In 2000 Colorado voters passed Amendment 23 with 54% support. Amendment 23 is an amendment to the Colorado Constitution that increases funding for kindergarten through twelfth grade (K-12) public education and establishes a funding source for the increased spending.

Here’s what Amendment 23 does:

• It requires the state to increase the base per pupil funding, and funding for certain specified programs (called categoricals) for K-12 by at least inflation plus one percent each year for ten years, and by at least inflation thereafter.
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• It establishes the State Education Fund which receives the amount of the tax on one third of one percent of Colorado taxable income (about 7% of total state income tax). This fund is then used to meet the additional funding requirements of amendment 23 and other specified educational programs.
• It includes a “maintenance of effort” clause to ensure the solvency of the State Education Fund by requiring that current K-12 General Fund spending is not diverted. This General Fund K-12 spending requirement contains an “escape valve” which is activated when personal income growth falls below a specified level.

How Colorado funds education
In Colorado, schools are funded from two basic sources: local property taxes and state General Fund appropriations. Currently local taxes account for about 40% of school funding and the remaining 60% is paid by the state to ensure all 178 Colorado School Districts receive an equitable amount of per pupil funding. Currently, K-12 funding accounts for 40% of Colorado’s General Fund budget.

According to the School Finance Act of 1994, the state legislature determines the minimum funding allocated for each K-12 student. This is called the per-pupil base. The base is then adjusted for the following variables: cost of living, personnel costs and district size. This district-adjusted per-pupil amount is called “total program”. Accordingly, every K-12 student in Colorado is allocated the same per-pupil base; however the total program funding for each pupil varies by district.

Increasing Colorado’s base per-pupil K-12 spending
Due to various factors affecting Colorado’s budget, spending in K-12 did not keep pace with inflation for most of the nineties. In addition, by 2000 when the amendment appeared on the ballot, Colorado had dropped to 32 in the nation in per-pupil spending on K-12—well below the national average. According to the Amendment 23 proponents, increasing per-pupil base funding by inflation plus one percent would stop the backward slide in education spending and “catch Colorado up” by FY 2010-2011.

The State Education Fund
In order to provide money for the additional spending required by Amendment 23, the initiative established the State Education Fund. The fund is capitalized by a portion of state income taxes. State revenues diverted to the State Education Fund are explicitly exempted from other constitutional limitations.

Therefore, in good times, this money would come from surplus revenue that would otherwise be refunded to Coloardans. Since, in these circumstances, tax refunds would be decreased by the amount diverted to the fund, some have argued it amounts to an increase in taxes. In addition, in bad economic times, when there are no surpluses, transfers into the fund are still required. In those circumstances, moneys deposited in the fund will be diverted from state spending on other programs.

Although the moneys in the fund can be used for the required Amendment 23 increases, it can also be used for various other educational programs—including new programs created by the legislature. The temptation to use such moneys, outside constitutional spending limits, can seriously threaten the long term solvency of the fund. In addition, due to declining state tax revenues, a recent Legislative Services study has predicted the fund could be insolvent as early as FY 2005-2006.

The maintenance of effort clause
In order to assure that the long term solvency of the State Education Fund, the drafters of Amendment 23 included a maintenance of effort clause. This provision requires General Fund spending on K-12 be increased by 5% each year. By requiring an increase in General Fund spending on education the clause essentially ensures that the State Education Fund is only used to make up the difference and therefore cannot be raided in order to save General Fund moneys for other programs.

The maintenance of effort clause contains an “escape valve” intended to relieve pressure on the General Fund in bad economic times. Accordingly, if personal income growth in Colorado falls below 4.5% the increase in K-12 General Fund spending is no longer required and a larger percentage of K-12 moneys can come out of the State Education Fund.

However, the required increase in General Fund spending is completely separate from the inflation plus one percent increases. Regardless of where the money comes from (General Fund or State Education Fund) the state is still required to deliver the inflation plus one percent increases.

Interaction with other constitutional amendments
The constitutional Tax Payers’ Bill of Rights (TABOR) limits spending and revenue in Colorado. By exempting the State Education Fund from other constitutional limits, Amendment 23 allows the fund to be capitalized by revenues collected in excess of the TABOR revenue limit (i.e. surpluses) in good economic times and allows moneys from the fund to be spent in excess of the TABOR spending limit.

However because TABOR restricts state General Fund spending, it is in conflict with Amendment 23 since that amendment requires an annual 5% increase in General Fund spending—thereby further driving down General Fund spending in other programs. In addition, if the State Economic Fund becomes insolvent, an increasingly larger amount of money will be required from the General Fund which is governed by TABOR revenue and spending limits.

Finally, the Gallagher Amendment is a constitutional amendment that fixes the rate of personal property taxes in relation to commercial property taxes. The Gallagher amendment has had the effect of driving down the amount of personal property taxes collected thereby requiring higher and higher state contributions for K-12 funding. Before Gallagher local property taxes contributed about 60% of K-12 funding and the state made up the remaining 40%. However, in the twenty-one years since Gallagher was passed by Colorado voters, that relationship has flip-flopped, with local property taxes contributing only 40% and the state paying 60%. So, the result of Gallagher will be greater and greater state contributions to K-12 even as TABOR restricts state revenues and spending.