Where are We Now? Economic Indicators By the main economic indicators, Colorado’s economy is doing really well. *Colorado’s Economy (GDP) Growing at 4.1% This is faster than U.S. GDP at 2% and faster than Colorado pre-recession (2001-2007) average growth rate of 2.3% *Source: Bureau of Economic Analysis 2012 to 2013 state GDP **Source: Bureau of Labor Statistics LAUS
Where are We Now? Rebounding Economy but Not for Everyone Source: Economic Policy Institute analysis of Current Population Survey data *Source: Saez (2014) “Striking it Richer” Real wages have fallen for low- income working Coloradans. Low wage workers saw the greatest job losses during recession Median Income is still below pre- recession levels---down 5.2% since 2007. 95% of all economic growth in the U.S. in the three years after the recession went to the top 1% of earners.* Led Standard and Poor’s to reduce the 10-year U.S. growth forecast from 2.8% to 2.5% “because inequality’s drag on long-run economic growth.”
What Does this Mean for State Budgets? TABOR Rebates: When state revenues (Fiscal Year Spending) exceed a voter approved cap, the Colorado Constitution requires money be refunded to taxpayers. The Colorado Constitution says state revenue can’t grow faster than inflation and population.
Caseload Growth and Costs Will Out-Pace Inflation and Population CPI-U measures what consumers buy like food and housing but doesn’t accurately measure the cost of providing for the growing cost of services like education, transportation and healthcare. The formula’s blunt measure of population growth doesn’t acknowledge that some of the fastest-growing populations place a higher demand on government services. Source: Institute on Taxation and Economic Policy “A Closer Look at TABOR”
Changes in the Demographics During the next 15 years, the aging of the population will: – Change the housing mix, likely dampening growth in housing values and the property tax base; – Change income and spending patterns, likely dampening growth in the income and sales tax bases; and – Increase demand for government services, applying further budget pressure on governments. – The economy is still recovering and must work through debt and imbalances before growing again at potential.
Structural Issues in our Tax Code Gas Tax: 22 cents a gallon since 1991 Lost purchasing power and more fuel efficient cars $ $ $1.00 in 1991 $0.40 today
Children make up 44% of enrollment but account for only 18% of total costs Adults make up 43% of enrollment and account for 39% of total costs Elderly/Disabled make up only 13% of enrollment but account for 43% of total costs Enrollment versus Cost by Population
Impact of Current Estimates (Legislative Council) Capital Construction Fund Highway Users Tax Fund FY 2015-16 $51.2 million $25.6 million $0 $205 million $102.5 million $0 FY 2016-17 $55.5 million $27.8 million $0 $222.1 million $111 million $0 1.2% of GF Rebate Expected ($120 m) 5.4% of GF Rebate Expected ($620 m) ***Legislative Council Estimates Current TABOR refund 1-3% TABOR refund above 3%
Marijuana Rebate not Related to Revenue Cap Blue Book Estimate FY 2014-15 December Estimate FY 2014-15 State spending without new taxes State revenue from new tax $12,080 $12,299 $67 $58.7 (dollar figures in millions)
TABOR Rebates Impact Money Available for Transportation and Capital Construction If TABOR rebate is 1-3% of General Fund then transfers are cut by half. If TABOR rebate is above 3% of General Fund, the transfer is eliminated.
Income Tax Reduction Rebate Mechanism State income tax rate is temporarily reduced from the current rate of 4.63 percent to 4.5 percent. The rate reduction will occur in the tax year following the fiscal year that the revenue cap is exceeded. – For example, if we exceed the revenue cap in FY 2014-15, the income tax rate would be reduced in tax year 2015, and would return to 4.63 percent in tax year 2016.
Earned Income Tax Credit Rebate Mechanism The Earned Income Tax Credit (EITC) is a tax credit for low and middle income working families. Colorado EITC equals 10 percent of the federal EITC. Becomes permanent after first rebate payment.
Six Tier Sales Tax Rebate Mechanism Money is returned to taxpayers based on where their adjusted gross income falls within 6 adjusted gross income tiers. Taxpayers Rebate Per Taxpayer Rebate as Percentage of Income Tier 11,138,972 $ 240.121% Tier 2877,339 $ 320.081% Tier 3567,442 $ 370.062% Tier 4295,956 $ 440.055% Tier 5141,544 $ 480.040% Tier 6234,718 $ 770.022% Total3,255,972 ***assuming a $115 million 6-tier sales tax rebate
Revenue Refunded to Taxpayers from TABOR Rebates 1997-2001
TABOR Revenue Growth Out-Paces the Cap During Good Times Source: Legislative Council December 2014 Revenue Projections FY2014-15FY2015-16FY2016-17 Growth in TABOR Revenue 5.2%5.8%8.0% Inflation + Population 4.3%4.4%4.2% Inflation 2.8%2.7%2.5% Population 1.5%1.7%
Marijuana Rebate not Related Revenue Cap Colorado Constitution—Article X Section 20 (3) ELECTION PROVISIONS: (b)……Except for district voter-approved additions, notices shall include only: … (iii) For the first full fiscal year of each proposed district tax increase, district estimates of the maximum dollar amount of each increase and of district fiscal year spending without the increase. …. (c) Except by later voter approval, if a tax increase or fiscal year spending exceeds any estimate in (b) (iii) for the same fiscal year, the tax increase is thereafter reduced up to 100% in proportion to the combined dollar excess, and the combined excess revenue refunded in the next fiscal year. (2)(e) "Fiscal year spending" means all district expenditures and reserve increases except, as to both, those for refunds made in the current or next fiscal year or those from gifts, federal funds, collections for another government, pension contributions by employees and pension fund earnings, reserve transfers or expenditures, damage awards, or property sales.
Money Retained from Referendum C Referendum C five-year timeout period Forecast period
TABOR Rebates Triggers SB 228 Reductions General Fund (Leg. Council) estimate for FY 2015-16 is: $10.2 billion 1% of General Fund revenue = $101.6 million 3% of General Fund revenue = $304.8 million TABOR Rebates FY2015-16 $120 million FY2016-17 $620 million
What SB09-228 Allowed State to Spend Growth in General Fund Spending Extra Spending FY 2012-13 6.1% $9.7 million FY 2013-14 6.8% $71 million FY 2014-15 10% $397 million
Rebates affect General Fund spending in many ways Rebates impact money available for Transportation and Capital Construction? Years with No TABOR Rebates: Use/Fund Year 1 of Transfer Year 2 Years 3,4 and 5 Capital Construction Fund Amount equal to 0.5% of total General Fund revenues Amount equal to 1% of total General Fund revenues Highway Users Tax Fund Amount equal to 2% of total General Fund revenues Amount equal to 2% total General Fund revenues Amount equal to 2% of total General Fund revenues If TABOR Rebates Equal : Less than 1% of General Fund revenues More than 1% but less than 3% of General Fund revenues More than 3% of General Fund revenues No reduction 50% reduction 100% reduction No reduction 50% reduction 100% reduction
Computing the Cap The highest revenue year during the Ref C period was FY 2007-08 and revenue was $9,998.6 million so it established the new base. Each year after FY 07-08, the cap was adjusted as required by Ref C. The FY 2013-14 cap is $11.85 B.
EITC Recipients Haven’t Recovered Only 5% of all economic growth in the three years after recession went to the bottom 99%. Real wages have fallen for many EITC Recipients Low wage workers took the brunt of the recession
How the money is returned depends on the size of rebate Six-Tier Sales Tax Refund Refund Amount: up to $97.7M Six-Tier Sales Tax Refund Refund Amount $11.9M to $208.M Earned Income Tax Credit Trigger Amount: $97.7M Refund Amount: $85.8M Earned Income Tax Credit Trigger Amount: $97.7M Refund Amount: $85.8M Temporary Income Tax Rate Reduction Trigger Amount: $294.6M Refund Amount: $196.8M Six-Tier Sales Tax Refund Refund Amount $12 M or more Source: Dollar amounts are based on the June 2014 Legislative Council staff forecast. …up to $97.7 million …$97.7 million to $294.6 million …$294.6 million or more If, in FY 2014-15, the TABOR revenue in excess of the cap is …
The Conundrum: Public Investments Haven’t Recovered from Back to Back Recessions Higher Education is much more expensive for CO families. - In 2000, families paid 32% of college costs - In 2013, families paid 66% of college costs K-12 is $890 million below what was agreed upon by voters - spending $2,000 less per pupil than the national average. 31% of Colorado’s major urban highways are congested while the average Denver commuter wasted 24 hours in traffic in 2013.
Ways to Address the Conundrum changes in what counts as revenue subject to the cap elections that allow the state to keep revenue above the cap significant changes to the constitution. *(proposals to reduce revenue collections)
Legislative Actions to Change What Revenue is Counted Making Division of Wildlife an enterprise Making higher education an enterprise
Factors Affecting Estimates Rate of growth of income taxes, sales taxes, other taxes and all fees all factor into growth in TABOR revenue. Inflation rates as measured by CPI affect the size of the cap. The rate of change in population in Colorado also affects the size of the cap.
Unequal Recovery Limits Economic Growth 1.Middle class spending, because of flat income growth, is too weak to be a driver of recovery 2.Lack of resources to invest in education and business development leads to reduced opportunity 3.More booms and busts 4.Vicious Cycle Wages Stagnate Workers buy less Less Economic Activity and less Tax Revenue Government Cuts Programs Unemployment rises
Economic Growth Equates to Growth in State Revenue Collections December Revenue estimates show growth of over $400 million since March of 2014. (OSPB difference March to December of 2014--$430.3 m)
Relevant Definitions Enterprise- A government owned business that can issue its own revenue bonds and receives less than 10% of its annual revenue in grants from Colorado state and local governments. The revenue from an Enterprise is not counted as TABOR revenue. Fiscal Year Spending- The legal term used in TABOR to denote the amount of revenue TABOR allows the state to keep and either save or spend. De-Brucing- Elections held to ask voters if the “district” can keep the money collected above the revenue cap. TABOR does not include mandatory ballot title language for these elections.