Now What?

As Governor Hickenlooper explained on Colorado public radio today, the massive defeat of a statewide ballot measure to increase taxes for five years to help pay for education (Proposition 103) on Tuesday (which he neither endorsed nor opposed), leaves Colorado with a problem that isn't going away, a structural deficit in the state budget.

In Colorado's state budget, projected revenues with existing taxes are well below projected expenses that federal law, the state constitution, and practical realities (like the need to let prisoners in state prisons serve something like their existing sentences). We have a state budget that is break even in high revenue years and overconstrained in recessions.

Sooner or later, and increasingly, it is looking like sooner, we get a state constitutional crisis, where there are no lawful ways for the Governor and the Colorado General Assembly to balance the budget, as it is required by law to do every single year.

The fat in the state budget is long gone, the muscle is being chipped away at, and the bones themselves could break with something well within the range of possibility like a double dip recession. This year's gimmick appears to be a one time bump in the revenue stream from privatizing the worker's compensation provider of last resort for a few hundred million dollars. But, the bag of budget gimmicks is getting smaller and smaller.

Ultimately, there is no such thing as a free lunch, and that applies with a particular vengance at the state and local government level where the ability to borrow money is much more limited than at the federal government level, and where the government can't simply just print more money to meet its needs or reduce the nominal value of its obligations.

If Colorado taxpayers don't agree to a fix, sooner or later, we end up with West Virginia/Mississippi quality government and that makes Colorado a very unattractive place for desirable new businesses. In practice, the quality of the workforce and the amount of red tape involved in doing business in a state is a much more decisive factor in attracting new business than tax burdens. If we don't bridge the gap between projected state revenues and projected state expenses, we enter a vicious circle of economic malaise.

Moreover, there aren't that many ways that the gap can be resolved. K-12 education and higher education make up about half of the general fund budget in Colorado. Medicaid, mental health funds and the corrections budget make up much of the rest. The general fund cost of most of the business of government, like the state patrol, the courts, state parks, the Secretary of State, and so on, is chump change by comparison. Many of these functions are financed entirely with earmarked taxes and user's fees.

Transportation, which is also underfunded leaving us with crumbling bridges and roads (let alone improvements like high speed rail), doesn't get any state general fund money as it is, and if that state of affairs is to continue, then the only solution is to increase the earmarked excise taxes and user's fees that do fund it.

If current trends continue, we could be a few years away from not having any state funding of higher education in this state, as this is one of the few big line items not protected by any federal law or state constitutional mandate. A few libertarians might agree with this result, but most voters in Colorado would see that as madness.

While our health care system as a whole in the United States grossly overpays health care providers as a class, the current practice of reimbursing Medicaid providers at rates far less than Medicare providers and private health insurance providers is unsustainable.

Underfunding mental health programs and programs for the homeless ultimately just costs government overall more in other areas like health care and corrections and unemployment funds and welfare than we would have paid if we'd funded those programs.

We can reduce the amount of money we spend on corrections, but it takes smart policies, and political courage to achieve that result.

We can do a better job of targeting tuition breaks for people attending colleges in Colorado to people who actually have financial need, and to not spending state funds on higher education on people with extremely high probabilities of flunking out, rather than to every in prospective state college student who has graduated from high school without regard to need, but this probably comes at the cost of alienating groups of voters who have great political clout and the ability to control the stream of campaign contributions, making the program even more vulnerable politically to budget cuts than it is already.

There are no magic bullets to reduce spending on K-12 education without sacrificing the quality of the educational product that our children receive, and Colorado is already facing a lawsuit claiming that it is not meeting its constitutional obligation to spend a sufficient amount on K-12 education.

It is all good and well to oppose broad based tax increases when Colorado families have already seen their median incomes slump due to a recession. But, the money needed to provide public sector service has to come from somewhere, and the budget cuts that are within the realm of the plausible aren't enough to cover the revenue shortfalls for long. The revenue v. expenses mathematics that rule state and local government is entirely indifferent to its political unpopularity.

The instinctual opposition of Colorado voters, particularly Republicans, to taxes would be all good and well if we are a high tax state. But, we aren't. Colorado's combined state and local taxes, overall and in each subtype of taxes, are at the low end of the midrange of state and local taxes nationwide, and Colorado collects considerably more of its combined state and local taxes at the local level than most states do. Federal taxes are lower than they have been at almost any time in living history. State and local government spending in Colorado is not high, particular relative to the state's median income. We are very near the bottom of the nation in education spending relative to median income, for example.

Apparently, Colorado voters and politicans are simply not going to wake up and do something about the looming structural deficit crisis in the state until some dramatic showdown or budget cuts force them to pay attention. And, Tuesday's overwhelming defeat of a very modest tax increase to make one meaningful dent in the gap is going to make it all the more difficult to find a politically feasible solution. For whatever reason, we do not have the political will to pay for even minimal state and local government services. Until the average voter realizes that their tax dollars are paying for something worth having, and the is very good reason to believe that they do, this state is in a heap of trouble.