"Fantastic," says Sean Paige of the financial crunch that is slowly throttling public services in Colorado Springs. "I welcome it." Never mind that a third of the street lights have been dark since February and the citizenry may soon be asked to take their own lawn mowers to city parks to trim the grass.

Energised would best describe the state of mind of Mr Paige, who serves on the nine-member city council. Across the road from where we are drinking our over-sweetened fizzy drinks, a crowd of 2,000 Tea Party supporters has gathered to protest "big government" in America and the taxes they pay to fund it. (It is Tax Day in the US when the whole country files its tax returns.) Paige flashes a handsome smile; his kind of people.

While cities across the US are struggling with diminished tax receipts and the ugly task of paring budgets, the situation is already much worse here in Colorado Springs. Or better, depending on your point of view. Because there are people here, Mr Paige among them, who think that the drying up of city coffers, while painful for a few, offers a broader opportunity. It's time to get public servants out of public services. It is not unimportant that this town is home to Douglas Bruce, the gnarly hero of the small government movement here and author of Tabor – the taxpayer's bill of rights that was written into law in Colorado and many of its municipalities more than a decade ago. It cripples public finances by forcing politicians to seek popular approval each and every time they want to expand taxes. It also includes a mechanism whereby they must return money to taxpayers if ever they start to run to big a budget surplus.

Mr Paige strides into the throng of Tea Party protestors to hand out flyers for a "Freedom Festival" he is planning for next month that will bring together small-government advocates from across the region. He contends that it is the perfect time for the city to get out of running things like parks, pools and community centres – he believes the private sector, charities and churches will do it better for less money.

This is what some are already calling the "Grand Experiment" of Colorado Springs, which is expected to face a revenue shortfall this year of about $28m (£18m) or 10 per cent of its whole budget, brought about in part by the recession and also by the strangulating effects of the Tabor laws. But if this experiment is to be embraced and pursued, then the question arises: how far should it be taken?

It is not just about lights and lawns. Buses no longer run at weekends or at night; services at community centres have been drastically reduced; at least two of the city's six pools will be closed. The police department's two helicopters have been pawned off on eBay. In the new spirit of volunteerism, taxi drivers must double up as amateur cops watching for crooks while traditional police patrols are trimmed.

"We are engaged in an experiment here whether we like it or not," says David Munger, a consultant and lobbyist who is on a committee examining a possible sale of the municipal hospital to raise cash. "It seems we are trying to find out how little government is enough government."

Never one to hold back, Mr Bruce, 62, thinks he has the answer. "If we cut the city budget in half, that might be a reasonable amount," he said in an interview. Rather than applauding the council, he derides its efforts at cuts. "It's like performing liposuction on a whale with a teaspoon," he says. In a variation on the old joke, he says it took four city employees to turn off each of the darkened street lamps.

Mr Bruce, who whips from his shirt pocket a copy of the US Constitution signed by Clarence Thomas, the conservative Supreme Court Justice, is unconcerned about service cuts. The city's four community centres, which faced closure until the Council at the 11th hour scraped together a lifeline subsidy to last them the rest of this year, are, he says, "a bunch of parasites". They inflate the numbers of residents – the poor, the old and the young – who rely on them, he says. "It's the same with the buses. They are used by 1 per cent of the people. It would be cheaper to buy them all cars." Not that he would, of course.

While Mr Bruce does not advocating shuttering government entirely – "I am not an anarchist" – he equates taxation to oppression. And like many radical conservatives here he indulges in hyper-ventilated comparisons with Communism, Marxism and what he takes to calling the S-word to protect the sensibilities of a visiting reporter – socialism. "I have a book at home where it says, 'Thou shalt not steal.' The government is stealing from us to redistribute the wealth and that is a key component of the Communist manifesto. Taking money from one group and giving it to another – I call that stealing."

Paige, who faces re-election next April, cannot afford to be as ideological or as cold when it comes to the cuts. He claims to believe in the capacity of do-gooders and the private sector to "step up" to replace the safety net. "No doubt the cuts will fall far harder on lower income people," he admits. "That doesn't mean we can't find partnerships to fill the gaps. There are a lot of affluent people in this town."

Not everyone is convinced, however. "This is just not sustainable," argues local philanthropist and former council member Mary Ellen McNally. She notes that an attempt by the council last autumn fractionally to raise property taxes, historically low in the city compared to others in the US, was roundly thwarted by the voters. She doesn't buy the private sector-charities argument. "The people in Colorado Springs are going to have to realise that if you want services you have to pay taxes to pay for them. We are at a tipping point here. We have to get people to pay taxes or things are going to continue to deteriorate."

Just as sceptical is Brian Kates, a 38-year-old transplant from Boston who, as a city employee, runs the Meadows Park Community Center, located in a small converted shopping mall in a part of town that boasts modest, one-floor bungalow homes, not mountain-view mansions. After cutting his budget by more than 50 per cent, he has now been told to find a way to sustain its services without city help by the start of next year. It may or may not happen. The situation infuriates him.

"I feel like a peacock in a herd of penguins," Mr Kates says of what's going on in Colorado Springs. "Where I come from it's not a question of 'Do I personally need this service, it's 'What kind of community do I want to participate in.' Pay the taxes, spread the wealth, don't keep score. It's not about 'How am I doing and what services am I personally going to use?' Some call this a selfish approach and others call it fiscal responsibility, depending on which end of the spectrum you are on."

The people most hurt by the cuts – the people who patronise his centre – already feel too disenfranchised to speak up or try to resist, Mr Kates explains. Meanwhile, there aren't enough other people in the community willing to get angry. Take Tomm Mitchel, who has come to the anti-tax rally in the city's tiny downtown Acacia Park to hear the messages about small government and oppression through taxation. As a resident of the city – he works nights in a warehouse in Denver – is he angry about the service cuts?

"I have no problem with them at all," Mr Mitchel, 42, replies without pause. "They could close down the parks, I am not that interested in them." That said, he has joined a citizens' volunteer group taking over the job of emptying the rubbish bins in the parks.

The apparent equanimity of the wider population in the face of the service evisceration – some voters wrote to the council asking that more street lights be extinguished on environmental grounds – may partly have to do with where the city is and the old frontier history of the American West, Mr Kates suggests. "It's the old mentality of lift yourself by your boot straps and 'I am going to be self-sufficient,' and that's really how it was in the Western states in the beginning."

Sipping his drink at the King Chef diner near City Hall, Mr Paige would not disagree. "This is the perfect city to be doing this kind of thing, because we have a tradition of giving and philanthropy and volunteerism," he suggests. Indeed he thinks that Colorado Springs is creating a new model for cutting government and privatising services that cities across the country will eventually follow.

"I am personally optimistic about where we are going to end up," says Mr Munger, whose formal job title is President of the Council of Neighbours and Organisations. "It's going to look like that something that of course wouldn't fly in cities like Boston or Cleveland say, but it's going to work here." He hopes.

Colorado Springs: How services have been cut

*One third of the Colorado Springs' 24,512 street lights were turned off earlier this year to save around $1.245m. Residents can adopt a streetlight if they pay $100 a year.

*To relieve the overstretched police force, the aptly named Cabs on Patrol programme asks 150 taxi drivers to report any crime or suspicious activity seen while driving around the city.

*Park budgets have been slashed by 75 per cent. Grass is mown monthly instead of weekly, bins have been removed so authorities do not need to pay for rubbish to be collected and public toilets have been closed.

*Nine city buses were sold and services no longer operate on evenings or weekends.