Constitutional Amendments

Amendment 23 and the Negative Factor

In the 2000 election, Colorado voters made an important commitment to our public schools by passing Amendment 23 to amend Colorado’s Constitution. Amendment 23 was intended to provide a stable and predictable funding base for Colorado school districts. [Colo. Const. Art. IX, Sec. 17.] Amendment 23 requires annual per pupil funding to increase from year to year at a rate no less than the rate of inflation. Similarly, the total funding for the categorical programs funded under the state Finance Act must also be increased each year by at least the rate of inflation.

In each of the last five the school years, the legislature has applied a new “negative factor” to the funding formula in the 1994 School Finance Act. The negative factor defunds part of the “factor funding” required by the funding formula in the 1994 Finance Act. The legislature took this step because falling state revenues as a result of the recent recession required the legislature to use school finance revenues to fund other parts of the state government. After the recession ended, the legislature has been unable to restore these cuts.


In Brief: Amendment 23

Amendment 23 requires annual base per pupil funding to increase from year to year at a rate no less than the rate of inflation, and funding for categorical programs must increase each year by at least the rate of inflation.

The negative factor is based on the belief that Amendment 23 requires the legislature to increase only the base per pupil amount by the rate of inflation each year, and does not require it to increase the per pupil amount determined by the factors. The factors in the Finance Act serve the purpose of providing each local school district the additional funds necessary to ensure every school district can provide an equivalent program for every student regardless of unusual local conditions, such as small size or a high number of at-risk students. Accordingly, by defunding the factors in the Finance Act funding formula, the negative factor effectively destroys the equity as determined by the school finance formula.

In the 2015-16 fiscal year, the negative factor is slightly more than $850 million. This amounts to approximately 15 percent of the funding most school districts in Colorado would receive under the School Finance Act if the negative factor were not applied. In round numbers, a district of 25,000 students loses in 2015-16 approximately $25 million to the negative factor, a district of 10,000 students loses approximately $10 million, and a district of 2,000 students loses $2 million.

Conversely, on a per pupil basis, a district that receives significant additional funding as a result of the factors will lose more money per pupil than a district which relies less heavily on factor funding to compensate for unique local conditions. For example, assuming two districts of about 20,000 students each, in which one has an 80 percent at-risk student population and one has a 20 percent at-risk student population, the negative factor will be approximately $40 per student higher in the district with a higher percentage of at-risk students, reducing overall funding in that district $800,000 compared to the district with the lower at-risk population. This happens because the total per pupil funding, after adjustments of the factors for local conditions, is higher in the district with 80 percent at-risk students and the negative factor is applied as a percentage of total per pupil funding.

In 2015, the Colorado Supreme Court rejected the school finance lawsuit Dwyer v. Colorado. The Dwyer plaintiffs, a group of school districts and parents, challenged the constitutionality of the legislature’s implementation of Amendment 23 in the state constitution and the use of the “negative factor” mechanism.

While the plaintiffs argued the intent of Amendment 23 was to mandate minimum increases in education funding every year, the Supreme Court found those mandatory increases applied only to base funding, not to the factors in the school finance formula that are intended to equalize funding for districts based on size, at-risk populations, cost-of-living and personnel costs.

This means that the legislature has great discretion to annually determine any increase or decrease in education funding as long as the total allocations are at least the base amount from the prior year as adjusted for population growth and inflation.

Gallagher and TABOR

In 1982, Colorado voters added the Gallagher Amendment to Colorado’s Constitution to limit increases in residential property taxes. A decade later, voters added the Taxpayer’s Bill of Rights (TABOR) to limit state and local taxes and revenues and to impose a broad array of additional limits on government and elections. The specific requirements of Gallagher and TABOR are too lengthy and too complex for this workbook, but here are some of the key effects of these two constitutional provisions on the funding of school finance:

  • Since 1992, the interaction of these two constitutional provisions has deeply eroded the local property tax base of school finance.
  • As a result of the unintended effects of this interaction, the state’s local taxpayers now pay about 38 percent of the tab for school finance and the state’s general fund pays about 62 percent. At the time TABOR was passed, the local contribution and the state contribution were roughly equal at 50 percent each. This shift has required the state to make up for more than $700 million of lost local revenue. This has put additional strains on the state’s general operating budget.
  • By state statute, the mill levies paid by different school districts had been standardized to be the same in nearly every school district in Colorado at the time TABOR was passed in 1992. Since 1992, the combined effects of TABOR and Gallagher have caused mill levies to fall in wealthy and rapidly growing school districts and to remain high in school districts with low growth and low property values. In addition, as a result of the TABOR and Gallagher, the state legislature no longer has the power to maintain a standard mill levy for all school districts.
  • The total revenues collected by the state and local governments could not keep pace with the growth of the economy throughout the 1990s as a result of the restrictions in TABOR and Gallagher. Accordingly, the level of funding for school finance declined, in inflation-adjusted dollars, during the 1990s.

In Brief: Local vs. State Funding, Pre- and Post-TABOR and Gallagher

Since the late 1980s, state and local funding for K–12 education has flip-flopped. Previously, the state’s share was about 40 percent; now it accounts for about 60 percent.

The local share once was about 60 percent; now it’s about 40 percent.

Bottom line: K–12 education accounts for the largest portion of General Fund spending, and the state is locked into back-filling for local shortfalls.

Source: Joint Budget Committee

Efforts to Reform Colorado's Tax Structure

As suggested previously, “Colorado’s constitutional tax code” – the Gallagher Amendment, TABOR and Amendment 23 together – has caused significant financial challenges for the state. During recessions, these challenges are much greater. The recent “great recession” sharply cut the revenues of this state and nearly every other state in the nation. However, in Colorado, those revenue shortfalls pose special challenges because of the constitutional tax code and how it operates in this state.

CASB actively works with business groups, local government associations and other groups to find solutions for the problems Colorado now faces. CASB welcomes interest and participation from its members in all of these efforts.