Legislative staff press proponents on TABOR, fund mechanics during review of Colorado graduated-income-tax initiatives

On Jan. 2, 2026, legislative counsel staff and the Office of Legislative Legal Services conducted a review-and-comment hearing with designated representatives for Proposed Initiatives 189–196, which would replace Colorado’s flat state income tax with a graduated rate structure and create a Colorado Futures Fund to retain and spend any excess revenue.

The staff summary of the measures said the initiatives would impose graduated state income taxes on individuals, estates, trusts and corporations beginning Jan. 1, 2027; specify that any gain from the sale of a principal residence exceeding the federal exclusion would be taxed at 4.41 percent; designate excess revenue as a voter-approved revenue change under Section 27D of Article X of the Colorado Constitution (TABOR); create a Colorado Futures Fund to collect and allocate those excess revenues for K–12 education, health care and child care; require annual reporting by the Legislative Council’s Director of Research; and require an audit by the State Auditor.

Why it matters: the measures would change Colorado’s tax structure and direct new revenue streams to specific state priorities. Staff focused on technical drafting and constitutional interactions that could affect how and when revenue is calculated, retained and spent, and on the mechanisms that would guarantee transparency and legal enforceability.

Key drafting issues and staff recommendations

- TABOR and the meaning of “added tax.” Counsel asked how transforming Colorado’s single-rate income tax into a graduated-rate system would avoid TABOR’s prohibition on “added tax.” Ed Ramey, counsel for the proponents, said the campaign’s view is that “added tax” refers to a surcharge applied on top of a base rate and that the measure creates a graduated set of base rates rather than an additional tax on the same base. The staff noted title-board variations that remove the phrase “added tax” and recommended language options so the title board can assess single-subject and TABOR concerns.

- Fiscal year versus tax year. Staff recommended changing the definition of excess revenue from a taxable-year basis to a state fiscal-year basis (for example, fiscal years commencing July 1, 2027 or July 1, 2026) to avoid ambiguity arising from mismatched tax and fiscal calendars. Proponents acknowledged the administrative complexities and said they would consider staff suggestions.

- Counterfactual baseline and rate definition. The draft measure would define excess revenue as the amount collected under the new graduated rates in excess of revenue that would have been generated by the 2026 single-rate structure. Staff asked how future rate or base changes and federal law changes would be handled in that counterfactual calculation. Proponents described their intent as fixing the percentage rates while applying them to the current taxable-income base each year; they recognized this raises calculation complexity and will consider clarifying language.

- Colorado Futures Fund mechanics. Staff flagged that all state tax revenue must first be transmitted to the State Treasurer and generally credited to the General Fund. They recommended explicitly creating a cash fund or an exempt account in the State Treasury, directing the treasurer to credit an amount equal to the excess revenue to that fund or account, and clarifying how and when transfers or true-ups would occur. Proponents said their priority is administrative simplicity and that they will revisit whether the draft should create a separate cash fund ("Colorado Futures Cash Fund") or an exempt account within the General Fund.

- Appropriation authority and how funds are spent. Staff recommended replacing language that money "shall be spent" with language requiring the General Assembly to "appropriate or transfer" funds for the listed purposes, and asked whether spending should be annually appropriated or continuously appropriated. Proponents indicated the intent is for the General Assembly to appropriate the funds but will consider drafting clarifications.

- "Supplement not supplant" and enforcement risks. Staff warned that the statutory phrase "supplement and not supplant" has varied legal meanings and could invite litigation unless the measure specifies how baseline appropriation levels are determined and enforced. Proponents said they would consider additional precision.

- Reporting and audit functions. The draft requires the Director of Research of the Legislative Council to prepare an annual report and the State Auditor to audit it. Staff asked why the Director (rather than the State Controller, who currently certifies TABOR excess revenues) would prepare the report and whether the audit should produce a formal certification or findings transmitted to relevant officials. Proponents said the language mirrored previous measures and that they would revisit alignment with existing controller certification practice.

Representative quotes

"The default effective date is fine. That's what we were intending," said Ed Ramey, counsel for the proponents, when staff described the constitution's default effective-date rule. "We're trying to do the simplest most straightforward thing," said Chris DeGruy Kennedy of the Bell Policy Center when asked about drafting choices on rates and fund structure.

What happens next

Proponents said they will take the technical comments and drafting suggestions under advisement as they proceed to the title board. Staff reiterated several drafting changes that would reduce ambiguity (for example, specifying "state fiscal year" rather than "taxable year," clarifying fund/account mechanics, and specifying appropriation language). Designated representatives confirmed their intent to seek voter approval at the November 2026 general election.

The review-and-comment hearing concluded after parties agreed to revise drafting to address the administrative and constitutional concerns raised by staff.