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Using a ‘Debt Brake’ to Solve Colorado’s Debt Crisis


John Merrifield and Barry Poulson


In this study we propose a ‘debt brake’ to solve Colorado’s debt crisis. To understand the rationale for this proposed fiscal rules we begin by exploring Colorado’s debt rules and debt in an historical perspective. The concept of sustainable debt is then explored. A ‘debt brake’ is a recent innovation in fiscal rules that has proven to be successful in other countries in reducing debt to sustainable levels. A ‘debt brake’ to achieve sustainable debt in Colorado is introduced and dynamic simulation analysis is used to estimate the impact of the proposed debt brake on the Colorado economy. We will explore the potential for a productive relationship between the ‘debt brake’ and Colorado’s TABOR Amendment. The study concludes with a discussion of the implications of this analysis for addressing the debt crisis in other states and at the national level.

Colorado’s Debt Crisis in Historical Perspective

Colorado’s original Constitution incorporated provisions requiring a balanced budget, and very stringent limits on the power of the state to issue debt. In 1992 Colorado citizens enacted the Taxpayer Bill of Rights (TABOR) Amendment. It requires voter approval for any jurisdiction to issue new debt. With these stringent constitutional constraints on debt we would expect the state to limit the amount of debt issued, and certainly not to encounter a debt crisis (State of Colorado 2019a, 2019b; Poulson 2004a, 2004b).

Over the first century of Colorado’s history the state was in fact bound by the stringent constitutional limits on debt. However, over the past half century state debt has increased significantly, and in recent years the state has accumulated debt at an unsustainable rate. The explanation for this debt crisis in Colorado is that the constitutional constraints apply only to ‘full faith and credit’ debt. The state circumvents these constitutional debt limits by incurring ‘off-budget’ liabilities (Merrifield 1994).

“Off-budget’ liabilities are incurred in different debt instruments. The state has created special authorities that administer specific projects, and issue debt to finance them. By setting up public corporations, lease purchase agreements, and delegating state functions to political subsidiaries the state issues ‘non-guaranteed’ debt, which is not restricted by constitutional limits. In recent years the most rapid increase in this ‘non-guaranteed’ debt is in the form of unfunded liabilities in state pension and other state benefit plans. The plausible and most realistic assumption is that the state will not allow ‘off-budget’ entities to go bankrupt in the case of illiquidity, such ‘non-guaranteed’ debt ultimately constitutes a liability to Colorado taxpayers, similar to ‘full faith and credit’ debt. Off-budget’ activities and ‘non-guaranteed’ debt is increasingly used to circumvent the constitutional debt limits. Reliance on ‘non-guaranteed’ debt accelerated after the TABOR Amendment was enacted in 1992, because this ‘off-budget’ debt does not require voter approval. By exploring trends in Colorado’s state debt in recent decades we gain insight into the sources of the debt crisis, and potential solutions to the crisis (Colorado Department of Treasury 2019).

General Obligation Bonds

The Colorado Constitution prohibits the state from borrowing money with a promise to pay. However, local governments, such as school districts, can issue general obligation bonds with voter approval.

Tax or Revenue Anticipation notes

Tax or revenue anticipation notes are issued by a government with the pledge that they will be repaid over time from a specific revenue source. The state issues tax revenue anticipation notes to meet annual cash flow needs. These notes are repaid in the same fiscal year. The constitution prohibits multiyear debt without voter approval. Over the past two decades, voters in Colorado approved revenue anticipation notes for the construction of highway projects.

Certificates of Participation (COPs)

Certificates of participation (COPs) are lease financing agreements. The state enters an agreement to make lease payments for the use of an asset over time, after which the title of the asset transfers to the government. Since the state can decide at any time, to discontinue the lease, COPs are not considered multiyear fiscal obligations and can be issued without voter approval. Over the past two decades the state has issued COPs for the construction of buildings in higher education, the health science center, the justice system, and museums.

Other Long Term Liabilities

Other long term liabilities are incurred when the state, or agencies of the government use debt to fund obligations other than capital construction. For example, College Invest issues debt to finance student loans.

Unfunded Liabilities in Pension and Health Care Plans

Unfunded liabilities are incurred when the state owes money for employee benefits that are accumulating but not yet due. These obligations are incurred in the state pension plan for public employees (PERA), and for health benefits in Other Post Employee Benefit (OPEB) plans. In the last decade the Government Accounting Standards Board (GASB) issued guidelines for states to report these unfunded liabilities in the Comprehensive Annual Financial Report (CAFR).

Recent Trends in Colorado Debt

Source: The data for 2006-2018 is from the Colorado Comprehensive Annual Financial Reports (CAFRs). The data for the forecast period 2019-2021 is projected debt based on economic forecasts by the Colorado Legislative Staff.

The above graph charts the trend in Colorado state debt in both government and business activities. It is clear that constitutional limits have been effective in constraining general obligation debt. Bonds payable to the state have increased about 20% over this period. The growth in this form of debt, which requires voter approval, has been less than the growth in personal income and state revenue over the period.

It is also clear that the state has been successful in circumventing these constitutional limits by issuing Certificates of Participation (COPs) and Other debt. These forms of debt increased fivefold over the period, much more rapidly than the growth in personal income and state revenue. State and state related enterprises relied on these forms of debt because they are not subject to the constitutional restrictions on general obligation bonds. When some local jurisdictions failed to gain voter approval to issue general obligation bonds, they issued COPs to fund the same projects without voter approval.

The state began reporting unfunded liabilities in the state OPEB plan in the 2011 CAFR, and in the state pension plan (PERA) in the 2014 PERA CAFR (State of Colorado 2018; Public Employees’ Retirement Association 2018b. The annual CAFR data does not capture the discontinuous increase in unfunded liabilities in PERA that occurred during the financial crisis. During the financial crisis the market value of assets in the PERA plan fell by almost half, and PERA has not really recovered since then. Unfunded liabilities in PERA have grown rapidly over the past decade, and now account for most state long term liabilities.

State debt in Colorado has grown rapidly over the past two decades, despite the limitations on debt imposed by the Constitution. This rapid growth in debt is not sustainable, and Colorado must enact new fiscal rules designed to more effectively constrain the growth in debt. In this study we propose a ‘Debt Brake’ for Colorado that can reduce debt to sustainable levels. ‘Debt Brakes’ have proven to be effective in reducing debt in other countries at both the state and local level. To understand the rationale for a ‘Debt Brake’ we begin with a discussion of debt solvency and sustainability.

Debt Solvency and Sustainability

Solvency simply means the ability to meet financial obligations in full and on time. When individuals and private firms become insolvent they may face legal sanctions or be forced into bankruptcy. Governments can also become insolvent when they fail to meet their financial obligations (Rules for Sustainable Fiscal Policy 2019).

We can dismiss a proposition in modern monetary theory that sovereign governments are immune from insolvency (Wray 2015). That proposition states that sovereign governments can incur deficits and accumulate debt of any size. Sometimes referred to as the ‘Golden Rule of Solvency’, the proposition assumes that sovereign governments can meet their debt obligations by simply printing more money. The states cannot issue their own currency, but the assumption in modern monetary theory is that the federal government can print money to bail out the states and avoid insolvency. We have seen the outcome when sovereign governments print money without constraint, in the hyperinflations experienced in Germany following World War One, and more recently in Venezuela.

An alternative view of solvency is based on a mathematical proposition. If the rate of economic growth exceeds the rate of interest, debt can grow without limit. In the U.S. total debt now exceeds gross domestic product (GDP), and Keynesians argue that even if total debt grows to some multiple of GDP this is not a problem as long as economic growth exceeds the rate of interest. The flaw in this Keynesian view is that higher levels of debt impact both the rate of economic growth, and the rate of interest. Indeed, the Congressional Budget Office projects that as the ratio of debt to GDP continues to increase in the long term this will be accompanied by higher interest rates, and retardation in the rate of economic growth. The CBO also points out that printing more money that leads to hyperinflation is not a solution to our debt crisis.

If Colorado cannot depend upon federal bailouts to avoid insolvency, it must rely upon its own financial resources. This suggests a more pragmatic approach to the issue of insolvency. The ability of Colorado to meet its financial obligations will depend upon its own resources as measured by personal income. We can define a debt tolerance level as a ratio of debt to personal income above which the state begins to incur the risk of insolvency. Since the state is vulnerable to financial crisis and recessions with revenue shortfalls, the ratio of debt to personal income must be held below this tolerance level. Fiscal rules must be designed to cause excess debt to fall to the desired level.

This pragmatic approach to solvency requires that the fiscal rules have support from a broad cross section of citizens. Debt brakes have been effective in achieving debt sustainability in countries such as Switzerland, Sweden, and Norway because they commanded support across political parties and coalitions.

Designing a ‘Debt Brake’ for Colorado

The ‘debt brake’ proposed in this study follows the precedent set in other countries that have successfully enacted debt brakes to reduce debt to sustainable levels in the long run (Merrifield and Poulson 2016a, 2016b, 2017a, 2017b). The most successful of these is the Swiss ‘debt brake’ used to reduce debt levels at both the national and cantonal level. The Swiss ‘debt brake’ has been used as a model for new fiscal rules adopted by the European Union and by other OECD countries. The ‘debt brake’ that we propose for Colorado is modeled after the Swiss ‘debt brake’, however, there are key differences in the ‘debt brake’ that we propose.

The common element between our proposed ‘debt brake’ and the Swiss ‘debt brake’ is debt reduction relying on a debt brake to reduce state expenditure growth. Our ‘debt brake’ is linked to the expenditure limit imposed by Colorado’s Taxpayer Bill of Rights (TABOR) Amendment. The TABOR Amendment imposes an expenditure cap equal to the sum of inflation plus the rate of growth in population (Merrifield and Poulson 2014, 2016c).

In this study we use as a debt tolerance level a ratio of debt to personal income equal to 10%. For most states, including Colorado, this is a level of debt that exceeds state revenue. Since states are vulnerable to financial crisis and recession, accompanied by revenue shortfalls, debt should be held below this debt tolerance level. We define a debt threshold as the level of debt that triggers the debt brake. We have chosen a debt threshold for Colorado equal to 80% of the debt tolerance level (.80 x .10 = .08). When the ratio of debt to personal income exceeds .08 this triggers the debt brake. We chose a stringent debt brake for Colorado because revenue is very volatile, depending heavily upon income tax revenue and revenue from energy industries.

When the ratio of debt to personal income exceeds .08 the debt brake caps the growth of state revenue and expenditures below the TABOR limit. Surplus revenue above this cap is earmarked for debt reduction. When the ratio of debt to personal income is reduced below this debt threshold the debt brake is lifted. At that point the expenditure cap returns to the cap imposed by the TABOR limit.

The ‘debt brake’ for Colorado is stringent because of the sharp increase in debt levels in recent years. Other states may want to impose less stringent debt brakes. If debt has not been increasing rapidly, or if the state has more stable growth in revenues, a less stringent debt brake may be appropriate.

Our ‘debt brake’ is complemented by other fiscal rules. An emergency fund provides for increased spending in response to financial crisis or natural disasters. A capital investment fund is introduced to prioritize infrastructure investments. Details of the simulation model are provided in the Appendix. More detailed information for the parameter values used in the simulation model are available upon request from the authors.

Dynamic Simulation of a ‘Debt Brake’ for Colorado

A dynamic simulation model is used to estimate the impact of the ‘debt brake’ on the Colorado economy. The simulation analysis assumes that debt is reduced below the debt threshold within the forecast period.

The simulation model is estimated with actual data for the period 2007-2018, and with forecast data for the period 2019-2021. Data for personal income, population, and fiscal data is from the annual Colorado Legislative Staff ‘Economic and Revenue Forecast’. Data for debt is from the Colorado Comprehensive Annual Financial Report (CAFR). Total Colorado debt includes bonds payable, certificates of participation (COPs), other debt, unfunded liabilities in the state pension plan (PERA), and Other Post-employment Benefits (OPEB).

State Debt

The above graph compares actual debt to revised debt from simulation analysis over the period. Actual debt increased from about $4 billion to $33 billion over the period. As a share of personal income, actual debt increased from about 2% to 9%. The debt threshold, i.e. when the ratio of debt to personal income exceeds 8% triggering the debt brake, was reached in 2017.

Revised debt is simulated with the debt brake in place. Revised debt grows from about $5 billion to $23 billion over the period. As a share of personal income revised debt grows from about 3% to 6% over the period. Prior to 2017 the lower rate of growth in revised debt reflects the constraint on spending imposed by the TABOR limit. Beginning in 2017 the lower rate of growth in revised debt reflects the ‘debt brake’, which lowers the cap on spending growth below the TABOR limit. The stringent debt brake is designed to reduce and maintain the ratio of debt to personal income below the debt threshold of 8%, and well below the debt tolerance level of 10%.

State Spending

The above graph compares actual state spending with revised state spending simulated with the debt brake in place. Actual state spending doubles from about $7 billion to $14 billion over the period. As a share of personal income, actual state spending grows from about 3.5% to 3.8%.

In the debt brake simulation revised state spending grows more slowly, from about $7.5 billion to $9.8 billion. Revised spending as a share of personal income declines from about 3.7% to 2.6%. The major discontinuity between actual spending and revised spending occurs during the last decade when the debt brake is triggered. The surplus revenue in this period earmarked for debt reduction accounts for most of the decreased debt relative to personal income.

Supply Side Effects of the Debt Brake

The dynamic simulation model captures modest supply side effects of the debt brake. In the years when the debt brake is triggered the growth in simulated personal income is higher than the growth in actual personal income. The dynamic simulation model assumes an opportunity cost of 6% when resources are shifted from the private sector to the public sector. The debt brake reduces the growth in government spending, providing a modest boost to economic growth. By the end of the period revised personal income exceeds actual personal income by .2%. The modest increase in personal income is accompanied by a comparable boost in state revenue.

The ‘Debt Brake’ and TABOR

Using a ‘debt brake’ to address the debt crisis in Colorado should be viewed as an extension of TABOR. TABOR caps the rate of growth in state spending to the sum of inflation plus the rate of growth in population. When the ‘debt brake’ is triggered the cap on the rate of growth in state spending is reduced below the TABOR limit. The ‘debt brake’ is triggered when the ratio of total debt to personal income exceeds the threshold level. The surplus revenue above that cap must be earmarked for debt reduction. This disposition of surplus revenue must take precedence over all other provisions for the disposition of surplus revenue in the TABOR Amendment. When debt has been reduced below the debt threshold, the debt brake is lifted and the spending cap returns to the TABOR limit.

The Debt Brake and TABOR Rebates

When the debt brake is triggered, one of the provisions for the disposition of surplus revenue in the TABOR Amendment that must be suspended is taxpayer rebates. Some taxpayers may oppose the debt brake because it would require forgoing taxpayer rebates during the period the debt brake is triggered. However, there are several reasons why taxpayers should support the debt brake, despite the foregone taxpayer rebates.

The debt brake will limit the state’s exposure to insolvency. If the state is allowed to increase debt to levels that risk insolvency, taxpayers could be burdened with far greater liabilities for generations.

Further, when debt levels are reduced below the debt threshold by reducing state spending, this sets a new lower base for the TABOR revenue and expenditure limit. At that point all the current provisions for disposition of surplus revenue, including tax rebates, are in effect. In the long run this could generate more taxpayer rebates than would occur in the absence of the debt brake.

The Debt Brake and TABOR Procedural Constraints

Currently TABOR imposes a procedural constraint on certain forms of full faith and credit debt, i.e. bonds and revenue anticipation notes. To issue this debt the state must have voter approval. To be effective the debt brake would require these procedural constraints on other forms of debt as well, i.e. certificates of participation, other debt, and new bonds issued to reduce unfunded liabilities in PERA and OPEB benefit plans. This should be straightforward when the state issues new debt to fund these programs.

However, a number of factors could cause an increase in unfunded liabilities in PERA and OPEB plans. Much of the unfunded liability in these plans can be traced to imprudent decisions by the legislature to improve pension and health benefits offered to public employees, without providing for contributions to cover those benefits. As we have noted, a major factor in the rapid growth in unfunded liabilities was the sharp fall in the value of assets in PERA during the financial crisis. There is of course no way to predict the impact of financial crisis and recession on unfunded liabilities in these plans.

The ‘debt brake’ would result in greater transparency and accountability for unfunded liabilities in PERA and OPEB plans. The debt brake makes explicit the reduction in spending when a greater share of revenue must be earmarked to reduce unfunded liabilities as well as other forms of debt. The debt brake would make this tradeoff more transparent. Further, the debt brake would create a disincentive for legislators to promise public employees benefits without the contributions required to pay for those benefits. In short, with a debt brake legislators would be less able to shift the tax burden of unfunded liabilities to future generations.

Under current TABOR law legislators can ask for citizen approval to spend surplus revenue that is earmarked for taxpayer rebates. These ballot measures require that legislators estimate both the magnitude of surplus revenue that taxpayers must forgo, and the magnitude of spending on different government programs.

With the debt brake in place legislators could continue to ask for citizen approval to spend surplus revenue that is earmarked for taxpayer rebates. They could also ask for citizen approval to spend surplus revenue that is earmarked for debt reduction. In that case they would have to make the tradeoff between debt reduction and government expenditures even more explicit. They would have to estimate the amount of debt reduction that would not take place, and the magnitude of these funds that would be spent on different government programs.

It is important to emphasize that the debt brake does not change the tradeoff between debt reduction and government spending, it simply makes it more explicit. The debt brake would expose ‘hidden debt’ in the form of unfunded liabilities in pension and health plans for public employees. Instead of shifting this ‘hidden debt’ to future generations, the debt brake shifts it to current generations.

We should expect that improved transparency and accountability for ‘hidden debt’ in the form of unfunded liabilities would generate taxpayer resistance. There is already taxpayer resistance to this tradeoff at the state and local level. As expenditures of pension and health benefits for public employees have absorbed greater shares of government budgets this has reduced the revenue available to provide more and better government services. Taxpayers are asking the obvious question, why are legislators promising benefits to public employees that they can’t pay for.


Over the first century of the state’s history Colorado pursued prudent fiscal policies conforming to a constitution that mandated a balanced budget and limited debt to short term debt repaid within the same fiscal year. Over the past half century, the state has pursued imprudent fiscal policies, accumulating debt at an unsustainable rate. Other states, such as Illinois and Connecticut, have pursued even more profligate fiscal policies resulting in a debt crisis at the state level, not unlike the debt crisis at the federal level.

Politicians have convinced citizens that we should stop worrying, and learn to live with our debt. But, Colorado citizens should not, like Wylie E. Coyote, continue to muddle along until we go off a fiscal cliff in the next recession. Colorado relies on very volatile income tax and energy tax revenues. A recession, especially a severe recession such as the recent financial crisis, will be accompanied by revenue shortfalls that will require draconian cuts in state spending. The ‘hidden debt’ that the state is accumulating off budget, mostly in the form of unfunded liabilities in state pension and health benefits for public employees, will become even more difficult to repay. The longer we defer paying these ‘hidden debts’ the more difficult it will be to solve the state fiscal crisis.

Politicians sanguine attitude toward debt is reinforced by the most recent version of Keynesian economics, i.e. modern monetary theory. Colorado citizens should reject this excuse for accumulating debt at an unsustainable rate. These theories are nothing more than an excuse to print more money, which the Federal Reserve is more than willing to accommodate.

Other OECD countries, such as Switzerland, have enacted new fiscal rules to successfully address their debt crisis. The Swiss ‘debt brake’ has been adopted in other countries to reduce debt to a sustainable level at both the state and national level. The U.S. is now behind the learning curve in enacting effective fiscal rules, and each year that we continue along this path accumulating more debt, it becomes more difficult to solve the debt crisis. A ‘debt brake’ can be enacted to reduce debt to sustainable levels in the U.S., just as it has in these other countries.

In this study, a Swiss style ‘debt brake is simulated for the Colorado economy. Colorado is a prime target for enacting such a ‘debt brake’ because of the experience with the TABOR Amendment. Enacted in 1992, the TABOR Amendment constrains the growth in state revenue and spending to the sum of inflation and the rate of growth in population. A ‘debt brake’ could be enacted as an amendment to the TABOR Amendment. The ‘debt brake’ is triggered when debt exceeds a threshold where the state is exposed to insolvency. The ‘debt brake’ would apply to all debt including the ‘hidden debt’ that has increased sharply in recent years. The ‘debt brake’ would require citizen approval for all new debt, including ‘hidden debt’.

Dynamic simulation analysis reveals that with the ‘debt brake’ in place debt in Colorado could be reduced to sustainable levels over two decades. Critics will argue that a ‘debt brake’ requires draconian cuts in state spending. In fact, a debt brake requires not a reduction in state spending, but rather a reduction in the rate of growth of state spending over several decades. The rate of growth in state spending would be reduced until the state restores a sustainable debt level. By incorporating a ‘debt brake’ in the constitution citizens would replace the discretionary fiscal policies pursued by our politicians with a rules based fiscal policy.

A ‘debt brake’ enacted in Colorado, and other states with a history of fiscal discipline, could set an example for other states and for the federal government. This would follow the Swiss precedent where the ‘debt brake’ was first enacted at the cantonal level. Interstate competition then forces more profligate states to enact these stringent fiscal rules. With a track record of fiscal discipline at the cantonal level, Swiss citizens were successful in enacting a ‘debt brake’ to impose fiscal discipline on their national government. To be successful in the U.S., a debt brake must have this broad citizen support across political parties and interest groups.


Colorado Department of Treasury. 2019. Public Finance and Debt Issuance.

Merrifield, J. 1994. “Factors that Influence the Level of Underground Government,” Public Finance Review, Vol 22, Num. 4; 462-482.

Merrifield, J., and B. Poulson. 2014. “State Fiscal Policies for Budget Stabilization and Economic Growth: a Dynamic Scoring Analysis,” Cato Journal 34:1 2014.

Merrifield, J., and B. Poulson. 2016a. “The Swedish and Swiss Fiscal Rule Outcomes Contain Key Lessons for the U.S.”, Independent Review, Vol.21 Num. 2 Fall 2016 pp. 251-275.

Merrifield, J., and B. Poulson. 2016b.Can the Debt Growth be Stopped? Rules Based Policy Options for Addressing the Federal Fiscal Crisis, Lexington Books, New York.

Merrifield, J., and B. Poulson 2016c. “A Dynamic Scoring Analysis of How TEL Design Choice Impact Government Expansion,” Journal of Economic and Financial Studies 4:2, pp. 60-68.

Merrifield, J., and B. Poulson. 2017a. Restoring America’s Fiscal Constitution, Lexington Books, New York.

Merrifield, J., and B. Poulson. 2017b. “New Constitutional Debt Brakes for Euroland Revisited”, Journal of Applied Business and Economics, Vol. 19(8), pp. 110-132.

Public Employees’ Retirement Association. 2018. Comprehensive Annual Financial Report, Dec. 31.

Poulson, B. 2004a. “Colorado’s TABOR Amendment: Recent Trends and Future Prospects” Americans for Prosperity Foundation, Washington DC.

Poulson, B. 2004b. “Tax and Spending Limits: Theory, Analysis, and Policy”, Issue Paper 2-2004, Independence Institute, Golden, Colorado, January 31.

‘Rules for Sustainable Fiscal Policy’. 2019.

State of Colorado. 2018. Comprehensive Annual Financial Report, Office of the State Controller, Dec. 31.

State of Colorado. 2019a. Colorado Constitution, Section 3, Public Debt of State Limitations.

State of Colorado. 2019b. Colorado Constitution, Section 3, Amendments, Colorado Taxpayer Bill of rights, Initiative 1 (1992), November.

State of Colorado. 2019c. Colorado Economic and Fiscal Outlook, Governor’s Office of State Planning and Budgeting, June 19.

State of Colorado. 2019d. Economic and Revenue Forecast, Colorado Legislative Staff, June 19.

Wray, L. 2015. Modern Monetary Theory (2nd Edition), Basingstoke, ZULU: Palgrave Macmillan.


Appendix: Variable Definitions, Parameters, and Equations for the State Calculator Numbers shown are default values

EMERG0 = 0.2 x SP0; Average Annual Certifiable Emergency Cost to the State

EFCAPRT = 0.2; Emergency Fund Account Balance Cap as a share of State Spending (SP).

CCRT = 0.5; countercyclical spending rate increase, as a share of Revenue (REV).

BSFCAPRT = 0.1; Budget Stabilization Fund Account Balance Cap as a share of State Spending (SP).

BSFSPRT = 0.7; limit on share of BSF spendable in one year.

BSFEARt = 0, revenue, in millions earmarked for BSF deposit.

KCAPRT = 0.05; Capital Improvement Fund Account Balance Cap as a share of State Spending (SP).

KSPRT = 0.7; limit on share of Capital Improvement Fund Account spendable in one year.

KSHSURP = 0.25; Capital Improvement Fund Share of remaining surplus.

CSLRT = 1.0; multiplier for Pop + Infl growth limit on Discretionary Spending Growth.

GRCHG = 1.0; growth rate adjustment parameter.

RECESSt = 0; recession size in year t.

EXOGTAXCHt = 0; exogenous tax rate change starting in year t.

OCR = 0.06; marginal opportunity cost rate for shifting resources from private to public use. MTR = Average Tax Rate = REV0/PI0

RMTR = 0.00251

DEBTTOL = 0.1; limit on sustainable total state debt tolerance; share of PI DEFTOL = 0.02; deficit-level intolerance; share of PI

TOLPROX = 0.8; deficit- or debt-based spending growth braking commences with RDEBT/RPI > (0.8)DEBTTOL or (0.8)DEFTOL

DEBTBRT = 1.0; debt-based braking rate; rate of debt-based reduction in CSLRT.

DEFBRT = 1.0; deficit-based braking rate; rate of deficit-based reduction in CSLRT.

TRCT = 0; equals ‘1’ for a surplus-based Tax Rate Cut Trigger.

NCYC = 0.2 when TRCT = 1; the weighted drop in MTR for Tax1 that will result from the size of SURPLUS/SP when SURPLUS > 0.

APIt = (((PIt – PIt-1)/PIt-1) x APIt-1) + APIt-1 –  Adjusted Personal Income
Users can choose replacement values for GRCHG and RECESSt default values.
API0 = PI0 Note : the zero subscript denotes the first data point, which is the last ‘real’
number.  All other data are User-Supplied projections or computed values.
t = 1 is the first calculated value
RPI0 = PI0 Revised Personal Income starts equal to actual personal income.
RDEBT-1 = RDEBT0 = DEBT0 Simulation revised debt.
RDEFPI-1 = RDEFPI0 = 0 Debt as a share of personal income.
EFINT0 = 0 Emergency Fund Interest Earned
BSF0 = 0 Initial Budget Stabilization Fund Balance
BSFINT0 = 0 Initial Budget Stabilization Fund Balance
EF0=0 Initial Emergency Fund Balance
RREV0 = REV0 Simulation Revised Revenue
RSP0 = SP0 Simulation Revised Spending
CCBUMP0 = 0 Initial Countercyclical Spending Bump
AMTR10 = MTR1 Initial Adjusted Marginal Tax Rate
SURP1180 = 0 Initial Surplus after EF and BSF deposits
SGBASE0 = SP0 Initial ‘Steady Growth’ Base – no ratchet down
BASE0 = SP0 Initial Spending Growth Base – subject to ratchet
RDEBTPI0 = RDEBT0/PI0 Initial Simulation Revised Debt to PI ratio.


AMTR1t = IF(TRCT = 0, MTR1, IF((RREVt-1 – RSPt-1) > 0, (1- ((RREV ((RREVt-1 – RSPt-1)/RREVt-1)) x AMTRt-1)), AMTR1t -1))

GAt = (RMTR x (EXOGTAXCHt + (AMTR1t – AMTR1t-1)) x 100) + 1

t-1/REV1t-1) x NCYC x

Economic Growth Rate Adjustment

RPIt = (RPIt-1 x GAt) + (APIt – APIt-1) + (OCR x ((RREVt – RSPt) – EMERGt))          Simulation Revised


MTR1 = REV10/PI0                                      Initial REV1 Tax (e.g. income tax) Marginal Tax Rate

MTR2 = REV20/PI0                                      Initial REV2 Tax (e.g. income tax) Marginal Tax Rate

MTRREST = (REV0 – REV10 – REV20)/PI0

STATSHt = (EXOGTAXCHt/MTR1) x (REV1t/REVt)               Static Revenue Share for REV1 Tax

RREVt = (REVt x (1 – STATSHt)) + ((RPIt – APIt) x (AMTR1t + MTR2 + MTRREST)) + EFINTt-1 + BSFINTt-1

POPGRt = ((POPt-2/POPt-3) – 1) Population Growth

RDEFPIt = IF(RDEBTt-2 = 0, 0, IF((RDEBTt-1 – RDEBTt-2) < 0, 0, (RDEBTt-1 – RDEBTt-2)/RPIt-1)) RDEBTPIt = RDEBTt-1/RPIt-1





– (TOLPROX * DEFTOL))) * DEFBRT > 1, 0, 1 – ((RDEFPIt-1/DEFTOL) * (RDEFPIt-1


SGBASEt = SGBASEt-1 x ((1 + POPGRt + INFLt) x CSLRT)

BASEt = IF(SG = 1, SGBASEt-1 x (((1 + POPGRt + INFLt) x CSLRT) x DEFBRKt x DEBTBRKt), ((RSPt-1 – CCBUMPt-1) x (((1 + POPGRt + INFLt) x CSLRT) x DEFBRKt x DEBTBRKt)))

CCBUMPt = IF(RREVt > RREVt-1, 0, IF((STATSHt x 0.9) > STATSHt-1, 0, IF((BSFt-1 x BSFSPRT) –

(BASEt – RREVt) > (CCRT x (RREVt-1 – RREVt)), (CCRT x (RREVt-1 – RREVt)), IF((BSFt-1 x BSFSPRT) – (BASEt – RREVt) > 0, (BSFt-1 x BSFSPRT) – (BASEt – RREVt), 0))))


EXPSPt = (((1 + POPGRt + INFLt) x CSLRT) x DEBTBRKt) x (RSPt – CCBUMPt) Expected Spending


Maximum Emergency Fund Balance


EF2t = IF((EFt-1 – EMERGt) < EFMAXt, EFMAXt, EFt-1 – EMERGt)

EF3t = IF((RREVt – RSPt) > 0, RREVt – RSPt + EFt-1 – EMERGt, EFt-1 – EMERGt)

EFt = IF((RREVt – RSPt) > (EFMAXt – EFt-1 + EMERGt), EF2t, EF3t) + EFINTt Emergency Fund Balance

BSFDEBt = IF(RSPt > RREVt, IF((BSFt-1 x BSFSPRT) > (RSPt – RREVt), (RSPt – RREVt), (BSFt-1 x




SURP117t = IF(EFt > EFMAXt-1, IF((RREVt – RSPt) – (EFt – (EFt-1 x (1 + STINTt)) > 0,

(RREVt – RSPt) – (EFt – (EFt-1 x (1 + STINTt)), 0), 0)                 Surplus remaining after EF


BSF2t = IF((BSFt-1 + SURP117t – BSFDEBt) > 0, (BSFt-1 + SURP117t – BSFDEBt), 0)

BSF3t = IF((BSFt-1 + SURP117t – BSFDEBt) < BSFMAXt, BSF2t, BSFMAXt)

BSF4t = IF((BSFt-1 – BSFDEBt) > 0, BSFt-1 – BSFDEBt, 0)

BSF5t = IF(BSFt-1 > BSFMAXt, BSF4t, BSF3t)

BSFt = IF(EFt < EFMAXt, BSF4t, BSF5t) + BSFINTt + BSFEARt Budget Stabilization Fund Balance

Calculated in five Stages; too many ‘IF’s for single, long ‘BSF =’ equation.

PICHTENt = ((PIt-2/PIt-12)^0.1) – 1 – INFLt

PICHONEt = (PIt-2/PIt-3) – 1 – INFLt


Average growth rate Average growth rate

for PI for last ten known years.

for PI for last known year.




KSPRT))                             Capital fund spending in slow growth years.

SURP118t = IF(SURP117t = 0, 0, IF((SURP117t – (BSFt – BSFt-1)) > 0, (SURP117t – (BSFt – BSFt-1)), 0))


  • STINTt)), 0), (((-1) x ((CCKSHt x KFt-1) – ((1- CCKSHt) x KFt-1 x STINTt)))))

Debit or deposit into Capital Fund.


SGCAPt = ((SGCAPt-1 – CCBUMPt) x ((1 + POPGRt + INFLt) x CSLRT)) + CCBUMPt Spending cap with no ratchet down allowed; growth based on previous cap.

RDEBTt = RDEBTt-1 – IF(SURP118t = 0, 0, IF(SURP118t < RDEBTt-1, SURP118t, RDEBTt-1))

+ (DEBTt -DEBTt-1) Simulation-revised debt.
REBt = IF((SURP118t – RDEBTt-1) > 0, (SURP118t – RDEBTt-1), 0) Rebate Amount
PIBUMPt = RPIt/PIt Simulation-based PI change.
SMALLERt = (RSPt/RPIt)/(SPt/PIt) TEL-induced drop in spending share of PI.
SGGAPt = RSPt/SGBASEt Ratchet down amount.
EPREPt = EFt/EFMAXt Emergency Preparedness Rate.
EFSIZEt = EFt/RPIt EF size relative to PI.
BSFPREPt = BSFt/BSFMAXt Budget stabilization funds relative to max allowed.
BSFSIZEt = BSFt/RPIt BSF size relative to PI
SPSHt = RSPt/RPIt Spending size relative to PI
REVSHt = RREVt/RPIt Revenue size relative to PI













SEA2019 – Poulson – Debt Brake to Address Colorado’s Debt

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