Colorado voters approved a ballot measure in 2020 increasing taxes on tobacco and nicotine products and letting the state use the revenue to fund a universal preschool program.

But the increased taxes generated more money than expected to the tune of about $24 million. So the legislature passed a bill asking voters this year through Proposition II to let the state keep that extra money — as well as all future revenue from the taxes — and use it to expand the preschool program.

If voters reject Proposition II, the tax revenue collected above what was projected will be returned to nicotine and tobacco wholesalers and distributors. Additionally, the nicotine and tobacco tax rates will be cut to prevent future excess revenue.

Why does the state need voter permission to keep the excess revenue?

The Taxpayer’s Bill of Rights, a constitutional amendment approved by voters in 1992, requires that money collected in excess of a tax’s projected revenue be refunded unless voters let the government keep the money.

The increased tobacco and nicotine taxes were approved in 2020 through Proposition EE, which was placed on the ballot by Democrats in the legislature. The measure, which got the support of 68% of voters, gradually increases tobacco and nicotine taxes through 2027.

When the initiative was drafted, nonpartisan legislative staff predicted the increased taxes would generate $186.5 million in new revenue a year. But the revenue has been much higher than that — at around $208 million — which is why Proposition II was placed on the November 2023 ballot.

A similar situation played out after Coloradans legalized the sale and possession of recreational marijuana in 2012. In 2015, voters approved Proposition BB, which let the state keep recreational marijuana sales tax revenue collected above what was estimated and use the money predominantly for school construction.

How did Proposition II get on the ballot?

The legislature placed Proposition II on the ballot through the passage of House Bill 1290 this year. All 31 Republicans in the General Assembly, as well as three Democrats, voted against the legislation.

Where will the money go if Proposition II passes?

The tax rate will stay the same and the excess revenue would go toward Colorado’s existing preschool program, which this year began offering at least 10 hours a week of preschool in the year before they start kindergarten, as well as instruction for 3- and 4-year-olds with disabilities.

That program has been popular, but it’s off to a rocky start, with some school districts suing the state over funding issues and religious schools suing over nondiscrimination requirements.

The money collected through Proposition EE went to K-12 education, rural schools and housing assistance in the first three years.

What exactly will happen if Proposition II fails?

If voters reject the ballot measure, the state will have to return nearly $24 million to cigarette and nicotine wholesalers and distributors through direct refunds and temporary tax breaks.

The state would also cut nicotine and tobacco taxes by 11.53% to avoid collecting excess taxes in the future.

For context: The taxes on a pack of cigarettes under Proposition HH are currently $1.94 and set to increase to $2.64 on July 1, 2027. The tax on other tobacco and nicotine products is currently 50% and set to rise to 62% starting in July 2027.

What supporters say

Supporters contend that higher taxes on tobacco and nicotine products discourage their use. They also argue that increasing funding for Colorado’s universal preschool program will improve educational and health outcomes for the kids who benefit from the instructions.

Groups supporting the ballot measure include Healthier Colorado, the Colorado Children’s Campaign, Children’s Hospital Colorado and Great Education Colorado.

Preschool for All Coloradans, the issue committee supporting Proposition II, had raised more than $291,000 through late September and spent only about $34,000. The top donors to the group are Healthier Colorado at $90,000, Save the Children Action Network at $86,000 and Gary Advocacy at $50,000. Healthier Colorado and Save the Children Action Network are nonprofits, while Gary Advocacy is a philanthropic limited liability company affiliated with nonprofit Gary Community Ventures.

“We’ve got a huge coalition of supporters and want to make sure everyone in Colorado understands that voting yes on Prop. II will increase access to early childhood education without raising taxes,” said Craig Hughes, a partner at Hilltop Public Solutions, the political firm that is managing the Preschool for All Coloradans campaign.

What opponents say

There’s no organized opposition thus far to Proposition II.

Several conservative leaders told The Colorado Sun they are more focused on defeating Proposition HH, the 10-year property tax relief plan also on the November statewide ballot.

The Centennial Institute, a policy think tank at Colorado Christian University, sent out a ballot guide opposing both II and HH. “Colorado has enough tax dollars,” the guide said. “Any additional tax revenue collected should be returned back to the taxed individual or business.”

State Rep. Stephanie Vigil, of Colorado Springs, was one of the three Democrats who voted against House Bill 1290, the measure putting Proposition II on the November ballot. She said her “no” vote was more about the increased nicotine and tobacco taxes than letting the state keep the excess revenue generated by them.

“I had to signal my dislike for tax structures of these kinds,” Vigil said. “I pledged this to my constituency, especially my libertarian constituents, that I’m not supportive of higher taxes on tobacco products — sin taxes. I find them rather regressive and not particularly helpful in encouraging people to quit smoking.”

But Vigil, who quit smoking eight years ago, said she’ll still vote for Proposition II.