Ritter’s new budget targets tax credits
By Leslie Jorgensen
Gov. Bill Ritter has proposed a lean $7.1 billion General Fund budget for the fiscal year that begins on July 10. The new budget would cover a projected $1.02 billion revenue shortfall. However, the smorgasbord — which includes the elimination of tax exemptions and credits as well as program cuts — also might curb the public’s appetite for candy bars, soda pop, on-line purchases and fuel-efficient cars.
“I’m continuing to make tough choices from very limited options — even while the demand for many services is skyrocketing,” said Ritter.
Ritter held a press conference previewing the General Fund budget on Friday, Nov. 6, just four days after a much more upbeat preview of the Colorado Department of Transportation budget for fiscal year 2010-11, which featured a surplus created by a boost in vehicle registration fees under FASTER. The proposed General Fund budget went to the General Assembly’s Joint Budget Committee for formal review on Monday, Nov. 9.
Joint Budget Committee Chair Moe Keller, D-Wheat Ridge, praised Ritter for taking a creative approach to the difficult task of balancing the General Fund budget.
“The governor’s proposal represents a balanced approach, making government more efficient and ending tax loopholes that don’t stimulate the economy or protect consumers, families or small businesses,” she said.
“We at the JBC are looking forward to evaluating those loopholes, analyzing the budget and getting to work on this proposal.”
As the governor’s low-cal budget was being lauded by Democrats, it was leaving a sour taste for Republicans such as Rep. Kent Lambert, of Colorado Springs, a member of the JBC.
“Taxing cigarettes and, now, candy sounds ‘politically correct’ — but that is social engineering,” said Lambert. “It’s the governor deciding what’s good for you to eat. And it’s a tax increase.”
Lambert said Ritter’s changes in tax exemptions and credits may violate the Taxpayer Bill of Rights.
The governor disagrees, saying that some of the proposals are changes to policies and definitions.
“We’re asking everyone to share in the sacrifice, from schools to businesses to state workers. This is a fair and balanced budget,” said Ritter, who added that it “minimizes pain, protects public safety, maintains essential services and preserves programs that promote job creation and economic growth.”
Ritter proposes budget savings through these cuts:
• $20.1 million by having state employees contribute 2.5 percent of their salaries to their PERA retirement funds instead of having the state government make the contribution. The employees will recoup their contributions as part of their retirement — and help stave off more furlough days — or, worse, pay cuts and layoffs.
Members of Colorado WINS, the state employee union, said they support Ritter’s FY 2010-11 budget because, although it calls for serious reductions, it keeps workers employed.
“We appreciate the governor’s efforts to avoid drastic cuts to state employee base pay and benefits,” said Colorado WINS Executive Director Robert Gibson. “Our members have communicated directly with the governor and state leaders through broad-based outreach that we feel creative solutions at all aspects of the budget are needed.”
• $28 million in Medicaid expenditures.
• $90.2 million by suspending the Senior Homestead Exemption for an additional year.
• $56 million in higher education expenditures. Universities and colleges would, however, be allowed to raise tuition by up to 9 percent.
Funding for higher education will drop from $706 million in FY 2009-10 budget to $650 million in FY 2010-11. That, in part, is due to federal stimulus monies falling from $377 million to $95 million during the same period. Ritter suggested that students in need of financial aid would be able to tap into PELL grants.
• $260 million from K-12 education. The 4.6 percent budget cut, Ritter said, could be achieved by reconfiguring the funding formula under Amendment 23, which was approved by voters in 2000. The amendment requires K-12 education funding to be increased by inflation plus 1 percent each year for 10 years, and thereafter be increased by at least inflation. However, Ritter’s budget will not slash funding for kindergarten and preschool programs.
Jane Urschel, associate executive director of the Colorado Association of School Boards, told news media that the change in funding for public schools might violate Amendment 23.
Urschel acknowledged, however, that it appears the governor had limited choices.
“I think this is just the beginning of what cuts to K-12 will look like,” said Urschel, who did not anticipate launching a legal challenge.
In 2003, attorneys reviewed Amendment 23 and found that it did not consider all factors for school districts. According to their memo, the amendment factored statewide funding per pupil but excluded total program funding.
JBC member Rep. Jack Pommer, D-Boulder, said that legislators will have to weigh the proposed budget cut against law.
• $131.8 million derived by suspending or eliminating tax credits and exemptions. Of that savings, an estimated $17.9 million would be derived by taking the state sales tax exemption from candy and soda pop. The tax exemption, enacted in 1980, applies to most foods that are purchased for home consumption. Chewing gum and carbonated water are already taxed, and will continue to be.
The governor’s proposal defines candy as a “preparation of sugar, honey or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops or pieces.”
The term “candy” would not apply to breakfast or nutritional bars, potato chips, pretzels, popcorn, sugary fruit products such as fruit rollups, honey-roasted nuts, cookies, doughnuts, cakes or products used in the cooking, baking or decorating of baked goods.
Soft drinks would be defined to include nonalcoholic beverages that contain natural and artificial sweeteners. Beverages made using milk, soy, rice or similar ingredients, juices that contain more than 50 percent vegetable or fruit, frozen fruit concentrate, powdered fruit and tea are not included.
Energy tax credits, conservation easements on the chopping block
The proposal also would suspend $48 million in tax exemptions now granted for energy use by industrial and manufacturing concerns over a two-year period. Current law grants a tax exemption on the sale and purchase of energy used in industrial and manufacturing services in Colorado.
Ritter also proposed scaling back tax credits for conservation easements for a period of three years. However, the criteria are still being studied. If the tax credit program is revised, the governor estimates that the state would save $13 million in FY 2010-11 and $26 million in the following fiscal year.
Currently, a donor of a conservation easement is allowed a credit against income tax for 50 percent of the value of the easement up to $375,000. Under current policy, the credit may be transferred to a future property owner. In 2008, the state Legislature reduced the annual tax credits by nearly half — from $100 million to $52 million.
The change in conservation easements, Lambert said, “will be very controversial.”
However, the Republican lawmaker said the program has been troubled for years, particularly by “some property appraisals that appeared to be fraudulent” and were challenged by the Colorado Department of Treasury. Some of the appraisals and tax credits claimed on federal income tax filings have been red-flagged by the Internal Revenue Service.
The governor also proposed eliminating a one-time tax credit of up to $6,000 for the purchase of a hybrid or alternative-fuel vehicle that averages only 30 to 40 miles per gallon. The proposal does not affect a $7,500 credit for vehicles that plug in to the energy grid. The revision would save $1.25 million in tax credits in FY 2010-11, and $2.5 million the following fiscal year.
Another $15 million could be derived next year if the Department of Revenue tightens the eligibility for software purchase tax exemptions.
Changes in the enforcement of state tax collections on Internet purchases could raise $5 million. Although on-line purchases are taxed by merchants that have stores in Colorado, vendors such as Amazon.com, which conduct business solely on the Internet and are marketed by Colorado Web sites and businesses, do not collect sales tax from Colorado buyers.
Restaurant and food vendors would lose about $2.1 million in tax exemptions on the purchase of nonessential food-associated items such as napkins, bags, cartons, condiments and plastic ware. The proposal, however, would keep exemptions for necessary containers such as beverage cups and soup bowls.
The farming and ranching industries also will feel the pinch. The budget proposes saving $1.5 million a year over three years by eliminating tax exemptions on bull semen, insecticides, fungicides, vaccines, hormones and other products used in raising and tending livestock.
In addition, the budget seeks a $2.9 million annual savings over a period of three years by eliminating the sales tax exemption on pesticide purchases.
The governor’s proposal aims to save $4.45 million a year by scaling back Corporate Enterprise Zone Investment tax credits, and to garner $1.45 million annually in savings by suspending the sales and use tax exemptions for materials used by direct-mail advertisers. In both cases, current regulations would remain in effect for three years.
Lambert said the proposals to eliminate or suspend tax credits and exemptions are violations of TABOR, noting that “TABOR is the only protection we have against crazy politicians.”
Democrats, however, offered only praise for the Ritter’s new choices.
“With a $1 billion shortfall, these difficult decisions have to be made, and thanks to Governor Ritter’s leadership we have a thoughtful, lean, compassionate budget. The choices were not easy, and the solutions were not obvious, but we will continue to build a 21st century workforce and lead Colorado to a fast and strong recovery,” said Senate President Brandon Shaffer, D-Longmont.