Prop. 103 and Fungibility

Proposition 103 is the sole state-wide measure, a tax hike, for the November 1 Colorado ballot. I will have more to say about this elsewhere. For now, I want to investigate one particular aspect of the measure; the potential fungibility of funds under it.

Here’s an analogy to introduce the fungibility issue. Let’s say your daughter has $100. She wants to go to a concert, but she doesn’t want to spend the $30 on a ticket. She also wants to buy a $30 book to help her get into college, and she wants to spend the other $70 on a trip to the mall. She comes to you and says, “Mom, I really, REALLY need this $30 book, because it’s really REALLY important for me to get into college. Can, I can I, can I have $30 for the book, please please PLEASE?! I promise I’ll use that $30 only for the book.”

You say sure. So she spends $30 on the book, $30 on a ticket, and $70 at the mall. Otherwise, she would have forgone the concert ticket and spent $100 total. True to her promise, she spent your $30 on the book. But that’s where the fungibility issue comes up: your gift allowed her to divert another $30 to the concert ticket. So even though you officially gave her the money for the book, you might as well have given it to her for the concert ticket. The result is the same.

So the question is, even though Prop. 103 raises taxes “to be spent only to fund public education,” does that really mean it will require the legislature to spend more on education that it would have done otherwise?

The answer is yes. Consider the change to the statutory language, which is the primary thing that matters in court; see page 10 of the Blue Book.(I’d like to thank Carolyn Kampman of the Joint Budget Committee and Chris Ward of the Legislative Council for helping me understand this.)

All revenues raised by the increase in taxes imposed pursuant to this measure… shall be appropriated by the general assembly only for the costs of public education from preschool through twelfth grade and public postsecondary education and shall be in addition to and not a substitute for moneys otherwise appropriated by the general assembly for the costs of public education from preschool through twelfth grade and public postsecondary education the amount of which appropriation shall be not less than the amount appropriated for such purposes for fiscal year 2011-12.

The key line is the last one, which requires that the legislature spend whatever it spends in 2011-12, plus the proceeds of the tax hike. Legislative Council estimates that will be about $515 million the first year and progressively more after that, for a five-year total of $2.9 billion.

The question, though, is what the legislature otherwise would spend on education. If it otherwise would spend (say) $500 million more on education, and the tax hike brings in $600 million, then the legislature has $500 million to devote to other purposes.

Based on my conversations with Kampman and Ward, I conclude it is basically impossible to predict how the legislature otherwise would act, though I confess the intricacies of school finance surpass my mastery. It seems reasonable to assume, though, that Prop. 103 would add substantially to the education budget for the five-year period.

I think Prop. 103 is nevertheless a really horrible idea, but I’ll present the reasoning for that conclusion elsewhere.