This year’s discussions over a rosier budget picture have highlighted issues with the Taxpayer’s Bill of Rights that could result in refunds to taxpayers in the coming years.
Lawmakers are concerned because the refunds would come despite voters already approving retention of marijuana taxes. The marijuana taxes would be largely responsible for the excess dollars.
Overall cash fund revenue subject to TABOR is expected to grow. The forecast does not project that the state will reach its TABOR revenue cap through Fiscal Year 2015-16. But the state is within 4 percent of reaching its TABOR cap in the current fiscal year and within 3 percent in the upcoming fiscal year.
Members of the Joint Budget Committee and economists point out that better than expected economic and revenue growth could cause the state to reach the cap, which would result in refunds.
Lawmakers might ask voters for permission to retain the money, which has placed a spotlight on complex issues surrounding TABOR, including the newly legalized marijuana revenue.
The governor’s office predicted that pot taxes under Proposition AA would generate about $107 million next year. But economists for the legislature predict the revenue to be only about $54.7 million.
The major difference between the two projections is the number of people estimated to be consuming marijuana. The governor’s office predicted 3.3 million ounces of total retail consumption; the March revenue forecast by Legislative Council projects 1.4 million ounces.
Economists, however, were careful to point out that the marijuana marketplace is volatile. Only a handful of marijuana centers opened in January, and it’s difficult to predict whether retail marijuana will remain popular enough to drive an increase in sales.
“You can basically use that January number to justify any forecast you want,” Larson Silbaugh, an economist for Legislative Council, commented during a presentation to the Joint Budget Committee on Tuesday of the March revenue forecast.
It does not appear that the new pot taxes will cause Colorado to hit the TABOR cap this year because revenue is likely to fall under what was explained to voters in Proposition AA.
TABOR, backed by voters in 1992, requires the legislature to publish anticipated spending as a result of new proposed taxes. That information is published in the so-called “Blue Book,” which informs voters on upcoming ballot issues and elections.
If state spending exceeds that prediction, then the tax must be refunded. The conflict comes during an economic upswing, such as when spending grows faster than the prediction in the Blue Book.
TABOR, written in 1992 by conservative mastermind Douglas Bruce, is most known for prohibiting tax increases without a vote of the people. It also mandates that the state refund excess tax dollars. That number is calculated based on population growth and inflation.
Sen. Pat Steadman, D-Denver, a member of the JBC, believes the overall TABOR issue should be addressed. He reminded fellow members of the JBC that the issue is not really about the marijuana tax; it’s about conflicts with TABOR.
“The limit problem that we’re having is state fiscal year spending and that the general fund revenues are growing, and they happen to be doing this at a time when we are about to enter the first full year of implementation of a new voter-approved tax. So when we talk about what dollars we’re refunding, we’re not necessarily refunding Proposition AA money because that money hasn’t exceeded a limit…” explained Steadman.
“We’re really refunding money out of the general fund up to the amount of the new tax because that’s the culprit for what forced us to put these numbers in the Blue Book…” he continued.
Lawmakers would have to design a special refund to address the issue since it has never come up before. Steadman questions the opinions of state attorneys who have said that the new pot tax would likely result in a refund. He believes the Colorado Supreme Court should weigh in quickly.
“Who do we refund this to?” asked Steadman. “The people paying the new tax are getting what voters bargained for… It’s other things happening in our economy, and in our budget and in the general fund that are growing that’s causing the problem.
“This is confounding,” he added. “TABOR told us let the voters decide. The voters decided and their wishes may be frustrated by other things hidden within the TABOR amendment.”
Rep. Crisanta Duran, D-Denver, chairwoman of the JBC, suggested that the conflict might offer an opportunity to have a conversation with voters about repealing or modifying TABOR.
“What is most frustrating about all of this is that I don’t think there is one voter in the state of Colorado, maybe other than Douglas Bruce, who thought that we were going to have to go back to them to give them a refund, and so maybe the time is now… that we have that conversation with voters,” said Duran.
Republicans have long held TABOR up as a pillar of fiscal responsibility. But it appears that the passion may be waning.
Rep. Cheri Gerou, R-Evergreen, a member of the JBC, blamed the constitutional amendment for many of the state’s woes, including difficulties in funding flood recovery efforts. Gerou is a moderate Republican who announced last week that she wouldn’t run for state Senate and is planning on leaving the legislature next year rather than run for re-election.
“We’re learning a little bit more about TABOR, and I have to tell you, honestly, the more that I learn about TABOR, particularly what it did with the floods in our counties, the less and less I like TABOR, and the more insidious I think it has been to state government,” Gerou said during the revenue forecast briefing on Tuesday.
“I’m sure I’ll have an effigy burned in my front yard when I get home, but it’s the honest to goodness truth,” she continued. “It’s not been good.”
But Bruce himself cannot understand why a Republican would support eroding the state’s spending limits.
Bruce served a jail sentence in 2012 after being sentenced for using his charity to avoid income taxes. He is appealing the case, despite having already served jail time.
“I wouldn’t burn an effigy in her yard, joked Bruce. “I’m on probation.”
“A Republican wants to repeal TABOR. Does she have a death wish?” he asked. “You’d expect it from Democrats; you shouldn’t expect it from Republicans.”
Bruce says lawmakers have been violating TABOR since 2010 following voter-approved Referendum C in 2005, which offered a five-year time-out from TABOR to direct surplus revenue towards education and health care.
“‘We’ve cheated you for so long maybe we need to repeal the limit so we’re not cheating you because we go back to unlimited revenue.’ That’s brilliant,” Bruce mocked the legislature sarcastically.
“A Republican who believes in unlimited spending,” he added of Gerou. “Why doesn’t she show some honesty and change her registration to Democrat, the party of big government. Republicans are supposed to be the party of taxpayers.
“It takes her 22 years to figure out a simple proposal written in plain English,” Bruce continued to attack Gerou. “She has a problem having attended government schools of adding two numbers together?”
Bruce agrees that the refund issue is not specifically about new marijuana revenue, but that it is really an indication of overall spending. But he believes the fact that lawmakers are forced to discuss refunds in the first place is proof that TABOR is protecting the state.
“You can’t say it’s marijuana. It’s everything put together…” explained Bruce. “There’s been a growth in income tax revenue, sales tax revenue, gasoline tax, everything, and of course, fees.
“They’ve been cheating in half-a-dozen different ways, which is why they tried to take me out of the picture by lying and saying I was a tax cheat, which I wasn’t…” Bruce added. “They’ve tried to destroy my credibility by framing me…”
Overall budget looking rosy
State economists on Tuesday equated the growth in revenue to an upward trend buoyed by job growth. Henry Sobanet, the governor’s budget director, projected that general fund revenue for the upcoming fiscal year that begins in July will be $9.5 billion; the current revenue projection is about $8.8 billion.
“We are at the end of what appears to be 27 months of job growth in a row, and I think our tax revenue stream reflects that,” Sobanet told budget crafters.
Since December, economists have increased their projections by $93 million for the current fiscal year, and $61 million for the upcoming year, despite the Capitol rumor mill predicting a lower revenue picture.
Gov. John Hickenlooper, a Democrat, has proposed a $20.5 billion budget, which would have $75.8 million above the proposed 6.5 percent reserve requirement.
Debate on the so-called “Long Bill” is expected to begin in the coming days, with the bill being introduced on Monday. Caucus discussions on the budget are scheduled for Wednesday.
More money brings more problems, as lawmakers will debate spending proposals for several pet projects and special interests. Many of those proposals likely won’t make it out of appropriations, as lawmakers will need to curb expectations. Several more proposals will be debated in the House and Senate through amendments, which could result in long discussions this year.
The major focus will be placed on K-12 education. A separate school-funding proposal would add $263 million to classrooms, including reducing the so-called “negative factor” by $100 million. That measure, known as the Student Success Act, made it through the House Education Committee on Wednesday with some amendments giving school districts greater flexibility over spending.
Both the governor’s budget office and Colorado Legislative Council offered similar revenue forecasts, which did not radically change how lawmakers will plan for the upcoming budget.
“Over the past year, household wealth has grown because of increases in home prices and recent gains in the stock market,” said Louis Pino, a Legislative Council economist. “As a result, consumer spending has improved, especially on big-ticket items like furniture and vehicles. U.S. corporations continue to post strong profits, the equity market posted its best gains in years, inflation remains benign and the global economy, especially in the Eurozone, appears to have turned a corner for the better.”
“Our expectations for how much money you have in the general fund to plan for next year’s budget is not much different…” added Chief Economist Natalie Mullis.