The Colorado Statesman

Budget writers this week finished their work on the annual state budget and turned their attention to what to do about a $58 million projected TABOR refund.

Sen. Pat Steadman, D-Denver, took the lead on coming up with a proposal for the Joint Budget Committee on Wednesday.

The $58 million refund was triggered by tax revenue received by the state through excise and sales taxes on marijuana, and which pushed the state over its allowable TABOR revenue cap.

The $58 million is made up of two different funds: $27.7 million from marijuana taxes, and $30.3 million the JBC had to take from general funds to cover expenditures already made on certain marijuana programs like prevention and education. Steadman explained Wednesday that the $30.3 million was spent before the state (and JBC) knew they would have a TABOR refund situation. So they had to replace that money with general fund dollars.

Steadman’s proposal won’t go into final drafts until after the General Assembly finishes work on the Long Appropriations Bill.

The major part of the proposal is a referred measure to the voters for this November, asking if the state can keep the money. Steadman proposed that $40 million of the total go to BEST, the school construction fund that was to be covered with marijuana revenues.

Steadman explained that to date, only about $25 million has gone to that fund, although in both Amendment 64 and Proposition AA (passed by voters in 2013) the state pledged at least $40 million to public school capital construction. Tax revenues from marijuana haven’t lived up to what was billed; Prop AA asked voters to allow up to a cap of $70 million per year. However, the most recent revenue forecast from Legislative Council economists explained that the amount of the refund would be capped at the total amount of taxes collected.

Steadman said he believed the measure would be approved by voters if it was kept simple. “People want marijuana regulated and taxed,” he said. “Voters want us to have tax revenue from marijuana and use it for important issues, such as school construction, law enforcement, prevention and treatment.”

The referred measure isn’t the only part of the tax situation. Steadman said there also would need to be at least one and maybe two bills that would spell out how tax refunds would be paid out, should voters decide to reject the referendum.

The Legislative Council forecast noted that while the state has an existing mechanism for refunding TABOR excess revenues, there is nothing in statute to dictate how to refund an “election provision refund,” as is the case with the marijuana revenues.

The General Assembly should create a refund mechanism, no later than the next legislative session, but Steadman said it would be far better to do it this year. If voters say no, the refund mechanism would be in place in time for the 2016 tax filing; refunds to taxpayers would be handled through their tax returns. Waiting until 2016 might miss that opportunity, he said.

Steadman suggested that the JBC run a bill to set up the following mechanism:

One-third of the Prop AA revenue comes from excise tax, projected at around $19.7 million. Excise taxes are paid for by cultivation operations, and if the state is to refund that money, Steadman said it should go to those who pay it.

The second third would be around $20 million, and that would go back directly to taxpayers, using the already existing TABOR refund mechanism put into law a decade ago. But the refund would be a very small amount, estimated at around $11 or $12 per person.

The rest of the refund would go back through a temporary sales tax reduction on marijuana sales. Under that part of the bill, the Department of Revenue would issue a bulletin, announcing that the sales tax would go down to 0.1 percent for a limited amount of time. Once the money has been exhausted, the sales tax would go back up to 10 percent, or even up to 15 percent, as it is allowed under Prop AA. The exact amount of that refund won’t be known until the state closes out its books for 2014-15, sometime in September.

Steadman explained that TABOR anticipated a temporary rate reduction as a refund mechanism.

Rep. Millie Hamner, D-Dillon, pointed out that the $20 million refund would be going to people who didn’t necessarily pay taxes on marijuana sales.

Another issue the JBC will have to deal with is getting back the money the state paid to the local jurisdictions in 2014-15 with marijuana dispensaries. Currently, the state shares 10 percent with those jurisdictions, about 15 or 16 of them, according to Steadman.

But if voters say no to the ballot question, the state should ask for that money back from the local jurisdictions. “We distributed it to them but didn’t have permission to keep and spend it,” Steadman said.

The local jurisdictions would not be expected to pay all of the money back at once; it would be spread out over two years, possibly less time for those communities that see increases in marijuana businesses and sales (and resulting taxes).

Getting voters to say “yes” may be a tough fight, and it’s unlikely anyone will want to pony up for a “yes” campaign on it. So the ballot question will have to be understandable, something voters will embrace, and provide certainty and transparency on how the marijuana revenue will be spent, Steadman told the JBC.

“This deserves careful consideration and thought, we need to get it right,” said Rep. Dave Young, D-Greeley.

— Marianne@coloradostatesman.com