By: Barry W Poulson
May 5, 2019
Colorado has created a fiscal cliff; the state is woefully unprepared for the revenue shortfall that will accompany the next recession. Citizens might be surprised to learn that the state has been pursuing imprudent policies that will result in a fiscal crisis when the next recession hits. It is important to understand how the fiscal cliff was created and what we can do about it.
Over the past two decades, Colorado has weakened the fiscal constraints imposed by the Colorado Taxpayer Bill of Rights. TABOR limits the rate of growth in state spending to the sum of inflation plus population growth, regardless of the amount of revenue the state takes in.
But most state revenue is exempt from the TABOR limit. The exempt funds include the revenue from enterprises and the fees collected by government agencies, which have grown rapidly over this period. As a result, over the past decade TABOR has not constrained the growth in spending, and this year the state will spend virtually every dollar of revenue it takes in.
The fiscal cliff is also linked to a rapid growth in debt and unfunded liabilities. While limits are imposed on general obligation debt, there are no limits on the issuance of revenue bonds. These are bonds with a dedicated stream of revenue used to pay off the bonds over time. As state enterprises have grown they have saddled the state with greater debt burdens.
Increasing debt is also incurred in the form of unfunded liabilities. Despite the recent reforms enacted in the Public Employees Retirement Association, unfunded liabilities continue to increase. The official estimate of these unfunded liabilities is $32 billion; but with realistic assumptions regarding rates returns on assets, the actual unfunded liabilities are estimated to be in excess of $100 billion. Continue reading
Blog post by Christine Burtt
5/26/2020 – 4 minute read
Let’s face it. You can’t shut down the economy, borrow trillions of dollars to subsidize households and businesses, and cause massive unemployment in the private sector without getting seriously upside down in tax revenues.
The Colorado state budget will be about $3.3B in the hole for FY2021, and that doesn’t include deficits in county and special district budgets.
If Legislatures over the years had honored the requirement of the Taxpayer’s Bill of Rights to stash away an emergency fund, we’d have roughly $1B in cash right now. Instead of a lockbox of cash, illiquid government buildings were determined to be assets counted toward the emergency fund. Anybody have cash to buy a government building? But I digress….
In the Democrat-controlled Colorado Legislature, raising taxes is the easy answer to a budget shortfall. The short-term exercise is to reconcile what is “essential” vs “nice to have.”
In reality, government mandated services like administering food stamps, running elections, law enforcement, infrastructure, and paying public employee retirement benefits will be protected. But other programs funded for ideological wish-lists may be delayed – until they can raise taxes.
The most likely ways to raise taxes include: Continue reading
Vision 2020 Colorado, a coalition behind a tax system overhaul, tells The Sun it will move forward with a graduated income tax measure that will lower taxes for the vast majority
coalition pushing to overhaul Colorado’s tax system will not pursue a complete repeal of the Taxpayer’s Bill of Rights this year, opting instead for a ballot measure in November that would generate billions in new money with higher taxes on the wealthy.
The new initiative — which is expected to receive final legal approval Wednesday — is designed to create a more equitable tax system in Colorado by lowering the current 4.63% tax rate for households making less than $250,000 a year.
An estimated 95% of taxpayers who are below the threshold would qualify for the tax cut, which would take effect for 2021. For those who make more than $250,000, the additional earnings are taxed at a higher rate up to the maximum of 8.9% for annual taxable income over $1 million.
The organizations behind the ballot question, known collectively as Vision 2020 Colorado, expect the new graduated income tax to generate an estimated $2 billion a year in new money with at least half earmarked to increase teacher salaries and retention. The remainder would be spent at the discretion of state lawmakers.
“We know middle-income Coloradans are paying a greater share of the tax burden than the wealthy 5%, but our tax code isn’t just unfair, it’s inadequate,” said Scott Wasserman, president of the Bell Policy Center, a leading proponent of the measure. The tough decisions made by state lawmakers about how to spend the $30 billion annual budget, he added, are “a purely consequence of our state not having enough money.”
At a moment when state and local governments are already drowning in red ink, Colorado’s constitution is now projected to trigger the second-largest residential property tax cut in modern history.
Under forecasts presented Tuesday, Colorado lawmakers could be asked to cut residential property taxes by nearly 18% in 2021 to comply with a tax-limiting constitutional provision known as the Gallagher Amendment.
For homeowners, it would mean permanent financial relief at a time of rising unemployment and deep economic uncertainty. But if the cut goes through as projected, it would have cascading effects at nearly every level of government in the state, gashing the budgets of property-tax reliant fire districts, county governments and schools.
The reductions would cut total school district revenue by an estimated $491 million. About half of that gap will impact the state budget, which is constitutionally required to backfill certain school funding shortfalls, even as it faces a fiscal catastrophe of its own as sales and income tax revenue plummet. In one fell swoop, it could wipe out all the recent gains the state had made in erasing its unfunded debt to schools, formerly known as the negative factor. At the county level, statewide revenue could drop by $204 million.
The four lawmakers talked to reporters Friday about the reasons for letting go of their five-year effort to put a paid family and medical leave program into state law and why they’re backing the ballot measures.
The court orders on ballot initiatives 247 and 248 dealt with a challenge by Kelly Brough, president and CEO of the Denver Metro Chamber of Commerce, which claimed the programs proposed under the ballot measures were a tax and hence violated the provisions of the Taxpayer’s Bill of Rights, which require voter approval for any tax increase. The language of all three ballot measures do not reference TABOR requirements.
The impact of the coronavirus pandemic on the $30 billion-plus state budget begins to take shape this week as lawmakers consider massive spending cuts.
How much tax revenue Colorado will lose to the paralyzed economy remains uncertain, but the governor’s budget office is projecting $3 billion in lost revenue for the current fiscal year and the next.
The General Assembly’s budget writers on Monday will start reviewing recommendations from legislative analysts for potential spending cuts across all government agencies. The documents are expected to include scenarios for slashing budgets as much as 20% and force legislators to make hard choices that will impact most Colorado families, according to drafts reviewed by The Colorado Sun.