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A Taxpayer Bill of Rights by Any Other Name

Montana's "Stop OverSpending" Proposal is a TABOR


A proposed ballot initiative in Montana to limitstate spending — “Stop OverSpending” or SOS — is similar in its basic structureand effect to Colorado’s TABOR. Montana’s SOS proposal includes all threefactors that make Colorado’s TABOR (Taxpayer Bill of Rights) the most severestate budget limit in the country:

  • it is a constitutional amendment,
  • it restricts growth to a population-change-plus-inflation formula, and
  • it requires voter approval to spend abovethe limit.[1]

SOS can therefore be expected to cause adeterioration in public services in Montana similar to that produced by TABOR inColorado.

During the twelve years since TABOR was adoptedin Colorado, K-12 funding declined to 49th in the nation, and higher educationfunding dropped by 31 percent. In addition, the share of low-income childrenlacking health insurance doubled at a time that it was dropping nationally, andColorado fell to near last in the nation in providing on-time full vaccinationsto the state’s children.

These problems led Coloradoans to approve inNovember 2005 a statewide measure to suspend TABOR’spopulation-growth-plus-inflation formula for five years in order to allow thestate to restore a portion of its fundamental public services. To date,Colorado is the only state to have adopted a TABOR, as well as the only state tohave voted to suspend it.

Proponents of SOS claim that their proposal hasbeen designed to avoid the problems TABOR brought to Colorado. However, thedifferences between the two proposals are minor and at best, will only slightlymitigate the deleterious effects of such a strict limit. SOS would negativelyaffect the public services upon which Montanans depend, such as health care,education, and public safety, just as TABOR did in Colorado.

What Makes TABOR So Unique

TABOR is a very specific type of tax andexpenditure limit; in fact, Colorado is the only state in the nation with aTABOR. While 28 other states have tax and expenditure limits, none of theirlimits have the combination of the three core elements that set TABOR apart andrender it the most rigid limit in the country.

  • Colorado’s TABOR is in the state constitution. If a limit in the constitution is found to be flawed or harmful to the state, it can be changed only by waging a costly statewide campaign on the ballot.
  • Colorado’s TABOR limits the growth of public services to a population- growth- plus- inflation formula. This formula virtually guarantees that state services will have to be cut every year because inflation and general population growth do not adequately measure the increase in the cost of what the state buys, including health care, education, and services to the growing elderly population and populations with special needs.
  • Colorado’s TABOR requires a vote of the people to override its limit temporarily in response to unusual circumstance. This cumbersome process greatly limits the flexibility of the governor and legislature to adapt to changing fiscal circumstances and priorities of the citizens of the state. It too can prove very costly. For example, over $10 million was spent by the proponents and opponents of the successful effort to temporarily override TABOR in Colorado.

Any proposed spending limit that includes thesethree elements is a TABOR because it will impair the ability of a state toprovide an adequate level of services to its residents. Othercharacteristics, such as how excess revenue is handled, what happens to thelimit during a downturn and the portion of the budget covered by the limit areof lesser importance than the three key dimensions described above.

The Consequences of TABOR

A growing body of evidence shows that TABORcontributed to a deterioration in the availability and quality of nearly allmajor public services in Colorado. Colorado voters recently chose to suspendTABOR for five years, in part to restore some of the service cuts it induced.The Colorado experience has serious implications for the residents of Montanabecause SOS would likely lead to similar outcomes in Montana.[2]

  • Since itsenactment in 1992, TABOR has contributed to declines in Colorado K-12 educationfunding. Under TABOR, Colorado declined from 35th to 49th in the nation in K-12spending as a percentage of personal income. Colorado’s average per-pupilfunding fell by more than $400 relative to the national average.
  • TABOR has played a major role in the significant cuts made in higher education funding. Under TABOR, higher education funding per resident student dropped by 31 percent after adjusting for inflation. As a result, tuitions have risen. In the last four years, system-wide resident tuition increased by 21 percent after adjustment for inflation.
  • TABOR has led to drops in funding for public health programs. Under TABOR, Colorado declined from 23rd to 48th in the nation in the percentage of pregnant women receiving adequate access to prenatal care. Colorado also plummeted from 24th to 50th in the nation in the share of children receiving their full vaccinations. Only by investing additional funds in immunization programs was Colorado able to improve its ranking to 43rd in 2004.
  • TABOR has hindered Colorado’s ability to address the lack of medical insurance coverage for many children and adults in the state. Under TABOR, the share of low-income children lacking health insurance doubled in Colorado, even as it fell in the nation as a whole. Colorado now ranks last among the 50 states on this measure. TABOR has also affected healthcare for adults:Colorado dropped from 20th to 48th for the percentage of low-income non-elderly adults covered under health insurance.

SOS and TABOR Share the Same Heart: the FlawedPopulation-Growth-Plus-Inflation Formula

TABOR’s central flaw is itspopulation-growth-plus-inflation formula. This formula is not a “soft cap,” nordoes it allow state services to grow at a “reasonable rate” as SOS proponentsclaim.[3]A population-growth-plus-inflation formula would not allow the state tomaintain year after year the same level of programs and services it nowprovides. Instead it would shrink public services over time and hinder thestate’s ability to provide its citizens with the quality of life and servicesthey need and demand.[4]


The first part of thepopulation-growth-plus-inflation formula is the change in overall populationgrowth. Overall population growth, however, is not a good proxy for the changein the populations served by public services. The segments of the populationthat states serve tend to grow more rapidly than the overall population used inthe formula. An example is senior citizens. According to the U.S. CensusBureau, Montana’s total population is projected to increase by 16 percent from2000 to 2030, while Montana’s population aged 65 and older is projected to morethan double from 2000 to 2030.[5]As Montana’s elderly population begins to increase, so will the cost ofproviding them the current level of health care and other types of services. Theallowable state spending limit, however, would prevent health care and otherservices from growing with need because it would be calculated using the muchslower growing total population. Services to the elderly could be maintainedonly if Montana residents were willing to make sharp cuts in other areas of thestate budget, such as education or public safety.



The second part of the formula — inflation — alsodoes not accurately measure the change in the cost of providing publicservices. The measure of inflation in the Montana TABOR initiative is thenationwide “Consumer Price Index-All Urban Consumers (CPI-U),” which iscalculated by the U.S. Bureau of Labor Statistics. The CPI-U measures thechange in the total cost of a “market basket” of goods and services purchased bya typical urban consumer. Since a typical urban consumer spends a majority ofhis or her income on housing, transportation, and food and beverages, thoseitems are the primary drivers of the CPI-U. By contrast, the state of Montanaspends its revenue primarily on education, health care, and corrections. Inshort, the market baskets of spending are entirely different.

Moreover, the “goods”— or public services— in thestate of Montana’s basket (and in every other state’s) are in economic sectorsthat are less likely to reap the efficiency and productivity gains achieved byother sectors of the economy. For example, teachers can only teach so manystudents, and nurses can only care for so many patients. As a result, the costsof these public services are rising faster than the costs in other sectors.Indeed, the items in the “basket of goods” most heavily purchased by states —such as health care, education, and prescription drugs — have seen significantlygreater cost increases in the past decade than the items in the basket of goodspurchased by consumers, and those faster-growing costs are expected to continue.Limiting the growth in public expenditures to a formula that uses the rate ofgrowth in general inflation will not affect the level or growth of these costsin the economy; instead, it will affect the quantity and/or quality of publicservices the state is able to provide to its citizens.

On the Cutting Block

It is also important to note that all programs inthe Montana General Fund — not just those with cost pressures exceeding thepopulation-growth-plus-inflation level — are threatened by a rigidpopulation-growth-plus-inflation limit. This is because SOS applies to Montana’sentire General Fund budget. And while the General Fund only makes up 37 percentof total state expenditures, it provides the majority of funding for K-12education, higher education, health care and corrections. Under SOS, if onespending area were to grow faster than population growth plus inflation (forinstance due to cost pressure, court order, or popular demand), then anotherspending area would have to grow at a slower pace — which would mean a reducedlevel of services in this second area.[6]This type of formula-driven budgeting hamstrings meaningful discussions aboutthe priorities of the citizens and the ability of the state to respond to them.

Despite Minor Differences, SOS is Still a TABOR

Proponents of the Montana initiative seek todistance themselves from the problems TABOR has caused in Colorado. They havechanged the name of their TABOR to SOS and have made some slight improvementsover Colorado’s TABOR. However, these improvements, which include freezing thelimit during a downturn and a reserve fund to be used as a safeguard againstrevenue shortfalls, do not fully fix Colorado’s most talked about problem: the“ratchet.”

During a recession, states typically reduce thequantity of public services they provide. A ratchet prevents public servicesfrom ever recovering from these reductions because the recession-depressedservice level becomes the base to which the population-growth-plus-inflationformula is applied. For example, revenues in Colorado fell during therecession, and that reduced level became the base for calculating allowablerevenue growth in all subsequent years. As revenue growth returned to normal,spending could not because the TABOR limit was stuck at the low recession level.This prevented Colorado from restoring cuts made in public services during thedownturn.

If Colorado had not suspended TABOR for fiveyears in November 2005, it would have had to continue making deep reductions inpublic services each year for a number of years to come. To avoid facing thisproblem again, Coloradoans also voted to change the way the formula is applied.At the end of TABOR’s five-year suspension, the population-growth-plus inflationformula will be calculated from the TABOR limit in the previous year, ratherthan from actual revenues.

Limit Freeze During Downturn

In the SOS proposal, the dollar amount of thelimit would be frozen during an economic downturn. While the limit would notratchet backward during a downturn, as it did in Colorado, it would remainfixed; it could not continue to rise by the change in population and inflation.[7]

Thus, the SOSproposal would only mitigate and not eliminate the ratchet. If the limitwere frozen in response to a downturn, public services would fall substantiallybehind even the standard of need recognized in the TABOR formula; the populationwould continue to grow and inflation would continue to push up the cost ofservices over those years, but the limit would not be adjusted to reflect thisgrowth. So while expenditures wouldn’t be ratcheted back to recession levels,they would stagnate. And as revenue growth fully recovered, expenditures couldnot because they would be based on this frozen level.

Reserve Fund

The SOS proposal briefly mentions a reserve fundthat is “to be used as a safeguard against shortfalls in state revenue below thespending limit.” However, it does not offer any information on how large thisreserve fund would be, how much of the revenues above the limit would bedeposited into the fund, whether those deposits would be mandatory, and whethertransfers from the reserve fund would be automatic or would require a vote ofthe Legislature. Furthermore, the language concerning whether transfers from thereserve fund to the general fund would be counted as expenditures in setting thenext biennium’s limit is unclear.

Without knowing these specifics of thereserve fund, it is impossible to know what role it could play in moderating theratchet. In the best of all circumstances, a well designed reserve fund (orbudget stabilization fund) could eliminate a ratchet. But for a reserve fund toeliminate a ratchet it must be sufficiently large to compensate for all revenueshortfalls during the downturn, it must not face obstacles to its use when it isneeded, and transfers from the reserve fund to the general fund must count asexpenditures for calculating the subsequent year’s limit. Given the lack ofinformation surrounding the reserve fund in Montana’s SOS proposal, it isdoubtful that it would solve the ratchet problem[8]

Regardless, itwas not the ratchet that caused the sharp decline in public services inColorado, but rather the operation of the population-growth-plus-inflationformula for more than a decade. Public services in Colorado declinedsignificantly before the 2001 recession began, and thus before the ratchet couldhave had any effect. For example, between 1992 (when TABOR took effect) and2001, Colorado fell from 35th to 49th in the nation in K-12 education spendingas a percentage of personal income and from 23rd to 45th in access to prenatalcare, a sign of funding shortages in local health clinics.


Despite assertions that SOS is an improvedversion of Colorado’s TABOR, Montana’s SOS proposal contains the three coreelements of Colorado’s TABOR. It is these three aspects that make TABOR sounique and so damaging to a state’s public services. Thus, SOS can be expectedto cause declines in public services in Montana similar to those experienced inColorado under TABOR.

  Constitutional Amendment Limits Growth to Population + Inflation Formula Voter Approval to Override Limits
Colorado's TABOR X X X
Montana's SOS X X X

End Notes

[1] Voter approval is not required in cases of declared emergencies, such as natural disasters or enemy attack.

[2] For a more detailed analysis of the problems experienced in Colorado under TABOR, please see David Bradley and Karen Lyons, “A Formula for Decline: Lessons from Colorado for States Considering TABOR,” Center on Budget and Policy Priorities, October 2005. Available at:

[3] Sources: “Should Montana limit government spending?,” Editorial by Sen. Balyeat, The Billings Outpost, March 23, 2006; Rep. Mendenhall quoted in “Analyst rips spending cap proposal,” Helena Independent Record,March 7, 2006.

[4] For a more detailed analysis of the problems with the population-growth-plus-inflation formula, please see David Bradley, Nick Johnson and Iris Lav, “The Flawed “Population Plus Inflation” Formula: Why TABOR’s Growth Formula Doesn’t Work,” Center on Budget and Policy Priorities, January 2005. Available at

[5] U.S. Census Bureau, State Interim Population Projections by Age and Sex: 2000-2030, Table 4. Available at

[6] Sen. Balyeat has acknowledged that “SOS” would require such cuts: "There's nothing in this initiative as such that would specifically limit school spending. If they prioritize school spending, other things would have to have slower growth." Quoted in “Groups raise red flags over proposed cap on spending,” Great Falls Tribune, March 7, 2006.

[7] Technically, the TABOR limit for a biennium would be set as the greater of previous biennium’s appropriations adjusted for inflation plus population growth or the largest limit for any previous biennium. Using the largest limit for any previous biennium basically freezes the TABOR spending limit during an economic downturn and keeps it frozen until revenues recover.[8] For a more detailed analysis of the role of a budget stabilization fund can play in moderating the ratchet, please see David Bradley, Iris Lav and Karen Lyons, “A Faulty Fix: Repairing the “Ratchet” Will Not Repair TABOR,” Center on Budget and Policy Priorities, March 2005. Available at: