When it comes to growing government, “where there’s a will, there’s a way” is more than an adage. When one fiscal door closes, officials look for another way to avoid direct accountability.
One approach has become particularly pernicious: off-budget enterprises (OBEs), nominally private entities that provide public services and are funded by compulsory, government-created revenue streams. After the tax revolts of the 1970s, state and local officials shifted activity into these important but little-noticed vehicles. The practice continues today in states from Colorado to New Hampshire. Transparency around and reform to OBEs is a critical way to rein in ballooning spending.
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Traditionally, OBEs have been used to build infrastructure—for example, the New York Metropolitan Transportation Authority or the Indianapolis Local Public Improvement Bond Bank. On paper, such entities are financially independent, avoiding ordinary scrutiny and authorized to issue revenue bonds without direct voter approval. But many are subsidized by other government units when user charges fail to cover costs. That lets officials expand activity, obscure costs, and create constituencies with a direct interest in continued public support.
The same logic applies beyond infrastructure. Governments can, for example, regulate private intermediaries and require money to flow directly to designated programs or enterprises, keeping both revenue and spending off the official ledger while citizens still pay. One example is the Chicago Transit Authority, which relies on fare revenue as well as transfers from federal, state, and local governments.
State and local policymakers consistently use OBEs to circumvent fiscal restraints. Colorado’s Taxpayer Bill of Rights (TABOR) is one of the strongest enacted fiscal rules in the country, constraining taxation and spending. Colorado’s state enterprises, however, can operate outside TABOR’s main limits, collect user-fee revenue, and still receive taxpayer support. The Colorado Legislative Council Staff reports that more than 30 state entities have held enterprise status since TABOR took effect, with enterprise revenue rising from $742.3 million in FY 1993–94 to $23.3 billion in FY 2022–23. The most revealing example is the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE), an enterprise that expands public health spending by collecting health-care fees to draw federal matching funds for hospital reimbursements, indigent care, and Medicaid expansion populations. CHASE collected $5.1 billion in FY 2022–23 and $24.2 billion cumulatively since its creation in 2017, which translates into higher health-care costs on Coloradans. The problem is large enough that Colorado voters may again be asked to tighten the rules: a proposed 2025–26 constitutional initiative would require statewide voter approval for new state enterprises projected to collect more than $100 million in fees and surcharges during their first five fiscal years. The state enterprises operating outside of TABOR have become so large that this loophole requires its own guardrails.
For another example, consider New Hampshire’s Senate Bill 498. The proposal has been framed as a children’s mental-health measure—a laudable goal. As proposed, it would fund intensive in-home services, structured outpatient programs, care coordination, family and peer support, and wraparound-style services for children with complex needs.
To pay for all this, the policy would create the New Hampshire Children’s Behavioral Health Association, a nonprofit corporation made up of the insurers and health-plan administrators that the state would require to fund the program. The association would collect a state-mandated charge (labeled as an “assessment”) levied on health-care revenues from insurers and plan administrators to fund covered services. Those fees would inevitably come out of the pocket of taxpayers, however indirectly.
Though it doesn’t look quite like a traditional OBE, the CBHA’s fiscal logic is familiar. Government creates or authorizes a compulsory payment stream, routes money through an entity outside normal appropriations, and leaves citizens to bear costs that don’t appear as straightforward tax increases.
The benefits are concentrated among providers, care-management entities, program administrators, and families who use the services. The costs are dispersed across employers, workers, and policyholders. Those who benefit have reason to organize. Those who pay face smaller, harder-to-trace costs.
The program’s design reinforces the concern. The formula for calculating assessments includes estimated non-federal program costs, operating costs, working-capital reserves, and a reserve of up to 10 percent for unanticipated expenses. The CBHA’s board would also be able to impose interim assessments for new services or funding shortfalls.
All of these costs are, in the words of the state legislature’s fiscal note, “indeterminable.” If program costs rise, assessments can rise. If administrative costs rise, assessments can rise. If service categories expand, the financing mechanism would already be in place. The mechanism is better suited to accommodate expansion than to force prioritization—increasing indirect taxation along the way.
The Colorado lesson is that fiscal rules must be paired with limits on government’s ability to shift costs outside the budget. Otherwise, politicians will substitute regulations, fees, mandates, and assessments for taxes and appropriations. As a result, spending is constrained on paper, yet citizens still pay through compulsory private channels. Any solution must make the full public burden visible.
States could start by publishing unified financial statements that account for off-budget enterprises and mandate-financed obligations. If government creates the obligation, directs revenue, enforces payment, or stands behind the entity when user charges fall short, voters should be able to see the cost.
Broader regulatory reform can also help rein in OBEs. Regulatory budgets and sunset provisions would make it harder for officials to accomplish through mandate what would otherwise require direct public spending.
Government adapts to fiscal constraints. Whether the vehicle is an authority, enterprise, nonprofit, or regulatory mandate, the common feature remains the same: public obligations expand while voters struggle to see the bill.