ENTERPRISE OR PRIVATIZE?

CSU AND OTHER STATE SCHOOLS CONSIDER ENTERPRISE STATUS

TO ESCAPE TABOR-CAUSED FUNDING WOES
by Kate Tarasenko

[Originally published in the Rocky Mountain Bullhorn (Fort Collins, Colo.),

Jan. 20-26, 2005, pgs. 10-11]

They‟re back in session at CSU, and also at the State Legislature. The new year has brought with it an urgent need for budget reconciliation, and it‟s
a little more serious than trying to balance the checkbook after an eggnog-fueled holiday spending spree.

CSU plans to go the route that the University of Colorado did last year by turning "enterprise status" when the fiscal calendar rolls over in July. With
CSU asking the State to approve a 21 percent increase for in-state undergrad tuition (just under $620 for the academic year), many students and
faculty members, with increasing discomfort and not a little confusion, are monitoring what they regard as a trend toward privatization -- and the
potential unaffordability -- of their public institutions of higher learning.

"Enterprise status," essentially, will free up CSU from the constraints of the Taxpayer Bill of Rights, or TABOR, which was passed in 1992, and
which places severe limits on the state‟s revenues as well as expenditures. The state‟s general fund, the discretionary funding source which pays for
higher ed, has gone from providing 20 percent of its budget for direct university support to around 10 percent of the total general fund -- a decrease
of almost $200 million in the last three years.

As this thin slice of the budgetary pie continues to shrink, Colorado‟s colleges and universities are being forced to consider non-state dollars to
underwrite their costs of operation. Currently, individual schools receiving 10 percent or more of their total budgets from the state cannot increase
tuition more than 5-1/2 percent without legislative approval, a move that is never politically popular, but one that has allowed Colorado students to
enjoy some of the lowest resident tuition rates in the nation.

However, receiving less than 10 percent of funding from the state allows schools (and other entities) to operate as private enterprises, which means
they are not beholden to some of the more restrictive of the state‟s budget legislation, including -- in the case of colleges -- how much they may raise
tuition. CSU will dip below that magic percentage in time for the new fiscal year, which begins in July, and other schools are poised to follow suit.

"If we didn‟t have this horrible budget predicament, going enterprise status wouldn‟t be necessary," says John Straayer, the chair of the political
science department at CSU.

The "horrible predicament" he describes was cemented with TABOR in 1992.

"The problem with TABOR has been that it ties the hands of the legislature when it comes to reallocating available revenue," says Straayer.

The amendment, which is being adopted in other areas of the country, requires that excess revenue be refunded by the state directly to the taxpayers --
rather than allowing the state to exercise the more customary budget maneuver of funneling extra revenue back into the state‟s coffers to augment
basic government services and areas of shortfall that may have seen harsh cuts in leaner economic times, such as the recession of 2001.

While "going enterprise" is one sure way for CSU to get out from under TABOR and concentrate on more entrepreneurial ways of surviving, it is
also raising all kinds of alarms among students and advocates of a publicly-protected higher education system. Nevertheless, the legislature has
forewarned everyone from the governor to college presidents around that state that, without overhauling TABOR, the money to fund higher ed will
run out altogether within five years. Period.

Right now, about 10 percent of the general fund is designated for higher education in the Centennial State.
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"Cutting it in half over the past three years is not something that any of us wanted to do, but we had not choice," says State Sen. Steve Johnson, whose
district includes Larimer County outside of Fort Collins. The District 15 Republican has been working on budget reforms to reconcile TABOR‟s
unpredicted problems for the past few years.

The rest of the general fund is broken out thusly: 44 percent is budgeted for K-12 education, and Amendment 23, which is handcuffed to TABOR,
mandates a 1-percent increase annually, regardless of the state of the economy.

"That‟s four-tenths of our budget that‟s off-limits," says Johnson. "Twenty-nine percent of our budget is Medicaid and human services -- a federal
entitlement program -- and we can‟t touch that part of the budget at all. So now we‟re up to 70 percent of the budget that we can‟t touch."

Additionally, about 15 percent is reserved for Colorado‟s Department of Corrections, which is determined by past sentencing laws.

"People get mandatory sentences and then they‟re incarcerated, and we have to provide for that," he explains.

"So those are the top three areas that we have no discretion over, and that‟s 90 percent of our budget.

“Higher education is the fourth area and is the only place we can make any kind of changes, given the fact that we have a revenue cap with TABOR
and Amendment 23‟s mandatory spending increase of 1 percent annually on the largest part of our budget, regardless of what our revenues are. That‟s
why we had to sacrifice higher education, in terms of budget maneuvering -- we didn‟t have a choice."

At the same time, the state is making budget cuts.

"It really doesn‟t make sense," says David Wright of Citizen Planners, an advocacy group who would like to see changes made to TABOR, and who
has written extensively on how it affects other entities besides schools. Wright has written extensively on how TABOR and enterprise systems affect
entities other than schools.
"We did as much for universities as we could under TABOR, such as creating the College Opportunity Fund, but it doesn‟t address the problem; it
just side-steps allocation issues, since the money winds up funding higher ed anyway. We need a longer-term solution," he says.

Straayer calls the College Opportunity Fund "a shell game."

"I have to agree," says Sen. Johnson.

TABOR and Amendment 23 have very strong constituencies backing them. They were approved by voters, and TABOR requires a vote of the people
to unravel. And the looming reality is forcing the state‟s colleges to look elsewhere for funding -- including toward enterprise status.

"People have to realize that these two amendments are not sustainable over the long run, the way they were written," says Johnson.

Acknowledging the concerns of Straayer, his former professor, he says, "It‟s not irrational from a political-science point of view that we got those two
things into the Constitution; everybody wants lower taxes, everybody wants a say in taxation. And our kids are important, and we ought to spend
more money on that. But these two amendments were created in a vacuum."

"Eventually," says Johnson, "these lines are going to cross and we will not be able to do the math. We cannot change the laws of mathematics. If we
don‟t change [the legislation] before that happens, I don‟t know what we‟re going to do. Do we call a constitutional convention and say, „We just
can‟t make this work numerically anymore?‟ Because that will happen.

Johnson, whose wife is employed by CSU, says, "I‟m very optimistic that both sides of the aisle will work together" to reconcile the situation.

One way is to reduce the individual state income tax rate from 4.63 percent to 4.5 -- a potential savings to the state of more than $100 million.

Running out of money for higher ed "would be devastating for northern Colorado, and it would terribly hurt the economic competitiveness of our
state," he says.

Adds Wright, allowing TABOR to go unchecked at this point "is an absolutely unacceptable state of affairs.”

The leadership of both parties and houses of the State Legislature have already held a joint session this year to begin to develop a proposal --
hopefully ballot-ready by November -- that will address some of the problems with the wobbly three-legged stool that is represented by Amendments
23, TABOR and the Gallagher Amendment. This last amendment adds to the higher ed budgeting woes with its property tax assessment formula
which keeps those taxes low -- and property owners happy -- but it does so by putting the onus on the already stretched general fund to provide for
roughly half the funding for K-12 education. Traditionally, property taxes fund K-12 education entirely.

Aside from attempting to reverse the "Colorado Paradox" by keeping CSU and other schools in the state from becoming priced out of the reach of
local high school grads (the majority of whom are choosing not to go on to college here, where more than a third of the adults are college-educated),
state senators and representatives are starting the new year with the task of trying to come up with a comprehensive fiscal plan to close the loopholes
in those three particular amendments before year‟s end, leaving the enterprise status of CSU in some doubt over the long-term.

While last year‟s session closed without any similar proposals being passed (votes were cast along party lines with none pulling down a two-thirds
majority), the State House and Senate this year are making a concerted effort to avoid bipartisan bickering and focusing on developing one viable
plan. However, educating a skeptical public on the nuances of state budgets and constitutional amendments may prove to be their greatest hurdle.

In the meantime, CSU could slip quietly into an entirely different funding mechanism – one that sidesteps the issues that legislators can‟t seem to
untangle.

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