The Colorado Springs City Council agreed Friday to discuss a proposal by Republican Mayor John Suthers to allow the city to keep tax revenue that would otherwise be above revenue limits set by the Taxpayer Bill of Rights, or TABOR. Otherwise, an estimated $1.9 million in 2019 sales taxes and $2 million in 2020 property taxes would need to be refunded under TABOR, Suthers said.
Additionally, Suthers' proposed ballot measure would use the city's revenue base from 2019, and not the base from 2020, to calculate the city's revenue cap for 2021. Under TABOR, each year's revenue limit usually depends on the previous year's revenue, with decreased revenue resulting in the following year's increase to the revenue cap being calculated from a smaller base amount. The practice is commonly termed the TABOR "ratchet effect" or "ratchet-down effect."
Suthers said that because of the pandemic, the city's TABOR base for calculating the revenue cap could drop by as much as 12% for 2020. He said asking voters to let the city keep excess revenue and use the 2019 base instead of the 2020 base would help the city keep delivering essential government services.
"I think this is very prudent," Suthers said.
The mayor noted during the Friday work session that he was not asking for a full repeal of TABOR and that he likes many of its provisions, including the requirement for voter approval of tax increases and limits on revenue increases.
As in all states, Colorado's tax revenues are projected to drop steeply because of the pandemic. The state governor's budget office estimated in May that state tax revenues will fall by $5.5 billion by fiscal year 2022. The Colorado economy's dependence on the tourism and energy sectors means that the state is even more vulnerable, the office said, as both sectors are unlikely to recover quickly.
According to the city's chief financial officer, Charae McDaniel, the council must decide by July whether to put the question on the November ballot.
Council member Andy Pico told Law360 he did not support the mayor's proposal. He acknowledged that the "ratchet effect" could cause problems for the city and that it hampers future budgets, but said he believed the solution provided in TABOR, allowing voters to vote on tax increases, was adequate.
Additionally, he criticized the proposal to skip 2020 and use the 2019 base to calculate revenue limits, saying he did not support having "no end date for the reset." Under the proposal's present wording, the city would use the 2019 base as a permanent floor for calculating future revenue limits, according to Tom Florczak, deputy city attorney.
McDaniel said it would be unlikely for revenues to drop lower than the 2019 revenue base in future years, after the pandemic.
"Going forward, it's not saying, we'll never have a ratchet down," McDaniel said.
Suthers added that he thought much of the economy would recover quickly.
"The fact of the matter is if in 2024, we still need the protection of a 2019 base, then we're really going to need it," Suthers said.
Council President Richard Skorman said in the work session he supported the proposal. Council members Don Knight and David Geislinger suggested splitting the proposal into two ballot questions, with Knight saying he saw the need to suspend the revenue cap calculation for 2020 but wanted more information before asking voters to give up their refunds.
Suthers did not respond to requests for additional comment.
Other members of the council did not respond to requests for comment.
--Editing by Tim Ruel.
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