Colorful Commentary

Capitol Gains: Duck, Duck, Goose

Posted February 15, 2017 by Ali Mickelson

By Ali Mickelson

Director of Tax and Legislative Policy

Duck_Duck_GooseMost of us remember sitting in our elementary school gymnasium anxiously awaiting that tap on the head. Your classmate moves slowly around the circle, delicately patting hat after pigtailed head, until finally, when the of suspense had nearly engulfed you, he yells “goose!” and breaks into a sprint to secure his spot before getting tagged from behind.

So goes the game “Duck, Duck, Goose,” one we look upon fondly in memories but rarely play beyond the fifth grade. But now the Colorado General Assembly is poised to invent a new, adult version of this childhood favorite disguised as an overhaul of our state college savings plan.

House Bill 17-1007 creates a tax break for employers who contribute to an employee’s 529 CollegeInvest savings plan. This bill allows employers to take a double deduction for contributions to employees’ college savings plans while simultaneously requiring employees to pay state tax.

This policy is kind of like Duck, Duck, Goose, but with a nasty twist. Employers first “duck” their tax liability by deducting their contribution as employee compensation. Then, under the bill, they’d “duck” their tax liability on an authorized 529 contribution. Meanwhile, employees would get “goosed” with the tax on the employer contribution, as it would be considered income to the employee.

Let’s be honest. This game sucks.

Without this bill, employers can still contribute to an employee’s 529 plan. If an employer wants to contribute, they can put money into an employee’s plan and still deduct that cost as employee compensation. This bill simply creates another tax loophole that allows for the state 529 deduction in addition to the compensation deduction.

Higher education is becoming less and less affordable for Colorado families, and college savings is more important than ever. However, Colorado’s 529 program already disproportionately benefits the wealthiest Coloradans. It should be a priority of the General Assembly to help low- and middle-income families find ways to increase savings for college. But this bill is not targeted at families that most need support and instead opens the door for further inequities in our 529 program while reducing state revenue available to fund higher education.

CFI is fighting to make sure the game is fair and Colorado families don’t become a permanent goose.  We will be testifying against HB17-1007 when it goes to the House Education Committee, currently scheduled on Feb. 22. Join our fight by contacting your Legislators and asking them to vote “no” on Duck, Duck, Goose.

EITC Expansion Would Build Prosperity in Uncertain Times

Posted February 14, 2017 by Samantha Curran

By Samantha Curran 

CFI Communications Associate

Despite the current ambiguity with potential changes in federal policies that could leave millions of struggling families with less support to meet basic needs, Colorado can ensure that all working Coloradans are offered a hand up when struggling with low-wages, by expanding the state’s Earned Income Tax Credit (EITC).

The EITC is one of the most effective and sensible tools to help struggling working Americans esScreen Shot 2017-02-08 at 3.45.20 PMcape poverty.

The EITC helps working families make ends meet. Many low-wage jobs fail to provide sufficient income to get by. State EITCs reduce the taxes paid by low-income working families, allowing them to keep more of what they earn. In turn, this also allows these families to spend more of their income on the local economy.

The EITC encourages work. By offsetting income taxes for low-wage workers, this credit encourages parents to seek out employment and rewards hard work. In addition, the EITC keeps families working by helping low-wage working families pay for things like child care and transportation, which are essential to continue work.

The EITC helps working parents better meet their children’s needs. Studies show that when families with low incomes get an income boost, their young children tend to do better and go further in school. The more education a child receives and the more skills they acquire, the greater their earning potential as adults. This leads to a stronger future economy.

Colorado is one of 26 states plus the District of Columbia that have enacted their own version of the federal EITC to help low-wage working families meet basic needs. However, under current law, low-wage workers not raising children in the home and adults under the age of 25 are ineligible to receive the EITC. Former President Obama and House Speaker Paul Ryan proposed nearly identical plans to address this issue. Their proposal would expand the EITC for workers not raising children and lower the eligibility age to 21.

Colorado does not have to wait for federal action however. We can expand our state’s EITC to benefit all workers struggling to get by on low wages.

In addition to the 377,000 Colorado households that benefited from the EITC in 2014, about 12,000 Colorado veteran and military members, 62,000 Colorado workers between the ages of 21 and 24 and 24,000 low-wage workers in rural Colorado would benefit from an EITC expansion.

The EITC has been proven to help lift hard-working Coloradans out of poverty, but has the power to do much more. While we eagerly wait to see what federal policy changes will be made in the near future, Colorado can show its support for all low-wage working Coloradans, by ensuring they get the boost they need to make ends meet.

What happens when Gallagher collides with TABOR? Not good things.

Posted February 13, 2017 by Tim Hoover

We’ve made a short video explaining what has happened to funding for schools and other services in Colorado because of the collision between the Gallagher and TABOR amendments. Please take a look.

What Republican Plans for Repealing and Replacing the ACA Could Mean in Colorado

Posted February 13, 2017 by Chris Stiffler

By Chris Stiffler

CFI Economist

Republicans in Congress have vowed to make a repeal of the Affordable Care Act a top priority in 2017.  To better understand the health care debate coming in 2017, we need to understand how Obamacare changed health care policy in Colorado and just what is at risk if the ACA is repealed.

What did Obamacare do in Colorado?

ACA CoverageAs a result of the major changes from the Affordable Care Act (often referred to as Obamacare) Colorado expanded Medicaid and created a health insurance marketplace. Medicaid, which is jointly funded by state and federal dollars, provides health care to low-income individuals and children, elderly individuals and Coloradans with disabilities. Traditional Medicaid does not cover low-income adults without children. Colorado’s legislature voted to expand Medicaid in 2013 which expanded coverage to low-income adults. The ACA also created a health insurance marketplace for individuals who don’t get insurance through an employer or other means. Many Coloradans buying private insurance through the marketplace get assistance from the federal government in paying monthly premiums.

Most of the Medicaid expansion and much of marketplace is supported by federal dollars

The Medicaid expansion population is mostly funded by federal dollars. In 2017, federal dollars will pick up 95 percent of the expansion costs and the other 5 percent will be funded through a mechanism called the Hospital Provider Fee (a fee paid by Colorado hospitals to the state which then generates federal matching funds). No dollars from Colorado’s General Fund are used to pay for the Medicaid expansion. This means that rolling back the Medicaid expansion would not free up additional state dollars to pay for other important priorities like schools, roads or colleges.

The federal match ratio steps down until the federal government pays for 90 percent of the cost in 2020.[1] This is a significant amount of funding that flows through Colorado health care facilities and local economies.[2] All those federal dollars represent a huge injection of economic activity into Colorado. It is estimated that more than 31,000 jobs in Colorado were created because of the expansion of Medicaid and the large injection of federal dollars into Colorado.

Coloradans buying private health insurance through the marketplace also get a chunk of change from the federal government via the individual subsidies. Currently, the federal government provides subsidies to individuals below 400 percent of the federal poverty line to help offset the cost of their monthly premiums. In 2016, Coloradans who enrolled in the marketplace received an average premium tax credit of $318.[3] Nationwide, statistics show that the federal credit covers 73 percent of the total monthly premiums for comprehensive coverage.

What does this mean for health equity in Colorado?

The marketplace and the Medicaid Expansion could be in jeopardy if federal funding is cut. Last year 324,000 adults enrolled in Medicaid because of the expansion. Many of these adults are working in low-wage jobs that don’t pay enough to boost them above the poverty thresholds for Medicaid. Without the several billion dollars of federal dollars to flow into Colorado to pay for the expansion population, many will lose health insurance. Pulling back the Medicaid expansion and eliminating the federal subsidies in the marketplace would cause the uninsured rate to double in Colorado to more than 1 million people.

That’s almost one in five Coloradans.

It’s projected that the Republican alternative to the ACA would create an insurance market very welcoming to young, healthy and upper-income people while being less welcoming to sicker, older and low-income individuals. For instance, there are currently mandates for insurers to include a standard package of benefits for each health care policy. Eliminating those mandates would allow younger/healthier people to buy cheaper plans while simultaneously making those benefits more expensive for those who need them. There are also limits on how much insurers can charge their oldest enrollees compared to the youngest. If those limits are removed, it would make private insurance more expensive for older enrollees and less expensive for the young.

The bottom line

Years of work by advocates to expand Medicaid to low-income Coloradans and to lower the rate of uninsured are now in jeopardy of being reversed substantially. As the year begins, here are some important things to watch for:

  • Before March, Congress is likely to enact some repeal of Obamacare.
  • A replacement could include block granting Medicaid, reducing the expansion match rate from the current 90 percent to a 50 percent match or completely eliminating federal support for expanded Medicaid.
  • Federal subsidies for moderate-income Coloradans to buy insurance could be rolled back or eliminated.
  • By May, insurers must submit bids to participate in Colorado’s marketplace. Depending on what happens to Obamacare, insurers may choose not to enter the marketplace, potentially driving up premiums due to less competition.

Check out our quarterly publication called Health Divides, to learn more about equity and economics in health care.

[1] See the Colorado Health Institute’s analysis on the Medicaid expansion:

[2] See The Colorado Health Foundation’s report:


Why limiting revenue based on inflation plus population is dumb

Posted February 8, 2017 by Carol Hedges

Limiting Colorado’s revenue by the rate of consumer inflation and population growth sounds kind of economicky, right? We explain in three minutes why it’s not.

Capitol Gains: Your side of the bucket

Posted February 3, 2017 by Ali Mickelson

By Ali Mickelson

CFI Director of Tax and Legislative Policy

Colorado Capitol 1Should businesses get a tax cut at the expense of rural schools? Most people would probably say no, but believe it or not, this question seems to be debated every year in the Colorado Capitol.

The 2017 legislative session has begun and there has already been a revival of many ideas that we have seen in the past. One such idea is an expansion of the exemption from the business personal property tax. HB17-1063 and SB17-009 both mirror bills CFI has opposed in the past. They increase the exemption from business personal property tax from its current amount $7,300.

As one business lobbyist pointed out in a hearing for these bills, the “play” featuring the business personal property tax debate has been put on every year, it’s just the cast of characters that has changed. CFI may not have been in the original cast, but we have certainly landed a recurring role.

And, spoiler alert, this year’s production will end the same way previous ones have, because our stance hasn’t changed.

The business personal property tax is paid by companies that own personal property, including equipment, machinery, pipelines, wells and furniture. It is an inequitable tax that is largely paid by larger, capital-intensive businesses.

However, this tax, like other property taxes, goes to fund local schools and governments. In some rural counties in Colorado, the BPPT provides more than half of the local funding. So when we talk about reducing the amount of business personal property tax paid, we are really talking about reducing the amount of money available for mostly rural schools, fire districts, water districts, cities and counties.

Because of TABOR, we can’t simply cut the business personal property tax and then swap it out with another tax to raise the same amount of revenue.

As was also pointed out in a committee hearing, the reduction in property taxes for schools will require additional state funding to offset the impact of the local funding reduction. This backfill takes money out of a budget that is already out of balance and facing cuts in a variety of areas, including K-12 education.

Anyone who argues that there’s no harm done by cutting the BPPT because rural schools would simply have their budgets backfilled by the state needs to remember the words of Sen. Fred Thompson, himself also a noted thespian, “They say they’re not going to take any water out of your side of the bucket, just the other side of the bucket!”

Also, while there is no question that the BPPT impacts business’s bottom line, reducing revenue to state and local governments also negatively impacts small business. If our legislators continue to chip away at our revenue system, small business, especially those located in rural communities, will no longer have funding for the roads that they drive on and use to transport their products, for the schools that create the next business leaders, employees and consumers, or for the myriad of other services that businesses depend on to operate.

The reality is nearly everyone agrees that the BPPT isn’t ideal, but they also agree that we shouldn’t strip funding from rural schools and roads. Deciding between these two options is exactly what is wrong with our current tax structure. There is no balance when we have to decide between supporting small business or supporting schools.

That is why we believe that we can’t look at the BPPT in a silo — it must be included as part of a larger discussion about how we want to fund our public investments. Colorado needs to consider comprehensive tax reform.

Without taking a complete look at our revenue and tax system in Colorado, we will continue to stage the same play year after year, saying the same lines each time. It is time we stop with business as usual when evaluating BPPT and start taking a new, comprehensive look at how we fund our communities to ensure they thrive.

The current show must not go on.

You know what’s not nonessential? Facts.

Posted January 30, 2017 by Tim Hoover

By Tim Hoover

CFI Communications Director

Pizza box

It’s not pizza. It’s an “alternative Hot Pocket.”

Sometimes in committee hearings at the Colorado Capitol, something gets said that goes unchecked, and the “alternative facts” snowball over the course of a few days into something so large, it is accepted as the truth.

So it was during a hearing of the House State Affairs Committee last Thursday, when the committee considered HB17-1009, a bill to restore a sales tax exemption for “nonessential” food-related items restaurants buy, such as paper napkins, plastic utensils, pizza boxes, condiments and so on. Lawmakers in 2010, faced with an epic budget shortfall, removed the sales tax exemption, which generates about $800,000 a year in revenue.

The House State Affairs committee rejected the bill on a party-line vote, with Democrats voting against it and Republicans for it. (Full disclosure: The Colorado Fiscal Institute testified against the bill, saying the state could ill afford to erode its revenue base when it is facing a shortfall for K-12 funding and middle class families struggle to afford to pay for higher education.)

As reported by The Denver Post, a witness testifying for the Colorado Restaurant Association told the committee that paying the tax costs some restaurants between $5,000 and $7,000 per year.  The obvious implication was that these are significant costs for restaurants that make it harder for them to keep their doors open.

If that wasn’t clear, a partisan blog picked up the line and repeated it, twisting the attribution away from the witness and saying, “According to the Post, this tax costs a typical restaurant $5,000 to $7,000 per year. That’s a significant number for a small business.”

But let’s slow this down a second and work it out.

A restaurant is spending between $5,000 and $7,000 per year paying these sales taxes? A “typical restaurant” is spending this much?

OK, taking the average of the two numbers, that’s $6,000 a year in taxes. But since the tax only brings in about $800,000 a year, that would mean Colorado has a total of 133 restaurants. Even the restaurant association says there are nearly 100 times that many establishments in the state.

Obviously, that’s not right. So, maybe it’s just a handful of restaurants spending that much?

Let’s just say, for example, that a restaurant was paying $5,800 a year in sales taxes, on the low end of the estimate. Let’s assume they’re paying those taxes on styrofoam containers, the kind of “doggy bag” boxes you take leftovers home in.

An online check of prices shows that the restaurant would be spending $200,000 a year on these containers, purchasing 2.7 million of them.

Now, that’s a lot of Cheddar Bay Biscuits.

Maybe there is a very large restaurant, or a chain of restaurants, that’s spending this kind of money on such items, but a “typical” restaurant? Probably not.

The Oxford English Dictionary now defines “post-truth” as “relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief.”

But we find “alternative facts” just give us indigestion.


Federal Budget Watch, Jan. 27

Posted January 30, 2017 by Samantha Curran

By Samantha Curran

CFI Communications Associatebinoculars-954021_1280

Federal Budget Watch was on hold for a bit given the inauguration, and then a flurry of quickly changing budget developments began. So, with the latest D.C. intel from our colleagues at the Center on Budget and Policy Priorities, let’s get to it.

Things are moving fast and furious now that President Trump has officially taken office. This week’s Federal Budget Watch discuses important information regarding Republican plans to replace the Affordable Care Act.

House and Senate Republicans are holding a joint retreat this week in Philadelphia to discuss policy priorities and legislative plans for the 115th Congress. Speaker Ryan announced that the top three priorities for the next few months are ACA “repeal and replace,” building the wall and tax reform.

House Energy and Commerce Chairman Greg Walden said he doesn’t expect to come out of the retreat with an ACA replacement plan ready. He said many details of the plan will be worked out over months of committee hearings and debate.

This is further evidence that the timetable on the key ACA repeal vote is slipping in both the House and Senate. Republican leaders appear intent to pass that bill by the April district work period recess and they expect the House committees will have their ACA replacement reconciliation bill ready for a vote by the end of February.

Although there are no concrete details for what the ACA replacement plan will look like, there are a few important implications that may have an impact in shaping Republicans’ replacement policies.

This week, Rep. Tom Price (R-GA), President Trump’s nominee to be Secretary of Health and Human Services, appeared before the Senate Finance Committee. While he was mostly vague on ACA replacement policies, he did push for states to get more flexibility in Medicaid. Rep. Price also refused to promise that no one would lose coverage from President Trump’s executive order related to the ACA.

In addition, Senators Cassidy (R-LA) and Collins (R-ME) unveiled an ACA replacement plan, the “Patient Freedom Act,” earlier this week. Here is the legislative text and a one-page summary.

The Center on Budget and Policies Priorities blog, Senators’ ACA Replacement Won’t Likely Give States, Patients the Choices They Seek, notes that “the Cassidy-Collins plan would likely leave many millions who now rely on ACA health coverage, especially those with low incomes and pre-existing health conditions, uninsured or going without needed care. That’s partly because the bill punts major decisions about how to respond to ACA repeal to the states but then scales back the federal support available to cover people.”

Senator Rand Paul also released a plan yesterday, which our friends from The Center are currently analyzing. Neither of these bills will move forward, but they may have an important impact on the policy decisions made.

To gather more information on the various GOP health proposals, including what the proposals do, what they’ll say, how the proposals fall short and how they differ from the ACA, see The Center’s “False Promises Primer” matrix.

Governors’ Action on ACA Repeal

The National Governors Association Chair McAuliffe and Vice Chair Sandoval sent a letter to Congressional leaders in response to a request for feedback from the Governors. The letter contains some very useful language in responding to proposals for a Medicaid block grant or per capita cap.

Of particular note:

  • Support for vulnerable populations is a shared responsibility between the federal government and the states. In considering changes to Medicaid financing, it is critical that Congress continue to maintain a meaningful federal role in this partnership and does not shift costs to states. This includes the need for continued financial and programmatic flexibility to innovate and improve the efficiency of our Medicaid programs through new and existing health care transformation initiatives.
  • Any reform proposal should protect states from unforeseen financial risks – such as the recent economic downturn or higher costs due to new drugs, treatment or epidemics – that could result in a spike in Medicaid enrollment or increased per-beneficiary costs. Congress should also recognize and leverage the technological and administrative advancements already made and paid for under the ACA.

ACA Repeal Would Have Significant Consequences

Nearly 30 million adults and children would lose coverage by 2019 if the new Republican majority repeals the Affordable Care Act (ACA). The Urban Institute’s state fact sheets breakdown this data by income, age, employment status, race and education.

Public pressure is mounting on Republicans to have a comprehensive replacement plan in place to ensure no one loses coverage and the critical protections of the ACA remain intact, before a repeal vote happens. “Repeal and promise” or “repeal and delay” would have immediate and disastrous consequences, based on a report from the Urban Institute.

In addition, the 400 highest-income taxpayers each would receive an average annual tax cut of about $7 million if the ACA’s taxes used to finance the coverage expansions were repealed, while about 7 million low- and moderate-income families would see their taxes raised, according to The Center’s new analysis.

The tax cut for the wealthy would come from repealing the ACA’s increase in Medicare taxes for individuals with incomes above $200,000 a year, and households with incomes above $250,000. The 400 highest-income taxpayers would receive a total tax cut of $2.8 billion a year, while 160 million households with incomes below $200,000 would get nothing. The $2.8 billion is roughly the value of the premium tax credits that would be taken away from 813,000 people in the 20 smallest states and Washington, DC under repeal.

For more resources around the ACA and repeal efforts, visit the Center’s Heath page.

Contact info for Colorado congressional delegation:

Sen. Cory Gardner – 303-391-5777 Email here.
Sen. Michael Bennet – 303-455-7600 / 866-455-9866 Email here.
Rep. Diana DeGette (CO District 1) – 303-844-4988 Email here.
Rep. Jared Polis (CO District 2- 303-484-9596 ) Email here.
Rep. Scott Tipton (CO District 3)- 970-241-2499 Email here.
Rep. Ken Buck (CO District 4)- 970-702-2136 Email here.
Rep. Doug Lamborn (CO District 5)- 719-520-0055 Email here.
Rep. Mike Coffman (CO District 6)- 720-748-7514 Email here.
Rep. Ed Perlmutter (CO District 7) – 303-274-7944 Email here.

Federal Budget Watch, Jan. 9-13

Posted January 9, 2017 by Tim Hoover

By Tim Hoover

CFI Director of Communications

binoculars-954021_1280This Monday, we’re going to start with some important background information provided by our friends at the Center on Budget and Policy Priorities.

The budget resolution the Senate is considering has one primary purpose: to initiate and facilitate the “budget reconciliation” process so that House and Senate Republicans can repeal major parts of the Affordable Care Act (ACA) without having to overcome a filibuster. The resolution also includes provisions to overcome certain procedural hurdles that the repeal bill and an eventual replacement bill might face.

The budget reconciliation process allows the Senate to approve certain budget-related legislation by a simple majority vote, with no opportunity for filibuster. To trigger the reconciliation process, Congress must first agree to a budget resolution containing reconciliation directives, as this resolution does. Importantly, a budget resolution likewise cannot be filibustered. (Reconciliation directives are optional and many past budget resolutions have not included them.)

This particular budget resolution doesn’t reflect any actual budget plans, but rather simply sets spending and revenues at levels the Congressional Budget Office (CBO) estimates would occur if existing budget law and policy continues unchanged through 2026. The resolution’s dollar levels do not even incorporate the projected effects of repealing the ACA or enacting any replacement. In short, the measure is nothing but an empty shell that meets the form of a budget resolution but exists solely to contain the instructions that will start the reconciliation process.

Its reconciliation instructions are very simple — in keeping with the usual practice. They merely direct four relevant committees (the Senate Finance and Senate Health, Education, Labor, & Pension committees and the House Ways & Means and House Energy & Commerce committees) to report legislation by Jan. 27 making changes to laws within their jurisdiction sufficient to reduce the deficit by at least $1 billion over 10 years.

As is customary, the instructions do not specify the changes to be made, but they are universally understood to involve repeal of substantial parts of the ACA. The savings targets bear no relationship to the budget effects of repealing the ACA but rather are merely placeholders. There are no rules against exceeding those minimal targets, and the reconciliation bill that actually repeals the ACA is likely to produce considerably more deficit reduction.

Once both the Senate and House have agreed to this budget resolution, the two House committees receiving reconciliation instructions will hold markups and produce the actual legislation to repeal the ACA.

They will then submit their legislation to the House Budget Committee to be combined into a single package for consideration by the full House. The Senate committees would normally use an analogous process, but it’s widely expected that the Senate will simply consider whatever reconciliation legislation passes the House rather than creating their own version in the health committees.

The resolution also contains provisions called “reserve funds.” They help avoid various points of order that might otherwise apply because of the mismatch between the numbers in the budget resolution and the policy of ACA repeal. And they also promote a policy that all but $2 billion of the 10-year savings from the initial repeal of the ACA should remain available to help offset the costs of subsequent legislation carrying whatever ACA replacement the Congress is able to design.

Preliminary timeline:

• Congress passes budget resolution for FY17 as first step to repealing the ACA
• House moves first reconciliation bill to repeal the ACA with a delay
• Senate starts process of considering Trump cabinet nominations

• Senate takes up House-passed ACA repeal bill; tries to pass by February recess
• Trump releases preliminary budget document/outline of budget plan
• Work may resume on the FY 2017 appropriations bills before the Continuing resolution (CR) expires on April 28
• Late March, House and Senate could start process on FY 18 budget resolution and try to get a budget conference agreement with a new set of reconciliation instructions by the April recess
• Process on second reconciliation bill begins in the House; tax reform and entitlement cuts?

• Congress must pass final FY17 approps bills or a CR thru the end of the year
• Appropriations process gets underway for FY 2018
• Continued work/negotiations on ACA replacement?

• 2nd reconciliation bill moves in the Senate
• Debt ceiling must be raised (could be included in the 2nd reconciliation bill)
• Action on ACA replacement?

Follow this link for a state-by-state analysis of the job loss associated with repealing the ACA as well as the economic impacts.

Sign up for a #ProtectOurCare rally.

In Denver.
In Greeley.

Contact info for Colorado congressional delegation:

Sen. Cory Gardner – 303-391-5777 Email here.
Sen. Michael Bennet – 303-455-7600 / 866-455-9866 Email here.
Rep. Diana DeGette (CO District 1) – 303-844-4988 Email here.
Rep. Jared Polis (CO District 2- 303-484-9596 ) Email here.
Rep. Scott Tipton (CO District 3)- 970-241-2499 Email here.
Rep. Ken Buck (CO District 4)- 970-702-2136 Email here.
Rep. Doug Lamborn (CO District 5)- 719-520-0055 Email here.
Rep. Mike Coffman (CO District 6)- 720-748-7514 Email here.
Rep. Ed Perlmutter (CO District 7) – 303-274-7944 Email here.

Five Takeaways from the December Revenue Forecast: One Month Later and $100 Million Shorter

Posted December 20, 2016 by Chris Stiffler

By Chris Stiffler

CFI Economist
monthlateThe legislature must find an additional $100 million in cuts based on today’s revenue estimates. When the governor introduced his budget in November, we learned revenue was $500 million short of continuing current commitments, now it appears to be $600 million short.

Below are five takeaways from the December revenue estimates that will hopefully clarify the budget shortfall legislators must deal with when they convene in January.

Large cuts expected in FY 2017-2018 

There’s not enough new revenue for next year’s budget to cover the cost of maintaining current obligations for schools, health care and transportation. Something will have to give — school funding, Medicaid spending, reserve balances, taxpayer rebates or transportation funding will have to be reduced by about $600 million in order to comply with the constitutional mandate for a balanced budget.

Residential property tax reductions exacerbate the General Fund shortfall

Constitutional tax code provisions require a reduction in the amount of residential property subject to local property taxes. This constitutionally required reduction in residential property tax collections means $178 million more in state funding is needed to fund schools. Colorado’s Constitution requires the state maintain a consistent ratio between the share of property taxes collected from homes and the share of property taxes collected from commercial property. Because housing values grew faster than the value of other property, the portion of the value of homes that is taxed (called the residential assessment rate) must fall. It’s expected to decrease from the current rate of 7.96 percent to 6.85 percent in 2017.

This reduction is particularly challenging since the rate is already lower than it should be to meet constitutional requirements. The residential assessment rate should have been set at 9.13 percent in 2013 and 2014 and 8.24 percent for 2015 and 2016. However, the rate can’t be raised by the legislature without a vote of the people. Unfortunately, for all the priorities funded from the state General Fund, the legislature can lower the assessment rate but can’t increase it. So, basically, schools can’t benefit from the increase in home values, and instead this places a larger burden on the General Fund to backfill school funding as local property tax bases are eroded.

More cuts to schools expected next year

Schools will require $381 million from the General Fund in FY 2017-18 to maintain the current per pupil funding amount. Of this $381 million obligation from the General Fund, $178 million is the result of changes in expectations for the local share because of the falling residential assessment rate, explained above. Given the projected General Fund collections, schools should expect more cuts.

Rebounding cash funds driving the TABOR rebates

TABOR sets a limit on the amount of taxes and fees the state can collect in a given year, with the exception of fees that are “enterprised” and not counted against the limit. If tax and fee revenue exceeds the cap, then rebates must be paid to taxpayers. What further complicates budgeting is when increased fee revenue results in rebates. This happens because the rebates are not paid from the growing cash fund revenue but from the General Fund revenue that is not growing as fast.

This situation is contributing to the challenges for next year’s budget as rebounding severance taxes (counted as fees for TABOR purposes) and hospital provider fee dollars will force larger TABOR rebates. Further increasing the demand for General Fund dollars, TABOR rebates projected for FY 2017-18 are 2.5 percent of the General Fund, which is less than the 3 percent of the General Fund level that would eliminate automatic transfers to roads and capital construction.

TABOR Rebates in 2017: Feast for some, famine for most

Lawmakers will most likely reduce spending for roads and schools because they are obligated to return $256.5 million to taxpayers in the form of TABOR rebates. Because the TABOR rebate amount is large enough, most of the money will, without a change in law, be returned via a reduction in the state income tax rate. These rebates will provide the greatest benefits to the wealthiest Coloradans and very little benefit to low-income Coloradans. In fact, the reduction in the income tax rate will mean more than $500 to Coloradans at the upper end while only about $14 for nearly the entire bottom half of earners in the state.

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