Battle lines are forming in the legislature over what will undoubtedly be the biggest issue during the session this spring: the state’s dwindling budget, and how to avoid the train wreck that is looming for areas like K-12 education, which is likely facing a cut of at least $260 million in 2010–11.
It could mean a significant number of teacher layoffs, one legislator predicts, because the vast majority of school district budgets are spent on salaries.
And that’s before the oft-mentioned “cliff ” that the state is going to fall off financially in 2011–12.
Boulder County lawmakers, a couple of whom hold prominent positions in the budget talks, are considering ways to raise money for the state by ending tax breaks, while on the opposite end of the spectrum, a conservative group has succeeded in placing initiatives on the ballot that would cut taxes significantly.
The latter could effectively close down state government, considering the shortfall Colorado already faces, the county’s Democratic legislators say.
The state will have to slash about $1 billion from its 2010-11 budget.
Over the past decade, K–12 education has been one of the sacred cows thanks to Amendment 23, which requires budget increases of inflation plus 1 percent for schools. Other areas, specially higher education, endured deeper reductions because areas like Medicaid and K–12 education were held harmless by law.
But according to recent reports, that may be changing, as Gov. Bill Ritter and top lawmakers have adopted a new interpretation of Amendment 23 that they say allows them to cut school funding by 4.6 percent. There’s just not much left to trim except K-12 funding, they say.
Meanwhile, the teachers union, the Colorado Education Association, has cried foul, forming an Honor 23 advocacy group and hinting at a possible lawsuit if Amendment 23 is circumvented.
Rep. Jack Pommer, D-Boulder, is in the thick of it as chair of the House Appropriations Committee and vice chair of the powerful Joint Budget Committee. “We’ve sort of bottomed out on most everything else we can cut,” he says. “We’ve taken the short-term, easy money.”
The headlines about the budget crisis may become more of a reality for the average Colorado resident and start to hit home if the K–12 cut is approved and kids start losing their favorite teachers. Pommer says 80 percent to 90 percent of the average school district’s budget is spent on personnel, making layoffs likely.
Pommer believes the idea of eliminating an entire area of state government, such as higher education, is becoming a very real possibility. He notes that CU is already nearly privatized, since it receives only about 6 percent of its budget from the state.
Rep. Paul Weissmann, D-Louisville, adds, “We’ve essentially gotten what we asked for. [CU has] gone out an run themselves like a business instead of a university. I don’t think that’s what people want.”
Weissmann says the challenge will be to position the state for a quick recovery when the recession subsides.
“It’s a very tricky game, trickier than any other year I’ve been here,” he told Boulder Weekly. “You’re cutting the things that help grow the economy. An educated, prepared workforce helps grow the economy. … Where does that put us five, 10, 15 years down the road?”
Exacerbating the issue, Pommer says, is that lawmakers have used one-time money like federal stimulus funds to avoid cuts for the time being. “Even if the economy starts to recover, the first few hundred million that comes in will be used to fill in for temporary funds that are going away,” Pommer explains, adding that most of that money runs out after the next fiscal year. “All hell breaks loose in the 2011–12 budget. Everything we want to do is going to be inhibited by that.”
To have to back off on strides that have been made with state funding in areas like K–12 and early intervention for kids with disabilities is “agonizing,” Pommer says.
‘This is not pretty’
Sen. Rollie Heath, D-Boulder, agrees. “That’s the last thing we should be doing,” he said of the cut to K–12 education. “I don’t think we’re being fair to our kids so that they can be competitive. … I’ll probably shed a tear signing off on this budget. … This is not pretty, and a lot of people are going to suffer.”
Heath chaired the state’s Long-Term Fiscal Stability Commission, which met this past summer and fall and produced a host of recommendations, proposed legislation and two ballot initiatives for the November 2010 election.
The first initiative would create a 19-member commission charged with examining the fiscal policies contained in the state Constitution. That group would meet during 2011–12 and would submit proposed changes to the state’s voters for approval in November 2012.
Heath acknowledges that the state will have fallen off its financial cliff a year and a half before any proposed solutions can be enacted. “2011–12 will be the most difficult year,” he says.
The second ballot initiative proposed by Heath’s commission would charge the University of Denver with conducting a comprehensive, nonpartisan study of the state’s tax structure, in an attempt to find ways to adequately support local and state services. “We haven’t done a tax study in 50 years,” Heath says, adding that Colorado taxes rank among the lowest in the nation. “Taxes, in my mind, are an investment.”
Still, he maintains that the efforts to examine the Constitution and the tax structure are not driven by any agenda to raise taxes. He says he does not want to prejudice the outcome.
But the county’s Democratic lawmakers have launched efforts to raise tax money and bolster the state budget by trying to end some of the tax breaks enjoyed by large developers and corporations.
Rep. Dickey Lee Hullinghorst says she is working with Heath on a bill that would set lower limits on the state and property tax credits enjoyed by businesses operating in enterprise zones.
She says the tax credits would still benefit small businesses, but not huge corporations to the extent that it has in the past.
Another bill she is proposing would address tax increment financing (TIF), which many municipalities use as a way to attract developers. For instance, Hullinghorst says, a city wanting to develop a parcel of open space or agricultural land can declare the property as “blighted” and use TIF to freeze the property tax rate for the developer. Any future increases in property tax are then returned to the developer to help pay for the project.
The problem, she says, is that the municipality’s lost propertytax revenue means less money for local special districts, and in the case of school districts, the state is forced to make up the difference. In 2008, according to Hullinghorst, $120 million in property taxes was returned to developers statewide, and the state had to pay half that amount to backfill school districts for what they had lost.
Her bill would require cities to work with local special districts, county government, school districts and the state to ensure that there is property tax revenue-sharing, so that such money is not returned solely to developers. She is calling for more transparency and accountability, and fewer “back-room deals” between city officials and developers’ attorneys.
The natural argument against these tax-break rollbacks, of course, is that they are not being business-friendly during a time when the economy needs a jump-start. Hullinghorst responds that if a development is not financially sustainable without the benefit of TIF, maybe the risk shouldn’t be placed on people’s taxes. She says she supports other, more direct incentives for business, and the state can’t afford to keep backfilling school districts when this other revenue stream is available.
“This could take us quite a ways to helping us balance the budget,” Hullinghorst says. “We’re reaching the bottom of the barrel in terms of what we can pay for, like higher education. … I think it’s been a deep, dark secret for too long that we’ve been giving tax breaks to the wrong people.”
For his part, Weissmann is proposing a bill that would require reviewing tax credits within a certain number of years of their enactment. He cites enterprise zones that successfully spawned development and are now thriving as possible areas to pull back on tax breaks.
“LoDo is an enterprise zone,” Weissmann says. “Haven’t they made it?” He also points to the enterprise zone in the area of the World Arena in Colorado Springs. “They don’t need the help anymore, but no one ever reviews them.”
More tax cuts?
The locally elected lawmakers say they are keeping a close eye on the ballot initiatives aimed at taking the opposite approach — decreasing taxes even further. Some say the group behind the measures has connections to Colorado Springs anti-tax crusader Douglas Bruce, the father of TABOR (Taxpayer’s Bill of Rights).
On Dec. 4, the Secretary of State ruled that organizers had collected enough signatures to land two of them on the November 2010 ballot.
One measure would reduce property taxes, one would limit the state’s borrowing, and the third targets several other types of taxes and fees, including income tax and charges for motor vehicles and communication devices and services.
“These proposals are reckless and mindless,” House Speaker Terrance Carroll, D-Denver, told The Denver Post.
Pommer agrees that the scariest issue on the horizon is some people’s “fanaticism about not cutting taxes.” The problem, he says, is that Colorado has cut taxes too many times in the past. “When we’re in an economic downturn and still giving all of these tax breaks, it’s appalling,” Pommer says. “We just can’t give away any more tax revenue.”
Heath, like Pommer, cites the three tax-cutting measures as the most troubling thing on his radar. “We’re going to have to spend a lot of time and effort beating them back,” he says.
Hullinghorst also held up the ballot initiatives as a threat. “I can’t imagine anyone doing that with a straight face, considering the state of our budget and the tax rollbacks we’ve already had.”
Weissmann adds that state leaders may just have to lay out the numbers for the public and say, “This is what you’re getting for your money. What kind of state do you want? Maybe you want a different state than we think you want. … Those ballot initiatives will allow us to have that conversation.”
Asked whether he expects a ballot measure extending Referendum C, the 2005 measure that served as a “timeout” for the state’s TABOR spending limit, Pommer said the state’s revenue has dropped so significantly that TABOR has become irrelevant — it will be a long time until the state’s budget gets back to a level even approaching that limit.
“We’ll hit it at some point, but by then, this state won’t be recognizable,” he says.
(Sen. Brandon Shaffer, D-Longmont, could not be reached for comment.)