Rosy budget curbs Homestead tax battle

The Colorado Statesman

The most anticipated partisan fight of the legislative session — over reinstating a property tax break for senior homeowners — seemingly came to an end Monday before it ever truly began.

During a presentation to the powerful Joint Budget Committee, staff director John Ziegler informed committee members that even after paying for the $98.5 million annual Senior Homestead Exemption, there will likely be $199.8 million left over in the 2012-13 fiscal year budget to avoid planned cuts, including to areas like education.
The tax break, which pays a portion of the property tax for seniors who have occupied their homes for at least a decade, has been a political football in recent years as both parties have proposed suspending it to help balance tight budgets at one time or another.

Ziegler’s analysis came after reviewing the March economic and revenue forecasts presented last week to the JBC by Legislative Council staff and the Governor’s Office of State Planning and Budgeting. The forecasts anticipated more dollars to spend in the upcoming fiscal year beginning in July, with an additional $149 million available to restore a proposed $188 million in cuts.

But JBC members heard that the projections are actually more positive than the governor’s office believes, suggesting that even after allowing the senior exemption to be reinstated — which will happen automatically by statute without legislation to suspend it for the upcoming fiscal year — that there will be $199.8 million in “new” money for the JBC to allocate.

“This assumes current law, you haven’t taken any action to carry a bill to change that law, so that would assume that Homestead Exemption comes back,” Ziegler told JBC members. That amounts to $199.8 million in excess revenue, he said.

Beginning as far back as last November, when Gov. John Hickenlooper unveiled his first complete budget, the administration has proposed continuing to suspend the Homestead Exemption, a move intended to head off deep cuts to K-12 education.

At a cost of $98.5 million per year, the exemption has been suspended for the past two years, and has only been in place for four years since voters backed the tax break in 2000. The exemption allows seniors 65 or older to claim it for property taxes, up to 50 percent for the first $200,000 of the value of their home. Voters gave lawmakers the power to suspend the tax break in troubled economic times, which the Legislature can only do by passing legislation.

Hickenlooper would have needed a sponsor to cut the program again this year, and would have had to convince a Democrat to carry the bill, considering Republicans have been adamant for months that the exemption be fully reinstated.

The governor’s office switched gears last week after the positive March forecasts, proposing that $63.4 million be restored, after having originally proposed cutting $80 million from the program. Under the administration’s recent proposal, the partial restoration would be applied to the state’s “neediest” seniors, excluding the very rich from the tax break. But that may all be in the past now as JBC members are under the impression that a full restoration of the program is possible, based on Ziegler’s presentation.

Monday’s news likely ended what would have been the most partisan and bitter fight at the Legislature this session. Even when faced last week with the governor’s proposal to partially restore the program — and even as Democrats said the caucus would consider talking about restoring the program — Republicans remained steadfast in their commitment to a full restoration.

On Monday, Republican legislative leadership sounded victorious presenting a budget that includes a fully restored Homestead Exemption.

“This budget is a win for all Coloradans,” said House Speaker Frank McNulty, R-Highlands Ranch, in a statement. “House Republicans committed ourselves to not increasing taxes on Colorado senior citizens … we accomplished all of this and more.”

Democrats also claimed victory, though their optimism had a note of caution. “I’m pleased that the economy has recovered enough to allow us to restore this tax exemption,” said House Minority Leader Mark Ferrandino, D-Denver. “We have always kept all options on the table, and we must continue to do so.”

The governor’s office, however, remains uncertain that a full restoration of the exemption is the prudent move for Colorado’s budget at the present time. Henry Sobanet, the governor’s budget director, points out that the administration wants to divert some of the additional revenue into the state’s crippled Education Fund, which is used to supplement school district spending for expenses such as state tests. Because enrollment is up in both K-12 and higher education, the governor’s office believes that district funding is still heavily pinched.

“Our proposal is that we set aside some money for the State Education Fund to be more solvent than it is, and to focus on the most needy seniors,” Sobanet told The Colorado Statesman. “That’s not where the budget is now, but we’re hoping to continue working with the budget committee.”

Still, based on Ziegler’s presentation, the JBC believes it now has sufficient revenue to restore proposed cuts, including a cut to higher education of more than $29 million and cuts up to $57.2 million for K-12.

Other state agencies and programs could also receive some of the additional money. One of the more controversial issues that the Legislature will need to address when debating the budget — colloquially known as the Long Bill — is whether to reverse a proposed 2-percent reduction in state agencies’ payrolls, which critics say would lead to layoffs.

The JBC on Monday split over whether to reverse the payroll-reduction proposal. The three Democrats on the committee — Sen. Pat Steadman of Denver, Rep. Claire Levy of Boulder and Sen. Mary Hodge of Brighton — all voted for restoring the proposed cuts. The three Republicans — Rep. Cheri Gerou of Evergreen, Rep. Jon Becker of Fort Morgan and Sen. Kent Lambert of Colorado Springs — all voted against restoration.

“We’re now at the point of spending money on things that aren’t required by law, restoring things faster than we had otherwise planned,” said Steadman. “And when I look at all the various cuts that are out there, and where are my priorities for what we’re going to restore … before we start going above and beyond what’s required by current law … I really want to have that conversation about the base personnel service reductions and the potential for layoffs.”

But Gerou pointed out that the proposal would cost an additional $20 million on top of what has already been spent.

“All of this is rather subjective,” she said.

The Long Bill is expected to be introduced in the House on April 4.