This year’s version of the “long bill,” the proposed 2017-18 state budget, will be debated in the Senate this week, moving to the House the week after.
The Joint Budget Committee wrapped up months of work on March 23 with a budget plan that made significant cuts to funding for hospitals and raised the K-12 negative factor while taking money from severance tax, highway and other special funds to balance the proposed General Fund budget. It did approve modest increases in state employee pay and rates for providers of various medical and social services.
In a key decision, the committee voted to cut 2017-18 Hospital Provider Fee collections by $264 million, thereby eliminating the need to pay TABOR refunds out the General Fund. The Hickenlooper administration had proposed a $195 million cut. The revenue loss to hospitals would be more than $500 million, given the loss of matching federal funds.
“This is a really tough decision for us,” said vice chair Rep. Millie Hamner, D-Dillon. “That’s going to have a very negative effect on hospitals.” She noted that other lawmakers “are working really hard” on a possible reclassification of the fee, which could remove it as a factor in calculation of the annual TABOR revenue ceiling.
The committee voted late on the evening of March 22 to set next year’s K-12 negative factor at $906 million, up from this year’s $831 million. But the next morning, after JBC staff recalculated what the committee needed to do to balance the budget, members were able to reduce the proposed negative factor to $881 million.
The committee also was able to pull back its original plan to take money from the Marijuana Tax Cash Fund to bulk up the General Fund. But members did agree to propose a bill that would set the rate for special marijuana sales taxes at 10 percent. Current law calls for the tax rate to drop to 8 percent next July 1.
While the committee’s budget plan calls for shifting some severance tax revenues and highway funds to the general fund, members didn’t consider reducing the senior homestead property tax exemption, as had been proposed by the Hickenlooper administration.
Modest winners in the budget plan include state employees, who would receive a 1.75 percent across-the-board increase plus a .75 percent increase in funds for merit pay.
An overall increase in community provider rates was approved, equal to 60 percent of the state employee pay raise. Community providers include organizations that provide medical, community corrections and health and other care services through contracts with the state. Some providers will receive additional increases.
Some elements of the proposed budget, particularly the size of the negative factor, are likely to be challenged during legislative deliberations. But the budget essentially is a zero-sum document, given the requirement that it be balanced, along with other constitutional limitations.
So if lawmakers want to change the size of the negative factor or make other alterationss, they’ll have cut spending elsewhere in the budget to compensate, or find new revenue sources like additional transfers from various special funds.
-- Todd Engdahl
The legislative session has passed the halfway point of its 120-day run, and lawmakers are finally starting to focus on the issues that everyone expected would be the big ones in 2017.
Bills on top issues like transportation funding, construction defects and marijuana regulation have been introduced recently and are starting to wend their way through committee hearings and floor debate.
And lawmakers will get their attention forcefully focused on the 2017-18 budget Friday, when new quarterly state revenue forecasts will be unveiled. Those are not expected to show a pretty picture.
Recent mid-session analyses by the Capitol press corps have highlighted how little of substance lawmakers got done during their first 60 days. That’s nothing new – procrastination is a proud legislative tradition, and some key bills won’t be decided – or killed – until the session’s final few days.
Here’s a quick review of what lawmakers will be fussing over between now and May 10.
Transportation – Everybody at the Capitol likes to bemoan traffic congestion and potholed roads – and they’ve doing so for years without coming up with any solutions.
So it was considered something of a breakthrough this session when GOP Senate President Kevin Grantham and Democratic House Speaker Crisanta Duran recently unveiled House Bill 17-1242, which would send a transportation funding plan to voters for consideration.
The measure would increase state sales taxes by about six-tenths of a cent for 20 years, raising revenue to pay off $3.5 billion in bonds for highway and other transportation projects.
Grantham may have taken the lead, but he doesn’t have all Republicans following him. Conservative GOP members don’t want to raise taxes – period – and they aren’t mollified by the bill’s plan to trim some motor vehicle fees.
Another member of the Senate GOP leadership, Sen. Jerry Sonnenberg, is even talking about introducing an alternative plan that would take transportation money from existing state revenues.
While a lot of Republicans advocate a “revenue neutral” transportation funding plan, none of them have yet said publicly what they’d cut to pay for roads. The biggest chunks of the state budget pay for education and health care, already facing possible budget cuts for other reasons.
Construction defects – This issue sounds dull, but it’s been a legislative obsession for several sessions.
The problem is that there’s been very little condominium construction in Colorado for several years. Builders say that’s because current law makes it too easy for condo owners to sue over allegedly shoddy construction and the resulting high insurance costs make condo construction economically unattractive.
Fixing the law is being pitched as a way to provide more affordable housing, given that condos typically are less expensive than single-family homes, whose prices have been skyrocketing.
This session lawmakers have proposed a package of bills addressing different pieces of the issue. Single omnibus bills have bogged down and failed in past years.
The centerpiece may be Senate Bill 17-156, which would steer owner-builder disputes toward arbitration rather than the courts, a change that makes some Democrats nervous.
Marijuana regulation – Cracking down on the marijuana “grey market” is a top priority for Gov. John Hickenlooper. Two measures, House Bills 17-1220 and 17-1221, propose to do that. The first would limit to 16 the number of marijuana plants that could be grown at home. The second would tap marijuana taxes for grants to help local police departments enforce marijuana laws.
Although the measures have moved quickly through the House, some lawmakers worry that medical marijuana patients and caregivers need more protection than the first measure currently provides. Look for more negotiations and changes before this issue is settled.
The biggest cloud hanging over the session is the state budget. For months the potential gap between projected state needs and available state revenues has been projected at $500 million or higher.
Lawmakers will get a better idea of that gap Friday when state economists issue their last formal revenue forecasts before the 2017 session ends. If the gap is as big or bigger than previously forecast, the Joint Budget Committee will have some tough decisions to make before the March 27 deadline for introduction of the 2017-18 budget bill.
Some 484 bills have been introduced as of March 13. Nearly 30 have been signed by the governor, and more than 90 have been killed.
For more analysis of where lawmakers have been and where they’re going, check out these media outlets are saying:
-- Todd Engdahl
The 2017 Colorado legislature convened Wednesday morning with the usual hopeful speeches and hands-across-the-aisle goodwill – plus some partisan bills. All that ceremony kicked off a session that faces big issues lawmakers have wrestled with before.
Balancing the budget, finding more money for roads and bridges and reaching compromise on construction defects law are pegged as this session’s top issues.
The budget – Lawmakers face a difference of about $500 million between what they’ll be allowed to spend in 2017-18 and the full cost of various demands such as TABOR refunds, K-12 spending, possible transfers to transportation and construction projects and Medicaid program requirements. Gov. John Hickenlooper has proposed various ways to close that gap, including assorted fund transfers and other accounting moves and an increase in the “negative factor” – the gap between full and actual school funding.
Hickenlooper and some Democrats would still like to change the definition of the Hospital Provider Fee so that its revenues don’t count against the ceiling that triggers taxpayer refunds under TABOR. But Senate Republican leadership seems still firmly opposed to that idea.
Republicans have long questioned the costs of Medicaid, which have risen with expansion of eligibility in recent years. Efforts to trim costs likely will be met by resistance from House Democrats and Hickenlooper. Some Republicans hope changes by the Trump administration and the Republican Congress will give states more flexibility to control Medicaid costs. But those may not happen in time for the 2017 session to take any action.
Transportation – Republicans have been pushing for financing highway improvements with bonds that would be repaid from existing highway revenues. Hickenlooper and Democrats have stopped such efforts, arguing that it’s foolish to shortchange highway maintenance by using that money to repay bonds. In opening day speeches leaders of both parties said they’re working on a plan that everyone can support.
Construction and affordable housing – The 2017 session will take a fresh look at “construction defects.” That’s the shorthand phrase for the problem of condominium developers being exposed to lawsuits from owners for bad construction. Developers say current law makes it too costly to build condos because of high liability insurance rates. They argue that changes in the law would spark more condo development. They argue that building more condos would expand affordable housing options for people who can’t afford single-family homes and are burdened by skyrocketing rents. A bipartisan bill introduced Wednesday would address insurance costs for builders.
Education – No surprise, the K-12 debate will be all about money. School districts will oppose an increase in the negative factor, but that will be hard to avoid. It’s possible that lawmakers will propose property tax reforms to increase local contributions to school budgets – something that ultimately would require voter approval. Some legislators also would like to somehow incorporate individual district mill levy override revenues into overall school funding. And a group of superintendents is working on possible changes in the state school finance formula.
Other education issues up for debate could include changes to ninth grade testing, funding for charter schools, regulation relief for small rural districts, teacher licensing and evaluation, discipline of preschool students and district and school accountability.
Energy development – Senate Republicans, anxious to help stimulate the oil and gas and coal industries, have created a special committee to study the issue. Democrats remain committed to encouraging renewable energy development. It remains to be seen whether any significant legislation will emerge.
Expect bills on a wide variety of other topics, including the Public Employees’ Retirement Association, marijuana regulation (Hickenlooper wants to crack down on the “gray market,”) elections and ballot measures, gun control, reproductive rights, union membership, combating opioid abuse, TABOR reform and easing the perceived regulatory burden on small business. Expect a high mortality rate, given that many of these bills will be partisan.
Republicans continue to control the Senate with an 18-17 majority, while Democrats have increased their House majority to 37-28. Split control traditionally means major legislation absolutely requires agreement and a high mortality rate for clearly partisan and ideological bills.
Almost all of the top positions in each chamber are in new hands. Republican Sen. Kevin Grantham of Canon City is Senate president, with Sen. Chris Holbert of Parker as majority leader. Democratic Sen. Lucia Guzman of Denver continues as minority leader.
The top House leadership posts all have new occupants. Democratic Rep. Crisanta Duran is speaker, with Rep. KC Becker of Boulder as majority leader. House Republican leadership has taken on a more conservative tone, with Rep. Patrick Neville of Castle Rock as minority leader.
Twenty-one of the General Assembly’s 100 members enter the Capitol without prior legislative experience. Two senators are brand-new, and eight other new senators previously served in the House. Two House members are returning after spending a few terms out of the chamber.
-- Todd Engdahl
In the grand total of many things political, Democrats did well in Colorado in 2016, going against the fly-over state trend. Even so, at the state level, the more things change, the more they stay the same. The state House in 2017 will be somewhat more Democratic, but the state Senate breaks once again at 18-17, advantage Republicans.
Statewide, unaffiliated voters broke toward Democrats at about 4.5 percent. With party registrations in November at almost even between Democrats and Republicans, both parties needed unaffiliated voters to give them more votes, and Democrats won that battle decisively.
Congressional race results show that nothing is going to change in those seats, unless incumbents retire, until redistricting in 2021.
Diane Mitsch-Busch, HD26
Democrats in the state House of Representatives pounded Republicans. In most contested seats, Democrats won well above their percentage of registered voters. Rep. Diane Mitsch-Bush, punched 18.5 percent of votes by registration above her diminutive size. Tammy Story, who lost the HD25 race, made that contest much closer than expected, showing how Democrats are gradually taking control of Jefferson County.
The state Senate story continues to show how Adams County is changing, and the results follow the same candidate, former state Rep. Jenise May. In 2014, May lost HD30 to JoAnn Windholz, a right-right Republican. This year, May lost her race for SD25 to Republican state Rep. Kevin Priola, with Priola gaining 11 percent more votes than registration breakdown predicts.
The Windholz race for HD30 went to the Democrats as Dafna Michaelson won, but Michaelson didn’t win by the Democratic share of registered voters. Parts of Adams County may parallel the economic environment of the Midwest with some blue collar Democrats switching their votes without switching their registration.
Pueblo County is another fly-over state trend follower. Clinton lost Pueblo by .5 percent, significantly underperforming US Senator Michael Bennet, who won by 9.5 percent. Rep. Clarice Navarro on the east side of Pueblo county hit very high approval numbers. Her district has grown in Republican registration since she was elected and she won by 15.5 percent.
Some districts just can’t make up their minds whom they want for legislator. In 2014, former state Sen. Rachel Zenzinger lost SD19 to state Sen. Laura Woods. This year she recaptured the seat. SD19 has had three state Senators since 2013 when Evie Hudak resigned under pressure from the 2nd amendment voters in the district.
HD59 in Durango is an ancient Greek dramedy with the seat bouncing back and forth between Rep. J. Paul Brown-R and the McLachlan family-D. Paul had the seat in 2010. He lost it to former Rep. Mike McLachlan in 2012 by a quarter inch. McLachlan lost to Paul in 2014 by a quarter inch. Now Paul lost the seat again, this time to Barbara McLachlan, Mike McLachlan’s wife. She won by a 1.46 percent victory landslide.
SD19 in turmoil since 2012
North Jeffco is a microcosm for the nation. Laura Woods and Rachel Zenzinger hold opposite views on many issues, including gun control, public education policy, and health care. Their campaign wasn’t pretty. That district has gone through maximum election turmoil, including the recall of school board candidate Julie Williams in 2015. Somehow, though, the neighborhoods remain neighborhoods. PEN
Ask almost anybody what’s wrong with Colorado’s state budget and you’ll hear familiar answers – TABOR, the modest economic recovery, depressed energy revenues and too much earmarked spending, among other things.
But there also may be deeper social and economic factors behind the state’s financial situation, and they don’t bode well for the future.
To oversimplify, you can blame it on the baby boomers, or more specifically the unavoidable fact that they’re getting older.
“Why is revenue growth slowing?” was the question teed up by legislative chief economist Natalie Mullis during a briefing at a recent Colorado School Finance Project meeting.
“The aging population has a lot to do with it,” she said.
The percentage of Colorado’s population that’s of working age is shrinking, and the percentage of retirees “is growing very quickly.”
How does that affect state revenues?
To oversimplify, as people get older they spend less, and that affects sales tax revenues for the state.
And as people age they earn less money, slowing growth in income tax revenues. “Taxes peak around age 45,” Mullis said.
More than 90 percent of income to the state general fund, Colorado’s main checking account, comes from income and sales taxes.
Add that all up and it means a flattening of state tax revenues when calculated based on the contribution of an individual taxpayer. “On a per-person basis … total revenue to the general fund is going to be flat,” Mullis said.
To compound the problem, younger taxpayers aren’t picking up the slack yet. “We’ve had a cultural shift … they [millennials] are spending at rates lower than the baby boomers did,” Mullis noted.
But wait, there’s more bad news.
While demographic trends are slowing state revenue growth, they’re also creating pressure for more state spending. “The aging population has other effects … it actually increases demand on government services,” said Mullis.
The biggest demand is for Medicaid, the state/federal program that helps provide medical care for low-income people, including the elderly.
“The things our general fund pays for have become more expensive,” she said.
Things will get worse whenever the next recession hits, which will accelerate the demands for state services.
“We’re going to have tough budgets that persist,” Mullis concluded. “We care going to have to cut the budget from here on out.”
(Please don’t write to me complaining that I downplayed TABOR. Yes, TABOR is a problem – at least for people who worry state government doesn’t have the flexibility to meet changing state needs – because it requires tax refunds if state revenues grow beyond a certain level each year. But that’s a post for another day.)
-- Todd Engdahl