BTC REPORTS: TABOR: A Formula For Undermining Public Investments

By Edwin McLenaghan
Policy Analyst
March 2011

Executive Summary

  • The proposed TABOR legislation before the General Assembly would cap growth of state General Fund appropriations to population growth plus inflation.
  • The TABOR formula fails to take into account that the costs of certain services, such as health care and education, grow faster than inflation. In addition, TABOR ignores demographic shifts, such as the increasing share of North Carolina’s population made up of elderly residents and college students. Therefore, the “population plus inflation” formula is not an appropriate way to measure the cost of providing basic government services and would ensure perpetually insufficient funding.
  • Had North Carolina implemented TABOR in 1993, the TABOR formula would have reduced North Carolina’s cumulative investment in public structures by more than $35 billion between fiscal year 1993 and the current fiscal year. In fiscal year 2008, state policymakers would have had to cut state appropriations by 23 percent to meet the TABOR limit.
  • Contrary to the claims of TABOR proponents, TABOR would not prevent North Carolina from facing state budget shortfalls. TABOR did not save Colorado, the only state with a TABOR amendment, from significant state budget shortfalls in the current recession or in the early 2000s recession. In fact, Colorado faced the second-worst budget shortfall in the nation in 2003.
  • Colorado passed TABOR in 1992, and its budget constraints have seriously weakened Colorado’s public structures. Because of TABOR, Colorado’s funding for K-12 education, colleges and universities plummeted to near the bottom for the nation. In addition, the share of low-income children without health insurance doubled in Colorado between the passage of TABOR and its suspension by voters in 2005.
  • The TABOR proposal under consideration would also reduce the maximum size of the state’s Rainy Day Fund, from 8 percent to only 5 percent, and harshly constrain access to the Rainy Day Fund in times of fiscal crisis. These backward provisions would weaken the state during recessions, increasing the pain felt by North Carolina families and hampering the state economy at the worst possible time.

 

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