Money-starved JBC eyes Pinnacol’s fortune

By Jason Kosena

The hands of the Joint Budget Committee are tied.

With Colorado facing a $1.4 billion budget shortfall, the JBC announced last week that higher education could see $423 million in budget cuts in the 2009-2010 budget year. The cuts could force the closure of at least nine of the state’s community and junior colleges and devastate the rest of the system.

Students from a number of community colleges and state universities wave homemade signs and banners during a rally to save higher education funding at the Capitol.
Photo by Jason Kosena/The Colorado Statesman

“People don’t understand that our higher education facilities are not something that we can just shut down for a year and then reopen when the economy comes back,” said Sen. Bob Bacon, D-Fort Collins, the chair of the Senate Education Committee. “The ramifications of what we are discussing right now are tragic and long term.”

As they have in order to meet previous budget shortfalls, lawmakers are delving deep for untapped revenue to help offset the proposed cuts. Previously, the Legislature dipped into tobacco settlement money, asked voters for a timeout from TABOR and, this year, passed new fees on hospitals.

It’s not nearly enough.

So, at the last minute — as the Senate takes up the Long Bill — lawmakers, including Senate Majority Leader Brandon Shaffer and Republican JBC member Sen. Al White, are trying to pull one more revenue rabbit out of the legislative hat.

Enter Pinnacol Assurance, a quasipublic, state-created insurance company that provides workers’ compensation insurance. Shaffer and White are leading a charge to take $500 million of the Pinnacol’s $700 million surplus in order to offset cuts to higher education and to replenish state reserves.

The problem? Pinnacol’s assets are not owned by the state.

Sen. Rollie Heath, D-Boulder, speaks during the rally on Monday.
Photo by Jason Kosena/The Colorado Statesman

Pinnacol was created in 1915 as a state agency to provide workers’ compensation insurance for all employers, regardless of their field or industry. In 2002, the Legislature defined Pinnacol as a political subdivision of the state and gave it private autonomy and control of its assets. But, as a quasipublic entity, Pinnacol doesn’t pay federal or state taxes and has a board that is appointed by the governor.

Pinnacol management says the JBC’s attempt to raid its funds is illegal and has promised to challenge the state in court if the Legislature takes its funds.

“We are charged with protecting our assets, and we will do it in the legislative arena or, if we feel we have a strong case, in the judicial arena,” Pinnacol CEO Ken Ross said Tuesday, adding he understands the dire nature of the state’s budget crunch.

“I don’t want to see K-12 education or higher education get hit like this. No one wants to see that,” Ross said. “That doesn’t mean Pinnacol is the answer to the problem, though. This topic gets emotional, and now it’s (turned) into a conversation (of) ‘Should we cut higher education or have Pinnacol transfer $500 million to save higher education?’ I think that is the wrong approach.”

But there might not be other options.

The Legislature already has cut the senior homestead tax exemption, closed a prison, delayed the opening of another, cut funding to K-12 education, drained cash reserves, frozen state employee salaries and cut state agency budgets.

“This is an idea that can help us continue to fund higher education,” Shaffer said of using Pinnacol funds, adding that he is open to alternative solutions. “This was the best idea I was able to come up with.”

If Pinnacol does challenge the state in court, it could be a number of months — or even years — before the case is settled. And, with the state needing the money by as early as July 1, the time crunch is apparent. That could, however, open a window for compromise.

The urgency of the state’s need for the money and the desire of Pinnacol management not to see its funds handed over to the state government could lead both sides to the table.

Sen. Josh Penry, R-Grand Junction, addresses the rally at the state Capitol.
Photo by Jason Kosena/The Colorado Statesman

Ross said he already is talking with the JBC staff and with officials from Gov. Bill Ritter’s office about ways the state and Pinnacol can work together to fix the budget solution. He stopped short of handing the state money, however. Instead, Ross said, maybe the two entities can use Pinnacol’s funds as an investment vehicle to fund higher education.

“We want to be part of the solution, but, in our eyes, taking $500 million is not a solution,” Ross said. “I can’t even give you the general shape of what a compromise would look like. I can tell you that we have a $2 billion asset base that we invest, and there might be some vehicles that we can look at, an investment that we could structure that could help higher education. But talks about that are just starting.”

Shaffer told reporters on Tuesday that compromise is a viable option, adding that it’s often hard to get parties to talk until an actual bill is on the table.

“I am open to hearing new solutions and ideas,” Shaffer said. “I don’t think anyone is locked into (one) course of action at this point.”

Republican lawmakers and the business community were quick to criticize the plan, calling it an overreaching act of government to take over a private firm’s assets, bringing Colorado a step closer to socialism.

As they decried the proposed cuts to higher education, Republican leadership was unable to provide any alternative solutions to the funding crisis. A lack of alternative solutions didn’t
stop the critical nature of their comments toward the Pinnacol plan, however.

“I made comments when we busted the 6 percent (spending) limit... that we are going down the road of a failed experiment that California has already tried,” said Sen. Ted Harvey, R-Highlands Ranch, adding that he believes the state is slowly doing away with its fiscal restraints.

“Now, we truly have government taking money from a private company and taking over a private company to solve our problems,” Harvey said. “Margaret Thatcher said the only problem with socialism is that it doesn’t work when you run out of other people’s money. I am a ‘no’ vote to socialize Colorado.”

Students from Metro State protest proposed cuts to higher education on Monday on the West Steps of the state Capitol.
Photo by Jason Kosena/The Colorado Statesman

Colorado college students took note of the looming budget cuts this week that could cause tuition at state institutions to increase 30 percent or more for in-state residents.

During a rally on the West Steps of the Capitol on Monday morning, nearly 150 students held homemade signs and cheered for a more stable funding scenario for higher education. Sens. Josh Penry, R-Grand Junction; Bob Bacon, D-Fort Collins; Rollie Heath, D-Boulder, and Al White, R-Hayden, attended the rally and encouraged students to keep fighting for higher education.

But, let there be no doubt, it was very apparent where some of the lawmakers see the answer to the students’ plight.

“I saw a sign out here that said ‘WTF, where’s our funding?’” White said to cheering students. “And I am going to tell you, OMG! Pinnacol has got it!”