Proposition NN: State Public K-12 Education Funding

What does Proposition NN do?

Proposition NN allows the state to keep and spend revenue that would otherwise be refunded to taxpayers under TABOR, up to a newly established limit. The new limit is higher than the current limit and is based on the amount the state government spends on public education.

In the first ten years, this revenue must be spent on K-12 education and programs that support children. After ten years, the retained revenue must be spent on K-12 education and other purposes to be determined by the state legislature. The measure dedicates the K-12 education spending to teacher pay and retention, smaller class sizes, career and technical courses, school services, disability services, and more instructional hours, as described below. The retained revenue also must be spent to reimburse local governments for property tax exemptions, as required under current law.

The measure includes requirements for the state auditor and school districts to report on how the retained money is spent.

What is the TABOR limit and what are TABOR refunds?

The Colorado Constitution limits the amount of revenue the state government can collect each year. The limit is equal to the prior year's limit, adjusted for inflation plus population growth. This is known as the TABOR limit. Voters may give the state permission to keep and spend additional revenue above the TABOR limit.

If the amount of revenue the state collects in any year is above the TABOR limit, the excess amount must be refunded to taxpayers. These are called TABOR refunds, and they are distributed to taxpayers in several ways. For more information, see the Legislative Council Staff memorandum titled, "A Brief Overview of the TABOR Revenue Limit."1

TABOR refunds are often distributed when people file their taxes, but they are different from tax refunds that are owed when people overpay their taxes. Tax refunds are not affected by this measure.

How much revenue will the state keep and spend under Proposition NN?

Under Proposition NN, the maximum amount the state may keep is equal to the current TABOR limit, plus the highest amount the state has spent on K-12 education from certain funding sources in previous years. This is referred to as the Proposition NN limit in this analysis.

Any revenue above the new Proposition NN limit must be refunded to taxpayers.

In later years, the Proposition NN limit is expected to grow faster than the current TABOR limit based on the amount the state legislature allocates for K-12 education. State revenue is expected to continue to be well below the Proposition NN limit in the next several years, and is not expected to exceed the Proposition NN limit for at least the next five to ten years. Long-term projections beyond that period are uncertain.

How does Proposition NN impact TABOR refunds?

Proposition NN's impact on TABOR refunds depends on how much money the state collects above the current TABOR limit in a given year, and how much the state spent on public education in prior years. Figure 2 shows the range of possible TABOR refund impacts, which will vary from year to year.

Under current estimates, revenue in the next several years is expected to exceed the current TABOR limit but not the new Proposition NN limit, which would eliminate TABOR refunds in these years, as described in Scenario 2 in the figure below.

How will the retained revenue be spent?

Proposition NN specifies how revenue retained above the current TABOR limit must be spent. The revenue must first be used to reimburse local governments for the lost tax revenue from property tax exemptions for seniors, veterans with a disability, and Gold Star surviving spouses, as is already required as a TABOR refund mechanism under current law. All remaining revenue is deposited into the newly created Children's Account. Figure 3 shows new spending requirements under Proposition NN.

How will the K‑12 funding be used?

Money in the Children's Account must first be used for increased teacher pay and retention, access to career and technical courses, and smaller class sizes. This money will be distributed to school districts and charter schools that then decide how to spend this money within allowable uses. They must post downloadable, sortable information online about how they spent the money.

The amount required to be spent for these purposes will grow each year for ten years, and then remain flat in later years. The amount is expected to be about $110 million in the first year, $220 million in the second year, and may grow to between $1 billion and $2 billion per year by the end of ten years. These amounts are only paid if enough revenue is retained.

For the first ten years, if the amount spent on teacher pay and retention, career and technical courses, and smaller class sizes is less than half the amount in the account, then the measure requires additional spending on disability services, school services, and increasing instructional hours, such that at least half the amount in the account is spent on K-12 education overall. Funding for disability services, school services, and increasing instructional hours is estimated at about $130 million in the first year and $20 million in the second year. The state legislature will determine how to allocate these funds to schools and districts.

How will the money for children's programs be used?

In the first ten years, any money remaining in the account after K-12 spending must be spent on programs that support children, prioritizing full-day preschool, child care, and other programs that help children be successful in school. The state legislature will determine how to spend this money, which is estimated to be about $240 million in the first year and $230 million in the second year.

How will funding allocations change after the first ten years?

After ten years, the measure requires that a flat amount be dedicated to K-12 education each year for increased teacher pay and retention, access to career and technical education, and smaller class sizes. Any remaining money in the Children's Account may be spent on any purpose as determined by the state legislature.

How does Proposition NN interact with other measures?

Proposition 137 reduces the amount of revenue the state collects that is subject to the TABOR limit. This measure will not affect the Proposition NN limit. However, if the measure passes, the amount of money the state will actually keep and spend under Proposition NN may be reduced or eliminated.