Legislators must tackle economic issues in new year
By Leigh E. Rich
While many Coloradans have just settled down for a holiday-laden wintry nap, the state’s top officials already have a bundle of political “time bombs” on their hands.
This week, Colorado’s governor, treasurer, and returning and incoming legislators unveiled their plans to bring stability and accountability to the state’s budget crisis, its college campuses (see Legislative Briefs, Page 2), and its public employee pension fund.
On Monday, Gov. Bill Owens officially revealed his five-part proposal to stabilize Colorado’s financial situation currently being pulled apart by a TABOR and Amendment 23 tug-of-war.
While the Taxpayer’s Bill of Rights (TABOR) passed by voters in 1992 mandates that all surplus revenue be refunded to taxpayers, 2000’s K-12 Amendment 23 dictates annual increases in per pupil spending by the rate of inflation plus one percent for 10 years and thereafter by the rate of inflation alone.
Making matters worse is TABOR’s so-called “ratchet effect,” whereby the state’s available budget shrinks following economic downturns because, according to TABOR, the preceding year’s budget must serve as a baseline for the coming year. With declines in revenues beginning in 2001, the amount of money the state may spend has been ratcheted back despite an upturn in revenue this fiscal year.
This leaves Colorado with an anticipated $263 million shortfall.
The governor had let reporters in on some of his plans during a legislative forum last week, including securitizing Colorado’s tobacco settlement into one lump sum and adopting a “de-Brucing” measure proposed by Democratic state Rep. Tom Plant that would reclassify $300 million in college voucher money as a tax refund under TABOR, thus taking those higher education costs out of the general budget.
But State Treasurer Mike Coffman, in a press statement released Monday morning, called the voucher idea “budget gimmickry” and said that “reclassifying assistance to higher education as a refund mechanism is not the answer.”
Coffman instead urged “leaders from both political parties to have the political courage to reach a compromise between TABOR and Amendment 23.”
That afternoon, Owens held a press conference laying out his five-point budget proposal in which the voucher suggestion was absent.
Instead, the governor would “amend TABOR to eliminate the ratchet effect during and following recessions,” allowing the spending limit to remain constant in the lean times but to grow according to TABOR’s inflation-plus-population rate when revenues recover.
Securitizing Colorado’s tobacco payout from the 1998 Master Settlement Agreement would address short-term budget needs, Owens reiterated Monday. Colorado could receive as much as $800 or $900 million if lawmakers agree to securitize. The state’s share of the settlement, however, totals almost $2.7 billion that is currently being paid in increments annually through 2025.
For the long-term, Owens suggested asking voters for permission to retain $500 million in TABOR surplus; reducing the state’s income tax from 4.63 percent to 4.5 percent; and investing $100 million annually in transportation, “allowing the state to bond for up to $1.7 billion in projects statewide.”
The total surplus over the next two years is expected to be about $540 million. “By retaining $500 million,” a press release issued by the governor’s office noted, “the state can fund key programs and leave TABOR’s key provisions intact.”
Though touted by the governor this week, the idea for lowering the state’s income tax was proposed last summer by Democratic Rep. Andrew Romanoff, Colorado’s next Speaker of the House.
The upfront income tax savings would be a means to appease taxpayers in exchange for increasing the state’s spending limits, while the $100 million set aside annually for transportation projects would go to paying off a 30-year bond measure.
“This plan uses the specific provisions of TABOR to address Colorado’s investment needs going forward,” the governor said. “It respects the fact that every dollar in the budget belongs to the taxpayers and it asks their permission to keep additional funds.”
While legislators from both sides remain intent on working together and with the governor to balance the budget, Owens’ plan would still come up short, economists say.
PERA also coming up short
Another fiscal time bomb in addition to the state budget has emerged with Colorado’s Public Employee Retirement Association (PERA), as the program’s “unfunded liability”—a measure of its ability to meet future benefit payments with existing resources—has grown to nearly $10 billion.
This means, according to a press statement released Tuesday by the treasurer’s office, that the “distressed financial condition … at no foreseeable time in the future will improve sufficiently enough to meet the promised benefits made to the 170,000 Colorado workers depending on the programs for their retirement security.”
Coffman says “a mix of factors,” including market declines in 2001 combined with an increase in benefits, is responsible for the precarious situation.
“PERA’s long-term picture looks bleak,” Coffman said during Tuesday’s press conference. “Under current conditions, there is no foreseeable time when PERA will return to fully funded status.
“It’s headed south. … Even with the legislation that occurred last year” intended to improve the program’s fiscal stability, “things still are moving south.”
Deeming it time for “outside action … to be taken,” the state treasurer, who serves as an ex officio trustee of the organization, formed a bipartisan commission to restore fiscal stability to PERA. He’s named former Colorado Gov. Dick Lamm and former U.S. Sen. Hank Brown to co-chair the Commission to Strengthen and Secure PERA.
“Quite simply, it is time for outside leadership with a fresh perspective and new ideas,” Coffman said, confident that “having two of the most respected and distinguished leaders” chairing the commission will bring “a structure that is necessary.”
Lamm and Brown will select six more individuals “who have the appropriate expertise” to sit on the commission, Coffman added. Members of PERA’s board will be invited to participate as well. Coffman anticipates the group will have recommendations for the General Assembly by 2006.
“The problem gets so large, it’s really beyond the scope of state government to deal with,” Coffman said.
“One of the great challenges of government at this particular time in history is to look at the long-term funding of the government we are in charge of as citizens, whether it’s Social Security, whether it’s Medicare, whether it’s PERA,” Lamm said.
“There are lots of fiscal time bombs in our children and grandchildren’s future, and we should be coming to grips with them.” 
Rich, L. E. (2004, December 24). Lawmakers get fiscal time bombs as stocking stuffers: Legislators must tackle economic issues in new year. The Colorado Statesman, pp. 1–2.
