The 2015 legislative session began with Gov. John Hickenlooper touting the state’s economic successes. It may end with him lamenting the economic problems that couldn’t be solved.
Last week, the governor sent lawmakers a letter, suggesting how they could resolve contradictory fiscal laws that limit the state’s ability to fund certain infrastructure priorities.
The problems? Not enough money for transportation projects, especially repairs to roads and bridges, with an estimated cost of $3.5 billion. And K-12 education is still almost $1 billion short of its Amendment 23-required levels. At the same time, the state is poised to start sending hundreds of millions of dollars back to residents through refunds required by the Taxpayer’s Bill of Rights (TABOR).
In the letter, the governor laid the blame on two laws from 2009. On the revenue side is the hospital provider fee, which the governor criticizes for pushing state revenue above TABOR limits and forcing refunds. The fee is expected to bring in $532.3 million in this fiscal year. In 2015-16, that grows to $688.5 million, according to Hickenlooper’s letter.
The fee counts as cash fund revenue under TABOR, and wasn’t anticipated when revenue caps were set in 2007-08.
On the spending side is another 2009 law, Senate Bill 09-228, which requires the state to devote more than a hundred million dollars a year to transportation and capital construction funding in years when certain economic triggers are met. But those transfers are cut in half or eliminated entirely when a TABOR refund also is required.
Hickenlooper believes he can fix both problems by converting the hospital provider fee from a cash fund to an enterprise. That technical change would remove the money from TABOR calculations, dropping state revenues below the refund cap for the foreseeable future.
To qualify as an enterprise, a designation under TABOR, the program must be an independent, self-supporting government entity that receives income, fees and revenues directly tied to goods or services it provides. The entity can be owned by the government but must be financially distinct from it. Hickenlooper claims that because the hospital provider fees are earmarked only for health care, they qualify as a fee, not a tax.
If the hospital fee is converted to an enterprise, Hickenlooper sees several benefits:
• Transportation funding could increase to $215 million in the 2016-17 budget;
• The state could make more progress on paying down the so-called “negative factor,” the shortfall in K-12 funding left over from the recent recession. The letter suggests that could add up to $50 million in 2016-17; and
• Repay a $20 million raid on the severance tax fund, which the General Assembly tapped to balance the 2015-16 budget. Lawmakers took another $75 million from the hospital provider fee fund for the budget; those dollars should also be repaid, according to the governor.
Hickenlooper doesn’t want the enterprise funds switch to happen right away though. He’s asking the legislature to put off its implementation until 2017, keeping the full TABOR surplus in place for the next two years, to pay for the TABOR refunds. Refunds would also be used to trigger a permanent state Earned Income Tax Credit (EITC), which goes to low- and moderate-income families through their tax returns.
Not surprisingly, views on the plan among legislative leadership was divided along party lines, with Republicans either against or skeptical, and Democrats supportive, if not enthusiastic.
Speaker of the House Dickey Lee Hullinghorst, D-Boulder, told reporters Tuesday that she is ready to work on the proposal, but fears other legislators are not. “We’re talking about the ability to invest in transportation and education that we aren’t able to do if we can’t deal with the TABOR cap on revenues.”
Hullinghorst said she hears from constituents that they would prefer to investment in those things over a TABOR refund.
The biggest roadblock may come from Senate Republicans, especially those who voted against the hospital provider fee bill in 2009; that includes two key Senate Republicans, President Bill Cadman, R-Colorado Springs, and Majority Leader Mark Scheffel, R-Parker.
While he said he appreciated the detailed proposal, Cadman noted that with just days left in the session, reaching an agreement on such a complex plan would present “enormous, possibly insurmountable, challenges.”
Sen. Kent Lambert, R-Colorado Springs, chair of the powerful Joint Budget Committee, told The Colorado Statesman that he argued against the provider fee when it was first proposed, calling it a “bed tax” that should have gone to the voters for approval, rather than a fee, which can be imposed by the Legislature.
Lambert views the governor’s plan as an attack on TABOR. He believes there are other ways to handle the transportation and capital construction transfers without manipulating the hospital “bed tax,” although he did not elaborate. And he agrees that there’s not enough time left in the session to fully vet Hickenlooper’s proposal.
“There’s no reason we have to do it this session,” Lambert added. “We need time to study it.”
Sen. Pat Steadman, D-Denver, also on the budget committee, agreed with Lambert that the hospital provider fee conversion wouldn’t have to happen this session. But “next year’s budget will be really, really tight. We need to do something to live within the constitutional restrictions imposed on us, and using enterprise designation is one tool at our disposal to help us live within those restrictions.”
Steadman said he would be interested in working on such a bill, although he wouldn’t speculate on whether it could get through the Republican-controlled Senate.
Putting the issue “into the sunshine” allows the public to see what’s at stake, according to Senate Minority Leader Morgan Carroll, D-Aurora.
The state could lose $600 million in investment, whether it’s in schools, roads or the Earned Income Tax Credit, she said this week. “These are really profound policy choices and opportunities and there are dire consequences if we fail to act.”
Rep. Robert Rankin, R-Carbondale, said he would hold judgment on the proposal until he sees an actual bill. But if the provider fee is pulled out of TABOR calculations, one question is whether the TABOR base would have to be reset at a lower rate, cancelling out any benefit of shifting the fund.
That’s also a concern raised by House Minority Leader Brian DelGrosso, R-Loveland. DelGrosso appears open to considering an enterprise designation. But with less than two weeks to go before the end of the session, he said unless a bill is introduced, House Republicans’ focus is on the 150 bills that remain on the Legislature’s agenda.