenditures reach a specified level, known as the "Senate Bill 1 trigger." Because Referendum C passed, that trigger will be reached in the current fiscal year (as it was last year, as well), requiring that more than $200 million be spent on roads.

Another law (which predates TABOR) prohibits the legislature from increasing spending on state operations by more than 6% from one year to the next. That law, known as "Arvescough-Bird" means that, even though Referendum C allows the State to retain all the revenue raised under current tax rates, only some of those funds can be used on day-to-day services and programs.
Notably, because both Senate Bill 1 and the Arvescough-Bird 6% rule are created by statute—not the Constitution—the Legislature has flexibility in spending this money toward the goal of keeping faith with Referendum C. Great Education Colorado supports the efforts of lawmakers who are exploring all options available to comply with the spirit—not just the letter—of Referendum C, which voters understood would prioritize investment in health care and education.

What has been decided about how this money will be spent?

Nothing yet for the 2007-08 fiscal year. The budget process is long and complex. We do know that some legislators and the Governor are exploring ways to make the state budget more accurately reflect the public’s priorities.

With your help, Great Education Colorado will fight to ensure that the voice of public school supporters (who make up the vast majority of voters) is heard loud and clear as the Legislature and Governor negotiate a budget plan, and that public schools get their fair share of funding from new Referendum C revenues.

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Tabor / Gallagher

What is TABOR?

TABOR is the Taxpayer Bill of Rights, passed in 1992. TABOR prohibits any tax increase without a vote of the people. In addition, TABOR places strict limits on how much revenue the state can keep and how much it can spend. TABOR limits are the strictest revenue and spending limits in the nation. 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 for five years as a result of the passage of Referendum C.]

TABOR was popular because it forced legislators to come to the people when they wanted to raise taxes, but most of us were not aware of the strangling effect TABOR would have on basic government services. Those detrimental effects were felt in K-12 funding, when the strict limits prevented the State from providing per pupil increases that even kept up with inflation during the 1990s. As a response, Amendment 23 was passed by the voters in 2000, in order to make up some of the ground lost during those years.

The post-9/11 recession of 2001-2003 intensified the need to address the restrictions of TABOR. The downturn in the economy required deep cuts in already bare bones State services. Even worse, TABOR’s so-called “ratchet effect,”—which locked in TABOR’s revenue limits at their lowest point—prevented the state from restoring cut services when the economy improved. In response to this crisis, a bipartisan coalition referred to the ballot Referendum C—basically a five-year time out from the most harmful provisions of TABOR—and the voters of Colorado approved it in 2005. 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 (among the lowest in the nation). After the five years, however, TABOR’s strictest-in-the-nation revenue limits will be put in place again. In addition, a very restrictive spending limit that allows the State to increase operating expenses by only 6% from one year to the next, is still in operation—making it difficult for the Legislature even to restore many state services to pre-recession levels.

In addition, TABOR’s requirement that any tax increase be approved by the voters remains in place.

What is the Gallagher Amendment?

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 of the Gallagher amendment, 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.)

How do TABOR and Gallagher combined affect public schools?

The Gallagher Amendment has resulted in decreases in the residential assessment rates since it was passed by voters in 1982. It did not have a large impact on school funding before TABOR (1992) because school districts could "float" their mill rates (that is, they could increase their property tax rates to compensate for the decrease in the assessment rate, thereby maintaining an adequate base to fund schools). After TABOR, every mill levy increase has to be approved by the voters.

After 1992, while skyrocketing residential property values triggered ongoing reductions in the assessment rate because of the Gallagher Amendment, school districts couldn't increase their mill rates without a vote of the people. Consequently, during the 1990s, the local contribution to K-12 education continuously decreased. At the same time, TABOR's strict spending and revenue limits prevented the state legislature from fully compensating for the loss of local funding for schools. K-12 funding lagged behind inflation for a decade.

Even with the passage of Referendum C, Gallagher continues to have an impact on school funding as the assessment rate continues to fall. Because of the continued erosion of the property tax base, the State can barely keep up with Amendment 23 mandates, much less make meaningful increases in K-12 funding.

Isn’t the State spending more than ever on K-12, and isn’t K-12 taking an increasing portion of the state budget?

Opponents of increased funding for public schools often point out that state K-12 funding is growing rapidly and accounting for an ever-increasing portion of the overall state budget. While it’s true that the state is spending more than ever, though, that doesn’t mean that schools and children are getting the benefit of all that new spending. Instead, because of 1) the Gallagher Amendment and 2) a little-known provision of the School Finance Act, much of the State increase in funding goes toward local property tax relief, instead of to schools.

Here’s how it happens.Colorado schools are funded primarily by a combination of state funds and local property taxes. Because of Gallagher and TABOR, the relative share of local and state contributions to per pupil funding has been shifting dramatically over the past 25 years, from local to state. In fact, unless the law is changed, the local share of school finance falls automatically every year in two ways:

As a result, each year, tens of millions of the additional state dollars go toward replacing local dollars that decrease over time, rather than increasing total school funding. Put another way, the state spends tens of millions more each year—not for improved schools, but for property tax relief. A bigger piece of the total state budget pie does indeed go to the School Finance Act, but schools aren’t getting the benefit of many of those dollars.

Great Education Colorado supports the efforts of Governor Ritter and other legislators who are trying to slow or halt this unintended exodus of local property dollars, so that schools can actually benefit from all new state dollars.

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Great Education Colorado Eye on the News

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