Colorados Unique Tax Code Carol Hedges Executive Director
Colorados Unique Tax Code Carol Hedges Executive Director Colorado Uses Constitution For Tax Policy Makes Changes More Difficult Results in many work arounds to adapt to changing circumstances Implies that tax policy rises to the level of civic principles Revenue moves with economic activity Constitutional Tax Policy does not REQUIRES VOTERS TO BE THE INFORMED TAX POLICY DECISION MAKERS Timeline of Fiscal Policy Action Prop 103 Negative Factor, Mill
2005 2007 2009 2011 2013 2017 2016 Three basic pots of money in the State budget $32.5 billion total budget in FY2019-20 28.77% Federal Funds 40.11%
$8.75 billion General Fund $12.2 billion 31.11% Cash Funds $9.46 billion Total budget includes $2.1 billion reappropriated funds General Fund Revenue Sources Sales, use, and excise taxes 29.00% Other Sources
3.00% 7.00% Corporate Income Taxes FY2019-20 $12.6 billion other is insurance premium taxes and a few others Individual Income Taxes 61.00% What does the money buy? Courts 0.49% Other
Transportation Public Health Human Services 8.56% 6.16% 5.05% 36.14% Schools 9.13% Colleges 8.62% Public Safety
25.85% Healthcare FY2019-20 Colorado General Fund $12.2 billion Constitutional Policy Gallagher Back to 1980s. Local Share K-12 Funding Mix 46.00% State Share
54.00% Difference Between CO and US Per Pupil Funding $600 $500 $400 $300 $200 $100 $0 $551.98 1982 Residential Assessment Rate 21% Explanation: Gallagher Amendment
Adopted by voters in 1982 Creates uniform method of property assessment Requires periodic reappraisal Establishes the percent of state property tax revenue that can be generated by residential and commercial property (roughly) (45% res 55% com) Sets the commercial assessment rate at 29% Statute set residential assessment rate at 21% Context: Gallagher Amendment Inequities in property valuation system were creating discontent Residential property was becoming more important in the overall property tax picture Property tax revolts were arising across the countryProp 13 in California Needed a broad coalition to pass the constitutional measure at the ballot A Little Detail on Property Taxes
Property Tax = Property Value X Assessment Rate X Mill Levy determined locally by market value set by the state by property category e.g. residential, commercial established at local district level X 7.2% = $25,220 X 80 mills = $2,018 $350,000 X 29% 7.2% xx 21% Residential Assessed Value
~45% Non-Residential Assessed Value ~55% Market Value Today is 75% Residential which well exceeds the target of 45% Resident ial 77% Nonresidenti al 23% Market Value Residential 45% Nonresident ial 55%
Target Share TABOR: Art X Section 20 Back to 1992. CO and US Per Pupil Difference Residential Assessment Rate 14.34% $800 $600 $400 $200 $0 ($200) ($400) ($600)
($620.21) ($800) 1982 1992 Taxes as a Percentage of the Economy 4.6% Peak: 4.4% 4.4% 4.2% 4.0% 3.8% 3.6% 3.4% 3.2%
3,000,000 Denver Broncos were 8-8 under head coach Dan Reeves Context: TABOR Residential Assessment Rate fallen to 14.34% from 21% in 1982 Presidential election year. Strong support for Ross Perot. Amendment limiting civil rights for gays on ballot Just coming out of national recession and collapse in shale market. Explanation: TABOR Taxpayers Bill of Rights is an amendment to the Colorado Constitution approved by voters in 1992 It passed the fifth time that a tax and/or spending limitation had appeared on the ballot since 1978, and the third time a comprehensive limit had appeared Explanation: TABOR (Article X Section 20)
Major Provisions Constrains the Legislatures Choices Caps Revenue Limits Options Sets Election Provisions Explanation: TABOR (Article X Section 20) Major Provisions Constrains the Legislatures Choices The Legislature Cant Raise Taxes Art X Sec 20 (4): districts must have voter approval in advance for: any new tax, tax rate increase, mill levy above that for the prior year, valuation for assessment
ratio increase for a property class, or extension of an expiring tax, or a tax policy change directly causing a net tax revenue gain to any district. Explanation: TABOR (Article X Section 20) Major Provisions Limits Options The Legislature Cant Use the Certain Policy Options for Taxation Art X Section 20(8): Revenue limits. (a) New or increased transfer tax rates on real property are prohibited. No new state real property tax or local district income tax shall be imposed. Neither an income tax rate increase nor a new state definition of taxable income shall apply before the next tax year. Any income tax law change after July 1, 1992 shall also require all taxable net income to be taxed at one rate, excluding refund tax credits or voter-approved tax credits, with no added tax or surcharge. Explanation: TABOR (Article X Section 20) Major Provisions Sets Election Provisions
Ballot Titles Focus on Money not Purpose: (Art X Section 20 Sec 3 (c)) Ballot titles for tax or bonded debt increases shall begin, "SHALL (DISTRICT) TAXES BE INCREASED (first, or if phased in, final, full fiscal year dollar increase) ANNUALLY...?" or "SHALL (DISTRICT) DEBT BE INCREASED (principal amount), WITH A REPAYMENT COST OF (maximum total district cost), ...?" Explanation: TABOR (Article X Section 20) Major Provisions Caps Revenue The Legislature Cant Use the Money it Collects At Current Tax Rates (Article X Sec 20 Sec 7) State revenue cant grow faster than the change in the rate of CPI + Population Growth State cap is set to the rate of inflation and population growth. County cap is set to the rate of inflation and local growth (% change in real property) School cap is student growth and local growth What are TABOR Rebates? When state revenues (Fiscal Year Spending) exceed a voter approved
cap, the Colorado Constitution requires money be refunded to taxpayers. Reasonable Means to Return Money districts may use any reasonable method for refunds under this section, including temporary tax credits or rate reductions -Colorado ConstitutionArticle X Section 20 Legislators decide the method to return money above the cap Currently 3 Mechanisms: Senior Homestead Property Tax Exemption Six-tier sales tax mechanism Temporary reduction in the income tax rate Revenue Subject to TABOR Comes from Taxes and Fees $16,000 $14,000 $12,000 $10,000
18 7 20 1 19 8 Time Out Cap Formula Doesnt Measure What Government Buys Inflation and population growth are not good measures of spending for governments CPI-U measures what consumers buy like food and housing but doesnt
accurately measure the cost of providing for the growing cost of services like education, transportation and healthcare. Percent Change in CPI-U Segments 1993-2013 187% 200% 180% 160% 124% 140% 120% 98% 100%
72% 66% 80% 60% 40% 20% 0% The formulas blunt measure of population growth doesnt acknowledge that some of the fastest-growing populations place a higher demand on government services. Projected Population Growth for 2012-2040 132%
140% 120% 100% 80% 60% 55% 50% 40% 20% 0% Total population Source: Institute on Taxation and Economic Policy A Closer Look at TABOR 65+ population school-age population
Amendment 23 Back to 2000 CO and US per pupil difference 57.00 % 43.00 % local share state share $800 $600 $400 $200 $0 ($200) ($400)
($600) ($800) ($1,000) ($1,200) ($927.98) 1982 Broncos were 11-5 under Mike Shanahan 1992 1994 2000 Residential Assessment Rate 9.74%
Context: Amendment 23 During the 2000s, back to back recessions resulted in reductions in state revenue. Despite growing economy of the 1990s, per pupil funding for schools in Colorado did not keep up with inflation. This had a lot to go with Gallagher, TABOR, and the School Finance Act. Explanation: Amendment 23 Adopted in 2000 by voters Diverted a portion of state income tax to a reserve fund (State Education Fund) for schools For 10 years, it required per pupil funding to grow by inflation plus 1% Required growth in per pupil funding (categorical funding and base funding) of at least inflation in perpetuity Required state to use general funds for K-12 funding as well as reserve funding unless in a recession Response: Amendment 23 Amendment 23 protected K-12 per pupil funding for the first seven years of the decade.
The pressure on the rest of the budget resulted in significant pressure to change A 23 Referendum C Amendment 23 Context: Amendment 23 During the 2000s, back to back recessions resulted in reductions in state revenue. Despite growing economy of the 1990s, per pupil funding for schools in Colorado did not keep up with inflation. This had a lot to go with Gallagher, TABOR, and the School Finance Act. Explanation: Amendment 23 Adopted in 2000 by voters Diverted a portion of state income tax to a reserve fund (State Education Fund) for schools For 10 years, it required per pupil funding to grow by inflation plus 1% Required growth in per pupil funding (categorical funding and base funding) of at
least inflation in perpetuity Required state to use general funds for K-12 funding as well as reserve funding unless in a recession Back to 2000 CO and US per pupil difference 57.00 % 43.00 % local share state share $800 $600 $400 $200 $0
($200) ($400) ($600) ($800) ($1,000) ($1,200) ($927.98) 1982 Broncos were 11-5 under Mike Shanahan 1992 1994 2000 Residential Assessment Rate
9.74% Response: Amendment 23 Amendment 23 protected K-12 per pupil funding for the first seven years of the decade. The pressure on the rest of the budget resulted in significant pressure to change A 23 Back to 2005 CO and US per pupil difference 38.00% 62.00% local share state share $800
$600 $400 $200 $0 ($200) ($400) ($600) ($800) ($1,000) ($1,200) ($1,028.65) 1982 Broncos were 13-3 under Mike Shanahan 1992 1994
2000 2005 Residential Assessment Rate 7.96% Context: Referendum C Recession of early part of century plus the A23 transfers to SEF forced significant reductions in revenue Amendment 23 protected K-12 but caused pressure in other part of state budget. TABOR limit was based on prior years revenue which had the effect of locking in recession spending levels (ratchet effect) Explanation: Referendum C Adopted in 2005 by a statewide vote. Set aside the state spending formula for 5 years, eliminating the requirement to refund growth in excess of the limit. Changed the calculation of the formula to eliminate the ratchet
effect*. TABOR Revenue TABOR Limit Referendum C Cap Response: Referendum C $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Ref. C Timeout Period $0 19 9
9 8- 9 19 9 2 9- 0 20 0 0 0- 1
20 0 0 1- 2 20 0 0 2- 3 20 0 0
3- 4 20 0 0 4- 5 20 0 0 5- 6 20
0 0 6- 7 20 0 Total TABOR revenue Referendum C Cap 0 7- 8 20 0
0 8- 9 20 0 1 9- 0 20 1 1 0- 1 20
1 1 1- 2 20 1 1 2- TABOR limit base Timeout Ref C 3 20 1
1 3- 4 20 1 1 4- 5 20 1 1 5- 6
20 1 1 6- 7 Impact of Ref C Over $25 B in state revenue retained and used for education, health care and transportation How Does This Affect You? Low taxes--45th in the country You probably pay a larger percent of your income in taxes, on average, than the wealthiest Coloradans Fewer Tax supported services --unmet transportation and education needs Impacts of growth more difficult to address
AND YOU HAVE THE RESPONSIBILITY TO DECIDE WHATS NEXT We Cant Fix Our Upside Down Tax System Share of income paid in state and local taxes in CO $2,662 $8,979 $81,875 8.70% 6.40% 4.60% $30,600 $140,300 Household Income $1,779,900
Questions? Colorado Fiscal Institute 720-379-3019 www.coloradofiscal.org
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