PERA reform: One size fits most


The hardest part about pension reform is explaining it to the majority of public and private sector employees that are not guaranteed a specific retirement income in their retirement years. Trying to fulfill obligations of billions of dollars may not compute to those that sweat over their 401(k) or 401(a) performance, stress over whether they can kick in another percent or two to a 457 or IRA, and often wonder what they will have in their retirement years.

There is, however, one incontrovertible fact. Similar to a credit card, the balance due has to be paid to employees that enter retirement having faithfully participated in a pension plan and played by the rules in place. Unlike a credit card, bankruptcy for a public pension is not an option. Obligations have to be paid.

At this point, it matters less how the Public Employees Retirement Association (PERA) got to the point it is at now than it does how PERA moves forward on two fronts. One, how does PERA chip away and eliminate its unfunded liability? Two, what – if any – changes will be made going forward? The first question is the most urgent at this time because every day that goes by exacerbates the unfunded liability. Simply put, the grand reforms in 2005, 2006 and again in 2010 that were supposed to stem the losses were not enough.

If those unfamiliar with pensions were lost before, then trying to explain how each division of PERA is calculated separately might finish them off. People explaining that it would currently take as much as 78 years to fully fund the State and School Divisions of PERA rarely mention that the Local Government Division (LGD) timeframe is more like 45 years. Neither of these fall within PERA’s laudable goal to have all divisions fully funded in 30 years, but it illustrates that the LGD is in a much better situation than PERA’s other divisions.

Before the legislative session, both PERA and Gov. John Hickenlooper proposed plans to fully fund PERA in 30 years. While elements of the plans varied, the result for the LGD was full funding in 18 years under PERA’s plan and 19 years under Hickenlooper’s plan. The takeaway is that the LGD can be afforded a lighter touch than the other divisions and still meet the goal of full funding in 30 years.

There are 27 municipalities that are members of the PERA LGD – from Colorado Springs, Boulder, and Pueblo to Alma, Eckley, and Rico. Some of the municipalities are also in Social Security – an extra contribution required for the town and the employee. The impacts of increased contributions on both the employer and the employee are worthy of larger discussion, but they are significant. The League stands firm that if they can be minimized, then they should be minimized.

To that end, CML will advocate for proportional treatment of the Local Government Division in any legislation proposed this session:

  1. CML and PERA Member Municipalities support the goal of passing legislation in 2018 that will allow PERA to achieve 100% funded status in all divisions in 30 years or less with the following inclusions:
    1. Oppose any additional employer contribution in the Local Government Division.
    2. Support the governor’s proposal that employee contributions for new employees in the Local Government Division should be the same as current employees
    3. Support a reduction of the proposed additional employee contribution for employees in the Local Government Division
  2. CML and PERA Member Municipalities retain the discretion to oppose fixing in state statutes an automatic ratchet-up contribution mechanism that would:
    1. Unnecessarily create another automatic trigger affecting budget and revenue (i.e. TABOR, Amendment 21, Gallagher)
    2. Create budgetary impacts when local governments would be focused on reducing new costs in the budget to avoid layoffs or program cuts
    3. Bypass the legislative process that should rightfully be part of any potential increase in the expenditure of taxpayer dollars

Setting PERA on the path to good fiscal health is imperative to all Coloradans. Doing so in a fair and equitable manner to each current member and retiree is equally imperative, and applying the necessary prescription to heal the Local Government Division on its own merits is the only appropriate cure.


Spend it all now or protect rural Colorado? We can do both

The allure of “found money” is almost too much to resist. The $20 you find in your jacket pocket is money you never expected to have so what’s the harm in blowing it?

That is nearly the narrative that is beginning to play out at the Statehouse in a session that is not even a week old yet. But first let’s rewind:

  • SB 17-267, over the veryMake It Rain strong objections of many Republicans, changed the hospital provider fee (HPF) program to an enterprise, thus removing the revenue from that counting against the state’s TABOR revenue limit.
  • In addition to a multitude of other deals cut in what became a Christmas tree bill, Republicans secured a $200 million reduction in the state’s TABOR cap. They actually wanted to reduce the TABOR cap by an amount equivalent to that of the HPF money – over $800 million. That becomes important.
  • The mechanics of the federal tax relief bill, the Tax Cut and Jobs Act (TCJA), will actually cause an increase in state income tax collections – new revenue that counts against the state’s TABOR limit.

Luckily for those that argued for the nearly $1 billion reduction in the state’s TABOR limit, the “deal” only reduced it by $200 million. Even with the new income tax revenue from the TCJA, the state is still almost $570 million under its TABOR limit. Found money!  And now everyone in the Statehouse is clamoring to spend it…transportation, K-12, health care, and others.

They are all worthy causes, but is it really “found money”?  Is it wise to spend it – or more significant, is it wise to make long term fiscal commitments with it? By FY 19-20, the room under the TABOR cap is cut nearly in half. It does not take an economist to figure out that, barring a recession, Colorado will be right back up against the TABOR limit soon enough.

That presents a massive threat to rural Colorado. Past is prologue, and when the state exceeded its TABOR limit in 2015, the legislature wasted no time in appropriating severance tax revenue that mitigates energy impacts in local communities and supports state water and environmental programs. When it happens again, severance tax revenue is now the only stream that will be in the bullseye, thanks to SB 267.

One might argue the state could use some of the surplus to repay some of the $400 million siphoned from local governments’ severance taxes from 2008-2013 that kept the state budget afloat during the recession. Like the much larger K-12 “negative factor,” municipalities still view that as borrowed money that rightfully should be restored. The diversions nullified over $1 billion in jobs and infrastructure in rural Colorado, where Gallagher has bludgeoned local budgets and the economy has not thrived like the Front Range.

So perhaps it is time to stop and take a breath. Before trying to lock in multiyear bonding commitments for transportation that limit the state from protecting severance taxes in future years or spend down all the “found money” on other programs, it might be wise to look at solutions that protect rural Colorado.

The General Assembly can start by referring a question to the voters to debruce severance tax revenues. Unlike SB 267, the revenue would not go to an enterprise program, but the state would be off the hook for counting revenues that can swing wildly up and down from year to year. The catch is that the state can never divert the money and the tax structure remains unchanged – otherwise the debruced status of the funds goes away.

Removing that bullseye from key water programs and rural Colorado should be the first step in figuring out how to spend “found money” – not the last.

Impacts of 2016 market shifting liquor bill still to come…along with more bills

SB 16-197 more than grocery stores selling liquor

The background in brief

In the waning days of the 2016 legislative session, powerful alcohol beverage industry lobbyists gathered behind closed doors in the Colorado State Capitol. They labored to come to a fast (think six days) compromise that averted an expensive fight over a proposed ballot initiative to put beer and wine in any grocery store that wanted to sell it, instead of being restricted to 3.2 beer (fermented malt beverages). Had the initiative gone forward, the fight was sure to continue throughout the summer and fall and get quite expensive.


Grocery stores, which had tried for years to find a means to be able to sell at least beer and wine, had banded together to push the initiated statute onto the fall ballot. Retail liquor stores pushed back hard, fearful of the impact on them if grocery stores were able to sell two of their main products. Liquor store interests blinked first, and a series of complicated, if not poorly conceived compromises were woven into SB 16-197. Everyone cheered, patted themselves on the back, and the bill was signed into law by Gov. John Hickenlooper on June 10, 2016.

Gov. Hickenlooper said at the time that he “preferred the status quo” that was “unlikely to remain” – referring to the ballot measures waiting in the wings. He signed the bill saying that it “implements inevitable change in a measured and reasonable process,” having no reason to think that within a few months, some of the parties to the so-called compromise began to dispute the practical effect of some of the language to which they agreed.

In effect, the legislation:

  • Halted the issuance of any new retail liquor store licenses that were within 1500’ of an existing license (3000’ in municipalities under 10,000 population)
  • Allowed multiple liquor licensed drugstore (LLDS) licenses to be acquired by grocery stores, provided:
    • No retail liquor stores were located within 2500’ of the location
    • A grocery store acquired by purchase two retail liquor store (RLS) licenses within the same jurisdiction (or adjacent jurisdiction if one or both licenses were not available)
  • Set December 31, 2018 as the last day in which grocery stores that did not convert and convenience stores holding fermented malt beverage (FMB) licenses would be restricted to selling only 3.2% fermented malt liquor and allowing the sale of full-strength malt liquor.
  • Created a working group to talk about processes related mostly to #3, but also to investigate and recommend updates to alcohol beverage tastings statutes, whether or not RLS licensees should be able to fill growlers, and other miscellaneous items.

(For more comprehensive information on all the elements of SB 16-197, the Colorado Liquor Enforcement Division (LED) has a page dedicated to resources and bulletins on the bill and its implications)

Slow rollout since passage

A recent check showed that only two municipalities have been notified by a grocery store that it had begun the process of attempting to purchase two retail liquor store licenses in order to be able to acquire an additional LLDS license, as required by SB 197. It is still too early to tell, but the cumbersome and expensive process may be a limitation on new LLDS licenses. Score one for the retail liquor stores.

Regardless, the biggest impact of SB 197 has nothing to do with additional LLDS licenses, and it was an element hidden in plain sight in the bill that subsequently caused some of the parties to “the deal” to dispute whether the plain meaning in the bill was actually the intent. It matters little because – barring a change in the statute – the biggest change comes with the change in definition of “fermented malt beverage” effective on January 1, 2019 to include “malt liquor.” The result is that any FMB licensee may sell full-strength beer and any other beverage that is considered malt liquor.

That single issue dominated the discussions of the working group assembled by the LED, as directed by SB 197. It was clear from an early stage (late 2016) that liquor stores had realized the allowance for convenience stores and grocery stores to sell the same beer they sell was going to shift the market. At first, there was complete denial of the legal implications of the statute, followed by acceptance and proposals for a complicated new licensing scheme for FMB licensees. The League countered with a proposal that would change the licensing parameters for new FMB licenses but leave untouched those that were in place. In essence, the proposal was to treat new FMB licenses like retail liquor stores as it pertains to distance restrictions from schools, daycares, and higher education institutions. In the end, no one proposal was embraced.

What to expect in 2018

As the 2018 session draws near, it is clear that there will be at least one bill that attempts to alter the “automatic conversion” to full-strength beer by creating a new license for all FMB licensees. The new license would create certain limitations on grocery stores and convenience stores that want to continue selling beer and malt liquor. CML has authority to request legislation mirroring the proposal made during the interim, as well. However, if groups pushing the other proposal can incorporate key municipal issues, then there may be no need for a competing bill. That process will continue through the end of 2017 and into the next session.

Other legislation is likely, considering the myriad issues SB 197 created that changed beer and liquor business and licensing in Colorado in ways that have still not yet been fully comprehended. (i.e. updates to the alcohol beverage tastings statutes and prohibitions on open containers) The key for CML is ensuring that all existing local control is retained and that anything new also provide for similar or broader local authority. Stay tuned and cheers!

The future of civil asset forfeiture after HB 17-1313

CML was not quiet in our disappointment that HB 17-1313, so-called civil asset forfeiture reform, was signed by Gov. John Hickenlooper on June 9. The governor established a task force to identify further reforms and improvements to civil asset forfeiture in Colorado. The task force will present recommendations to the General Assembly. The first meeting of the task force is Thursday, August 10 and CML will be at the table.

The task force membership includes:

  • Colorado Department of Public Safety (CDPS) – Executive Director Stan Hilkey, Co-chair
  • Department of Local Affairs (DOLA) – Executive Director Irv Halter, Co-chair
  • Tim Neville, R-Littleton
  • Daniel Kagan, D-Cherry Hills Village
  • Leslie Herod, D-Denver
  • Stephen Humphrey, R-Severance
  • Representative from the Department of Revenue (DOR)
  • Representative from the American Civil Liberties Union
  • Representative from Colorado District Attorneys’ Council
  • Representative from the Attorney General’s Office
  • Representative from County Sheriffs of Colorado
  • Representative from the Colorado Association of Chiefs of Police
  • Representative from the Fraternal Order of Police
  • Representative from the Colorado Municipal League (Meghan Dollar)
  • Representative from Colorado Counties, Inc.
  • Representative from the Colorado Criminal Defense Bar
  • Representative from the Drug Policy Alliance
  • Representative from Office of the Independent Monitor, City & County of Denver

In his letter to the General Assembly, the Governor outlined a broad scope for the task force to work within. Unfortunately, the League asserts that scope expands outside of just implementing HB 17-1313. It adds topics such as due process protections and guidelines for how local law enforcement agencies may utilize the funds they receive through the federal forfeiture process. CML is troubled by attempts to use the task force as a vehicle to expand the impact of what is already very problematic legislation for law enforcement as it:

  • Limits law enforcement from going after dangerous criminal enterprises such as human trafficking, illegal drug and marijuana sales, and organized crime.
  • Establishes arbitrary thresholds based on unsubstantiated assumptions.
  • Creates an inappropriate role DOLA to collect fines from local governments.

Identifying the best way to implement the legislation while mitigating any impact to public safety should be the task force’s top priority and CML will represent that position.

Though the task force has yet to begin its work, HB 17-1313 is effective August 9th. In that light, CML drafted a white paper for interested municipal officials. The paper has answers to frequently asked questions surrounding the reporting requirement, potential fines, and when a seizing agency may participate in a share back with the federal government. This is a working document, and it may change as the task force forms recommendations. For example, DOLA is currently the state agency that is mandated to collect and compile reports from local law enforcement, and the task force may recommend that CDPS may be the more appropriate entity for this task.

Though HB 17-1313 is now law, the debate on civil asset forfeiture reform is far from over. CML would certainly like to see improvements made to the Colorado asset forfeiture system, and we look forward to taking part in that discussion. The task force must present recommendations to the general assembly by December 1. During that time, CML will update the necessary information to make sure municipalities have the right tools to ease implementation. This will also include any information related to the recent announcement that federal restrictions established during the Obama Administration would be rolled back.

In the meantime, any suggestions for CML staff to bring to the task force are welcome and should be emailed to Meghan Dollar.





A sales tax complexity lesson for the State

One of the crowning achievements of the 2017 legislative session was the grand compromise that ensured that hospitals around the state would not be penalized by the now repealed requirement that counted the hospital provider fee against the state TABOR revenue limit. The fee program is now an enterprise, and hospitals are now receiving all of what they are due from the state and the federal match.

That was the main goal of the bill. However, bipartisan support for fully restoring the hospital provider fee was only achievable because of a complicated array of related agreements. State highways will get about 10 percent of what they actually need, albeit more than they were going to get barring SB 267. (Local roads were not included). Schools will get some support.

A critical part of the deal was an increase in marijuana taxes that will fund other portions of the deal, such as a business personal property tax credit. However, the decision to exempt marijuana from the state’s base sales tax and increase the special sales tax rate was made on the fly. The resulting fallout has become a cautionary tale for many in the state that blame local sales taxes for being complicated but fail to look at state policies that muddy the waters.

 A “drafting error”?

While not the first to report on the issue, the Denver Post was the first take a stab at how the increase in the retail marijuana tax is hitting certain special districts that receive sales tax revenue right in the pocketbook. Understanding the problem requires understanding the short but complicated history of the state’s retail marijuana tax policy.


  • With the legalized sale of retail marijuana starting in 2014, the state began collecting sales tax revenue from the state’s 2.9% base sales tax. The revenue is subject to TABOR and counts against the state’s revenue limit.
  • The state also began to collect sales tax revenue from the state’s 10% special sales tax authorized by voters in 2013 (Proposition AA). The measure established the initial 10% rate, debruced the proceeds of the tax, and allows the legislature to increase the tax to a rate no higher than 15% without additional voter approval.
  • Previous legislation would have reduced the special sales tax to 8% this past July 1, but proposals for increasing the tax and using the revenue for various non-marijuana related programs began last fall.
  • As part of the SB 267 compromise, the legislature agreed to increase the special sales tax to the maximum 15% allowed and eliminate the state’s base sales tax on retail marijuana by exempting it. (This last piece is what started all the trouble). The net result was to increase the total state tax on retail marijuana from 12.9% to 15% – all exempted from TABOR.

As a general rule, changes in the state sales tax base automatically apply to statutory entities – statutory municipalities, counties, and special districts. With over 80 different state sale tax exemptions on the books and legislation every session that propose more, the Colorado Municipal League is perennially busy ensuring that the state’s decision to exempt something from its own base does not automatically exempt it in statutory municipalities. (Home rule municipalities are thankfully unaffected by state exemptions, and such decisions on exemptions are purely local)

The process was no different for SB 267. Prior to the compromise language being adopted, CML Legislative Counsel Dianne Criswell worked with the sponsors and drafter to make sure it didn’t impact statutory municipalities, and CML’s language also gave counties the same cover. Amazingly, no one thought of sales tax collecting special districts like RTD and the Scientific and Cultural Facilities District (SCFD), and the oversight was referred to as a “drafting error.”  But was it a drafting error or rather an error anticipating consequences? Those districts have always followed the state’s tax base. In fact, the League is not aware of any special language exempting special districts in any prior sessions, but there likely was not as much revenue at stake as there is now.

A complex State of affairs

Retail marijuana is now exempted from the state’s base sales tax, while it will continue to be taxed at the local level in municipalities that approve sales. In the upcoming legislative session, it is guaranteed legislation will be introduced to eliminate the state base exemption for RTD and SCFD. Such legislation may even include reparations for the “error.”

Proposals at the statehouse for sales tax exemptions are often more about politics than fiscal policy, and state exemptions chip away at the state’s base. There may be value in the state examining the over 80 other sales tax exemptions it has given, which no doubt create numerous challenges to businesses trying to determine what is taxable and what is not. In fact, there were at least five bills in the 2017 session, in addition to SB 17-267, that would have created new exemptions. One of them was signed into law by Gov. Hickenlooper.

As the discussion unfolds, the League is hopeful state leaders pause and take notice of the state’s own contribution to sales tax complexity in Colorado – and it actually has a chance to do so.  Over the interim this year, the Sales and Use Tax Simplification Task Force – created by 2017 legislation – is charged with studying simplification “between the state and local governments, including home rule municipalities, to identify opportunities and challenges within existing fiscal frameworks to adopt innovative revenue-neutral solutions that do not require constitutional amendments or voter approval.”  CML has appreciated the opportunity to show legislators all of the hard work and progress at the local level, in cooperation with the business community, that is going into reducing complexity for the businesses that collect and remit sales and use tax.

Colorado’s 70 home rule municipalities that self-collect their local sales tax have been diligently working on a process to standardize definitions among all 70. The state was concerned enough about this to pass a resolution encouraging the standardization, and it was a key talking point in the legislation creating the interim task force.  In addition to looking at the impacts of all the state’s sales tax exemptions, one key move the task force could make to demonstrate a commitment to simplification is to propose the State of Colorado go about adopting the standardized definitions package itself.

After all, what’s good for the goose…

2017 Legislative Session in Retrospect

When the 120-day legislative session concluded on May 10, a lot of legislators and lobbyists wrote their “session in review” blogs to declare whether or not the session was an overall success. In reality, the legislative session often is not officially over until the governor takes action on the last bill, which can come thirty days after the session ends – as it did this year on June 9.

The League was pleased to report to our 269 member municipalities that, as of May 10, 61 percent of the bills CML supported passed and expected to be signed into law.  Now, on June 21, we can look to the entirety of the session and the impacts of the actions taken by Gov. John Hickenlooper between May 10 and June 9.

By the numbers

During the 2017 session of the Colorado General Assembly, CML tracked 257 of the 684 bills and concurrent resolutions introduced. Of the 41 bills that CML supported, nearly 61 percent passed. Of the 29 bills CML opposed, 93 percent either were defeated or were amended such that the League dropped its opposition.

Those numbers remained unchanged after May 10, but the League was hoping for the defeat of one oppose bill, HB 17-1313, via the governor’s veto pen. We were extraordinarily disappointed that didn’t happen.  More on that below.

CML’s advocacy team places our primary emphasis on defeating legislation that harms municipal operations or contradicts municipal priorities.  We strive for 100% and are disappointed with anything less than that. Legislation supported by CML is important, but it is always harder to pass a bill than to defeat one. The team is very proud of the 61% success rate in the 2017 session.

How did municipalities fare?

Prior to the commencement of the session, the League published its “2017 Legislative Priorities of Colorado Cities and Towns.” The League was largely successful in meeting the goals established by these priorities.

  1. Affordable Housing: CML supported the preservation of the Affordable Housing Grants and Loans line items within the Division of Housing in the Department of Local Affairs. Outcome: The division received $8 million in the upcoming fiscal year beginning July 1. 
  2. Broadband: CML supported legislation that would have repealed the unnecessary hurdle of the election required by SB 05-152, given 68 consecutive successful municipal elections by voters wanting fast, reliable broadband service. Outcome: The bill was defeated, primarily due to opposition from broadband providers, many of which later proposed legislation that would have made it more difficult for local governments to meet the needs of their communities. CML’s opposition helped prevent that legislation from ever being introduced. 
  3. Construction defects: CML supported legislation to provide a statewide solution for the issue of construction defects promote the construction of owner-occupied attached housing, while maintaining the local control of municipalities that have adopted their own ordinances. Outcome: Out of the various legislative proposals, one bill passed that met these goals. More progress is needed in this area, but this outcome was a major success for Colorado municipalities.

  4. Marijuana: The League initiated legislation to establish a statewide minimum definition of “open & public consumption” to effectively address the failure of the state to clarify where marijuana consumption can occur and where it is prohibited. CML advocated for maximum local control of medical and recreational marijuana issues, and argued for additional state resources and personnel are needed to mitigate the impact on local law enforcement of gray and black market marijuana activity. Outcome: Defining a standard “open and public consumption” continues to be elusive. The limits of “private” consumption divided the legislature and CML’s bill died on the last day of the session. The League was successful in defending local control and supporting additional resources and changes intended reduce gray and black market activity. 
  5. Municipal courts: In order to force the state to back up the unfunded mandate it created by enacting HB 16-1309, CML advocated for a program for municipalities to utilize the state public defender at local discretion. The League also supported state assistance for municipal courts to expand their use of restorative justice. Outcome: For a variety of reasons, collaborating with the state public defender would be problematic, and the League changed course to support a delay of HB 16-1309 to 2018 so that a plan to directly reimburse municipal courts for the cost of the mandate can be developed. Municipal courts are now part of the state restorative justice council and can apply for grants for local programs. 
  6. Oil & gas: CML advocates for the legislature to resist preemptions upon traditional municipal authority – and where such authority may need clarification, advocating for the state to work collaboratively with municipalities. Outcome: The League supported legislation that would have increased setbacks from schools. Other issues arose during the session, particularly after the explosion in Firestone, and the League maintained its position that any legislation should respect traditional municipal authority. 
  7. Public safety: CML supported retention of the Wildfire Risk Reduction Grant Program, as well as defended traditional municipal authority in local public safety issues. Outcome: The state used $2.5 million of its share of severance tax dollars to continue the grant program. Other than the setback of enactment of HB 17-1313, municipal authority over public safety issues was successfully defended.

  8. Severance tax and federal mineral lease (FML): CML opposed the governor’s proposed transfer of severance tax to backfill the General Fund or finance state programs and administrative costs of state government. Outcome: The Joint Budget Committee proposed a balanced budget that did not include reductions in local government severance tax revenue available to local governments.

  9. Tax authority: CML advocated against state sales tax exemptions that negatively impact statutory municipalities. CML advocated for legislative restraint in simplification efforts, reminding the legislature that efforts to simplify local sales tax cannot be addressed by state legislation and cannot undermine constitutionally granted municipal home rule authority. CML opposed business personal property tax reductions/exemptions that did not backfill reductions to municipalities. Outcome: An interim committee created to study simplification efforts will have local government representation and its members are fully aware of limitations on the state to interfere with home rule authority. Business personal property tax legislation negatively impacting municipalities was defeated. 
  10. Transportation: CML supported the concept of increased state transportation and transit funding that includes the return of an equitable portion of new revenue to cities, towns, and counties – and including a statewide solution with funding for all public roads, not just state highways. Outcome: Legislation that would have allowed voters to decide on a statewide sales tax increase that would have fairly distributed revenue was defeated, and the state continues without a comprehensive statewide solution to address the billions of dollars of need. 
  11. Urban renewal and downtown development: CML supported repair of ambiguous 2015 legislation impairing urban renewal. CML opposed legislation that would similarly do damage to the ability of downtown development authorities to function properly. Outcome: Collaboration led to passage of a bill that addresses urban renewal statutory problems. The League opposed and defeated legislation that would have violated the will of voters directing their property taxes be used for downtown development authorities. 
  12. Workers’ Compensation: CML supported reasonable reform to the workers compensation statutes to address issues of post-traumatic stress disorder (PTSD) in public safety employees. CML supported the notion of development of a statewide employee assistance program (EAP) for public safety employees that do not otherwise have access to one. Outcome: Legislation that creates uniform definitions of “psychologically traumatic event” universally applicable passed overwhelmingly. A second bill creates a grant program law enforcement agencies may use for mental health assistance for personnel.

The last bill

The last legislative action of the 2017 session was the enactment of HB 17-1313 concerning civil asset forfeiture. CML – joined by a coalition of counties, sheriffs, police chiefs, and law enforcement organizations – requested Gov. John Hickenlooper’s veto of the bill.  HB 1313 was a haphazard bill pitched as consensus by proponents that agreed with themselves and with no basis in fact in Colorado. The gist of the bill is that it is intended to reform the manner in which law enforcement agencies seize assets related to criminal enterprises and use those assets to backfill the cost of complicated and costly enforcement efforts. Proponents argued – without offering any proof – that the assets of innocent people were seized…that local law enforcement was violating the rights of honest citizens.

The arguments against the bill are clear and well-founded – the arguments for it much less so. However, the final vote of the session was cast by the governor, who chose to sign the bill, and the League and our members must now grapple its impacts and also with a task force that will be created that appears to be charged with a potential expansion of the legislation.

While it is always disappointing to lose the last bill of the session, municipalities fared very well in the 2017 session. It is a continued point of pride to defeat detrimental legislation (or keep it from being introduced at all), as well as passing legislation that will help municipal officials govern locally.  Despite the battles that are often fought in the Statehouse, we continue to view the General Assembly as an essential partner for good state-local governance.

And on January 10, 2018, we will roll up our sleeves and do it all over again.

Sustaining rural Colorado

Keeping rural Colorado sustainable should include protecting local government severance taxes

Senate President Pro Tem Jerry Sonnenberg, R-Sterling, and Minority Leader Lucia Guzman, D-Denver, deserve credit for forcing a slightly different conversation to occur in the statehouse.  If next year’s budget is going to take money away from hospitals and schools to make things balance, then what are people willing to give up to keep that from happening.

SB 17-267 starts that conversation – and if it makes it past the Senate, then House Majority Leader KC Becker, D-Boulder, and Rep. Jon Becker, R-Fort Morgan, are the House sponsors that will take it from there. SB 17-267 is complicated legislation with many moving parts under the title “Concerning the sustainability of rural Colorado.” The main focus of the bill is the willingness of some Republicans to relent on allowing the hospital provider fee (HPF) program to operate as an enterprise without saying it is illegal unless approved by voters. Currently, the fee revenue counts toward the state fiscal year revenue limit. In the next fiscal year, the hospital provider fee collections will be reduced by 50% in order to prevent a TABOR refund. Since those fees are matched by federal dollars, the impact to Colorado hospitals is doubled and rural hospitals get hit the hardest. As an apparent trade-off for this refined perspective on the HPF, the bill includes other significant policy elements:

  • Requirement that all state departments present budget requests in FY 2018-2019 representing a 2% overall reduction from FY 2017-2018.
  • Authorizes lease-purchase agreements on state buildings to generate $1.35 billion, costing no more than $100 million to lease back the buildings over 20 years. $1.2 billion is designated for state highway projects, and $150 million is designated for capital construction needs. 25% of the transportation revenue must be allocated for projects within counties with under 50,000 people.
  • Transfers from the general fund to state highway projects (SB 228 money) is eliminated and revenue is instead directed to rural schools.
  • The annual state revenue limit, as adjusted by Referendum C (the “Ref C cap”), is reduced by an amount that appears to be a calculation slightly less than the HPF contribution to the current TABOR base.

The bill is likely a trial balloon to gauge reactions to various elements and to show that there is a willingness to fund rural hospitals under certain conditions. Yet, there is one key piece missing, if the goal is to take a complete approach to sustaining rural Colorado.

Severance tax authorized in 1978

Colorado municipalities that are either in the middle of or the shadow of energy extraction activities in the state are mostly rural in nature. They often have the highest needs and the lowest locally generated revenue to address them. Recognizing this, the Colorado General Assembly – in a simpler, pre-TABOR time – adopted a statewide severance tax.

In part, the severance tax was established to compensate the state and political subdivisions for the lost wealth of energy extraction. Colorado law refers the severance tax as “a potential source of revenue,” for which a “portion be made available to local governments to offset the impacts” created by energy extraction.

There have been significant boom and bust cycles, many of which have mirrored the state’s overall economy. However, both the Department of Natural Resources (DNR) and Department of Local Affairs (DOLA) have been able to build programs that have fulfilled statutory intent of the severance tax. DOLA, in particular, was able to smooth some of the peaks and valleys by not expending every last dollar in the Energy Mineral Impact Fund, the grant fund where 70% of DOLA’s half of severance tax revenues are deposited.  Instead, the fund carried a balance to ensure funds were available in down years.

Keeping the General Fund sustainable comes at a cost to rural Colorado

More recently, one of the ways the state preserved existing programs during the recession years was to backfill the state General Fund with revenues, almost exclusively from the Energy Impact Fund (which also included federal mineral lease revenue). In total, nearly $400 million dollars has been diverted from energy impacted communities. If kept in the fund, those dollars would have been matched approximately 3:1, meaning the lost economic impact (i.e. wages, jobs, materials) to mostly rural areas was over $1 billion.  This occurred when those areas suffered some of the highest unemployment in the state.

In 2015, additional severance tax revenue was proposed to backfill the state General Fund in order to supply revenue for TABOR refunds. Exceptionally high severance tax revenue collections the prior year were blamed for driving the state to have to issue TABOR refunds – just like the hospital provider fee has been blamed the past two years.

The bottom line is still that severance tax revenues are being used as a resource for purposes much different than the legislature declared 39 years ago.  A different approach is needed.

Debruce severance taxes to protect, respect legislative intent

The General Assembly should take action this session to allow Colorado voters the option to decide if prior legislative intent for severance tax purpose and use should be respected and upheld. This should be done as an amendment to SB 267.

The General Assembly can and should consider referring a question on severance taxes to voters that would allow the state to retain the revenue and exempt it from TABOR calculations – known as “debrucing” – and couple it with language that would remove the debruced status of the revenue if the state ever used it for purposes other than those already in statute.

For local governments currently and historically impacted by energy extraction, this would ensure that revenues would continue to be available to mitigate the impacts and help communities continue to survive as Colorado’s natural resources extraction declines and even disappears from some areas.  For the state (and also to the benefit of municipalities, counties, and their citizens), vital water infrastructure programs in DNR, as well as Tier I and Tier II programs, would be able to have better certainty of annual funding as prioritized by the General Assembly.

Debrucing impacts on the state budget

Outside of the direct beneficiaries of severance tax revenue, there are also impacts on the state budget worth consideration.  The debruced revenue would mean reductions in state revenue equivalent to the amount of severance tax collections, not including interest and earnings, each year. That creates a subsequent and equal reduction in the TABOR refund obligation in years that such obligation exists. Therefore, General Fund revenue would be freed up to address other needs.

With the volatile severance tax revenue no longer calculated in the state’s revenue limit, the General Assembly would likely be able to expect more predictability of the state’s overall budget picture and perhaps have existing revenue to appropriate for education, transportation, and other critical issues that face the state without a tax increase.

A conversation starter

Protecting the sustainability of rural Colorado should include a conversation about protecting severance taxes. Additional issues and interested parties would need to be considered and consulted, but the choice is clear – either there is an interest in ensuring that revenue collected to assist impacted communities and fund state water and environmental programs is sustained or we are comfortable with using those revenues to backfill the state budget every time the going gets tough.

CML will work with the sponsors of SB 267 to ensure that any legislation promoting the sustainability of rural Colorado includes asking voters to protect the one source of revenue specifically designed for that purpose.

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