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Budget blues

Statesmanship, not partisanship, essential to budget fix

By Leigh E. Rich

Despite some Republican wound-licking and Democratic bravado over the recent red-to-blue switchover in the Statehouse, there could be more statesmanship than partisanship in the upcoming session of the 65th General Assembly—if what leaders at the sixth annual Colorado Press Association Legislative Forum said ring true.

Majority and minority leaders of the upcoming legislative session as well as Gov. Bill Owens agreed Wednesday that Colorado’s top priority is fiscal stability in both the short-term and the long-run.

In fact, Democratic leaders offered solutions dressed more in the guise of their Republican counterparts and Gov. Owens openly supported a Democratic “de-Brucing” idea to balance the state’s projected quarter of a billion dollar shortfall.

In addition to such “big ticket” issues as the economy, job growth, transportation and health care, House Speaker-elect Andrew Romanoff, D-Denver, talked with reporters gathered at the Denver Press Club about Colorado’s budget crisis.

“The best option in my view,” he said, deeming it both the simplest and most ambitious idea, is to “pick a tax rate as low as you can go.”

Such an upfront income tax cut would then supplant backend tax credits Coloradans have been enjoying under the Taxpayer’s Bill of Rights (TABOR) since 1997, when revenues began to exceed the TABOR-dictated spending limit. Passed by voters in 1992, the constitutional tax and spending limitation authored by Douglas Bruce rations state expenditure growth according to the rate of inflation plus population growth and mandates refunding all surplus revenue to taxpayers. It has been deemed by some to be America’s most successful government spending limitation.

Romanoff even corrected his colleague’s slip of the tongue when incoming Senate President Pro Tempore Peter Groff, D-Denver, spoke in favor of this tax decrease, though accidentally referring to it as a tax increase.

“A tax decrease,” Romanoff emphasized, playfully adding, “it’s confusing because we’re Democrats, I guess.”

A large part of the budget challenge staring down the Colorado Legislature has been caused by TABOR and what legislators refer to as the “ratchet effect.” Because TABOR dictates that the current budget is to serve as the baseline for the budget of the coming fiscal year, there is a subsequent shrinkage of the budget when state revenues have experienced downturns.

According to Owens, the 2001-2002 fiscal year witnessed a 13 percent decline in revenue and the following year there was an additional four percent decline. “We had a recession, we had fires, we had a technology bubble that was already bursting.”

This year, however, revenue is up by four or five percent, the governor said.

But TABOR’s limitation on expenditure growth leaves the state with fewer resources despite the increase in revenue.

For the first time in four budgets, then, “TABOR is going to have an impact,” Owens said.

But it would be “irresponsible,” according to Romanoff, for Colorado’s elected officials to merely balance the coming session’s budget and claim success. Echoing a caveat issued earlier by Owens, Romanoff emphasized that the Legislature also needs to look ahead—with an eye on fixing that ratchet effect in the Colorado Constitution.

“We should put such a measure on the ballot ourselves,” Romanoff suggested.

Groff concurred. “My Republican colleagues like to talk about running the state and the government as a business. I couldn’t agree more,” he told reporters and added that it doesn’t make sense to give refunds when the fate of the business is at risk.

And Amendment 23 further compounds the problem, Owens explained. Passed by the voters in 2000, Amendment 23, according to State Treasurer Mike Coffman’s weekly newsletter, “mandates a minimum annual increase in per pupil K-12 education spending by the rate of inflation plus one percent every year for 10 years. Thereafter, funding must increase annually by at least the rate of inflation.”

Thus, while revenues were down in 2001-2002, K-12 funding increased by 5 percent, Owens noted. The following year, he added, K-12 was up 11 percent.

Combined with TABOR, this crunches “the non-K-12 portion of the budget.”

With 40 percent of Colorado’s budget currently going to K-12 education, 20 percent to Medicaid, and 10 percent to higher education, “the vast majority of the state budget is education and Medicaid,” Owens said, leaving limited funding for the state’s other needs.

“We have this year a budget challenge,” the governor reiterated. “Now isn’t the time to be partisan.”

Both parties recognize Colorado’s budget problem and they even agree to a certain extent on what might be done.

And the new Democratic majority isn’t going to wait to the last minute to fix the budget, Groff said. The Dems, he pledged, will bring a “sense of urgency” and an “aggressive manner” to the issue and will consider a “number of creative ideas that will keep the spirit of TABOR.”

One of those up for consideration is the proposed “de-Brucing” plan by Rep. Tom Plant, D-Nederland, who will assume the vice chair position on the Joint Budget Committee (JBC) come January.

Plant’s idea would reclassify the $300 million college voucher plan passed in the last legislative session as a tax refund under TABOR, thus taking those higher education costs out of the general budget and closing Colorado’s expected gap.

Even Owens, who has previously shied away from supporting such a de-Brucing measure, said this was one of two suggestions he took to the JBC on Nov. 8. He told reporters, however, that a few kinks still need to be worked out, including making sure the $2,400-per-student vouchers are not taxable.

The governor’s other pitch involved securitizing the tobacco settlement money owed Colorado by the industry from the 1998 Master Settlement Agreement (MSA) that resolved several state lawsuits brought against America’s five largest tobacco manufacturers. The settlement money is currently being issued in annual installments that began in 2000 and will continue until 2025. Colorado’s share of the settlement totals almost $2.7 billion.

Securitization would exchange Colorado’s MSA payments for a one-time, lump-sum payment to the state.

Owens compared this to the lottery, where a winner can choose either a one-time payment or annual payments of winnings.

“But the lottery is backed by an annuity. It’s guaranteed,” Owens said, adding that he fears the industry could go bankrupt and leave Colorado in the lurch. “This flow of revenue is dependent on the tobacco industry staying healthy. … (It’s) good policy sense as a conservative to take that revenue and set it aside.”

Owens estimates that securitization would amount to approximately $800 million to $900 million. He suggests applying $100 million of that money to the state budget and placing the remainder in a trust fund. As to what happens to that money in the future, Owens says, “I don’t have strong feelings as to what should be done with it.”

But he’s “convinced it’s in the public’s interest to securitize that revenue stream. … I would rather have these dollars on hand rather than an IOU” from the tobacco industry.

Romanoff and Groff did not comment on Owens’ push for securitization—something the governor has advocated since 1999—and instead both Democratic leaders emphasized that “every option, every idea ought to be on the table,” with the exception of raising taxes.

“We have a phenomenal challenge in front of us and an unprecedented opportunity,” Groff admitted.

And “at $15,000 a day, our time is too expensive to waste,” Romanoff added.

Rich, L. E. (2004, December 17). Budget blues: Statesmanship, not partisanship, essential to budget fix. The Colorado Statesman, pp. 1–2, 11.

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