Final
STAFF SUMMARY OF MEETING

COMMITTEE ON JOINT FINANCE

Date:12/13/2013
ATTENDANCE
Time:08:36 AM to 11:49 AM
Becker
*
DelGrosso
X
Place:HCR 0107
Foote
X
Grantham
X
This Meeting was called to order by
Hill
E
Representative Court
Joshi
*
Kagan
X
This Report was prepared by
Kerr
*
Matt Kiszka
Labuda
X
Melton
X
Pabon
X
Priola
X
Saine
*
Swalm
*
Ulibarri
E
Wilson
X
Johnston
*
Court
X
X = Present, E = Excused, A = Absent, * = Present after roll call
Bills Addressed: Action Taken:
OSA Presentation
Department of Revenue SMART Act Presentation
Department of Treasury SMART Act Presentation
Other Business		Witness Testimony and/or Committee Discussion Only
Witness Testimony and/or Committee Discussion Only
Witness Testimony and/or Committee Discussion Only
Witness Testimony and/or Committee Discussion Only


08:36 AM -- Office of the State Auditor Presentation

Representative Court, Chair, called the meeting to order.

Matt Devlin, Deputy Director, and Nina Frant, Legislative Auditor, Office of the State Auditor (OSA), came to the table, and distributed a summary of the OSA's Medical Marijuana Regulatory System, Part I Audit (Attachment A). Ms. Frant gave an overview of the audits that the office performed pursuant to SMART Act requirements. She then summarized the Medical Marijuana I Audit.

13JtFinance1213AttachA.pdf13JtFinance1213AttachA.pdf

Ms. Frant went on to give an overview of findings related to the SMART Government Act. She also spoke to the auditor's approach to performance measurements in the audit.







08:47 AM

Representative Priola asked Ms. Frant for clarification on the revenue decrease for medical marijuana seen in the audit from 2011 to 2012. Ms. Frant described why lower revenue resulted in 2012.

Representative Labuda asked about pending versus approved licenses and the status of this process. Ms. Frant explained the auditor's concern over the delays in license processing and what was found in their audit of the regulatory system.


08:52 AM

Reed Larsen, Information Technology Audit Supervisor, and Greg Fugate, Audit Manager, joined Mr. Devlin at the table. Mr. Devlin began the presentation on the Annual Report of Audit Recommendations Not Fully Implemented, which was distributed to the committee (Attachment B), and described the office's oversight of state agencies. He gave a background of the Office of the State Auditor and why it was created by Colorado state law.

13JtFinance1213AttachB.pdf13JtFinance1213AttachB.pdf

Mr. Devlin described the structure of the annual report. He mentioned that the office only tracks the status of audits to which departments agree or partially agree.


08:56 AM

Representative Labuda asked Mr. Devlin asked about the difference between the terminologies of "agreed to" or "partially agreed to" for audit recommendations. Mr. Devlin explained that the office attempts to work with the agencies as closely and reasonably as possible. Committee questioning and discussion ensued about the reasoning behind why departments agree or partially agree to implement various audit recommendations and how this is managed by the OSA.

Mr. Fugate walked the committee through a summary of the audits performed by the office that are relevant to the Joint Finance Committee and the SMART Act Hearings. Mr. Fugate went on to explain the categorizations that the office uses for financial audit recommendations, and how many audit recommendations the OSA considered as high priority in 2013.


09:04 AM

Representative Labuda asked about the different categorizations used by the office for the outstanding audit recommendations. Mr. Fugate replied that none of the outstanding audit recommendations for departments that the committee oversees are considered as high priority or of high concern.

Representative Wilson asked what the penalty was if a department does not implement a recommendation, or if an audit recommendation is considered as high priority. Mr. Fugate responded that the office does not have enforcement powers, and that recommendations and the status of recommendations is turned over to management at the different agencies so that they can be enforced.






09:09 AM

Representative Court made a statement that it is the duty of the committee to highlight any great deficiencies it witnesses or any concerns it has to the executive branch.

Representative Priola asked if the OSA could provide examples of serious deficiencies it had found in previous years. Mr. Fugate defined what the OSA considers to be material and serious weaknesses when it conducts its audits and makes recommendations to state agencies.


09:11 AM

Mr. Fugate continued discussing the OSA's performance and IT audit recommendations. According to him, about 51 percent of the OSA's audit recommendations in 2013 were performance and IT-based. He also explained the increase in the number of outstanding recommendations for the Department of Revenue in 2013, resulting from the medical marijauna audit presented by Ms. Frant.


09:15 AM

 Mr. Larsen gave an overview of the process that the OSA follows with different departments and the audit recommendations it makes to each of them. He then spoke specifically to the recommendations made to the Department of Revenue, and where the recommendations originated. He stated that the department does not currently have any significant deficiencies, in the eyes of the Office of the State Auditor.


09:21 AM

Representative Labuda asked if some recommendations were outstanding because they haven't been funded. Mr. Larsen explained that funding delayed the implementation of some recommendations, and described the status of outstanding recommendations.

Representative Wilson asked the office how the committee might know why a department disagreed with an audit recommendation, and spoke specifically to an audit recommendation the Department of Revenue has not agreed to implement. Mr. Larsen gave a background of the specific audit recommendation and why the department did not agree with it. Mr. Devlin then provided more commentary on the process that is followed when an agency disagrees with a recommendation, explaining that they do need to provide a detailed report on why they do not agree with it.

Committee discussion and questioning surrounding OSA recommendations not agreed with or implemented and how to make departments address recommendations more urgently ensued.


09:32 AM

Representative Court asked Mr. Devlin to explain the role of the Legislative Audit Committee (LAC). Mr. Devlin explained that legislators can make a request of the LAC to consider any aspect of a state agency where they perceive a risk, and that the LAC reviews requests for audits before passing them on to the OSA for consideration. He then described the entire audit consideration process.







09:36 AM

Mr. Larsen continued by walking the committee through the office's high priority recommendations for the Department of Revenue.


09:41 AM

Representative Labuda asked the office about the recommendations partially agreed to by the Public Employees Retirement Association. Mr. Larsen described the considerations made by the office for these recommendations.

Committee discussion and questioning of numerous OSA audits and recommendations ensued.


09:47 AM -- Department of Revenue SMART Act Presentation

Barbara Brohl, Executive Director, and Ron Kamerzell, Senior Enforcement Director, came to the table. Ms. Brohl distributed a copy of her presentation (Attachment C), and began with an overview of the department's recent operations and its strategic plan.

13JtFinance1213AttachC.pdf13JtFinance1213AttachC.pdf

09:53 AM

Representative Kagan asked Ms. Brohl about the Marijuana Inventory Tracking System and how this data can be made available to interested parties. He explained that he has local law enforcement parties interested in receiving this marijuana tracking data, and Ms. Brohl responded that although local law enforcement may want access to this data, the department needs to consider how this access might be provided appropriately with consideration to data security and IT functionality concerns. She said that the department would be happy to provide data that is needed, but it wants to be careful as to how the information is provided.

Representative Court asked if there was anything in current statute that would prevent the department from interfacing with local law enforcement. Ms. Brohl responded that there is not.


09:58 AM

Representative Becker asked for clarification on local law enforcement's access to the tracking system, and how different types of marijuana will be regulated and tracked. Ms. Brohl responded that the system is being developed and will be made available in a thoughtful and careful manner.

Committee discussion of the availability of license information and the Marijuana Inventory Tracking System ensued.








10:02 AM

Ms. Brohl continued with an overview of the Marijuana Enforcement Division's accomplishments, and provided a timeline of its activities. She distributed a summary outlining these accomplishments to the committee (Attachment D).

13JtFinance1213AttachD.pdf13JtFinance1213AttachD.pdf

Representative Labuda asked where individuals involved in marijuana cultivation as a business can bank. Ms. Brohl responded that there is no banking system for them because banks are all federally insured. Committee discussion of the business transactions of those involved in recreational and medical marijuana sales, and how this contradicts federal law, ensued.


10:14 AM

Ms. Brohl continued with her overview of the Marijuana Enforcement Division. She explained the division's seed-to-sale tracking system, known as the Marijuana Implementation Tracking System.

Representative Swalm asked if there should be concern with marijuana shops having large quantities of cash on premises. Mr. Kamerzell responded that this is a concern of the department, and that it has been working closely with local law enforcement and law enforcement representative groups to try and mitigate the associated risks for marijuana businesses. The committee went on to discuss this issue and the banking habits of marijuana business owners.


10:23 AM

Ms. Brohl proceeded with her overview of the Marijuana Enforcement Division's recent activities and items of consideration.


10:28 AM

Ms. Brohl next discussed the issue of children obtaining marijuana, and reassured the committee that the department has put a system in place that will prevent businesses from enticing children, and explained the measures that have been taken to prevent this. The committee discussed this issue at length, including the packaging of marijuana products, and how these products are marketed and regulated.


10:40 AM

Representative Kagan asked if sellers of marijuana have the right to seize fake identification from someone attempting to illegally purchase marijuana, much like sellers of alcohol may do. Mr. Kamerzell responded that the department is working towards this. Further committee discussion and questioning of current and intended marijuana regulation, especially in relation to the sale of marijuana to minors, ensued.








10:55 AM

Senator Johnston asked Ms. Brohl about the department's plan for the collection of online tax sales in Colorado following the recent Supreme Court decision for online sales and use tax collection in New York. Ms. Brohl stated that the department is waiting for the result of the injunction request from the district court case that the department was involved in, before taking any action.

John Vecchiarelli, Senior Director of Taxation, came to the table and stated that New York's law is substantially different from Colorado's law, and that they do not address the same thing. The department is prevented from taking action currently because of the injunction, which they have appealed. Committee discussion ensued.


10:58 AM

Ms. Brohl continued with her presentation, addressing the recent activities of the department in more detail, as well as the OSA's audit of the Colorado Lottery.

Ms. Brohl stated that a big area of focus for the department in 2013 was the Division of Motor Vehicles and a major improvement to the systems and processes of the division.

Representative Priola asked Ms. Brohl to explain how they were able to decrease license processing wait times so significantly. Ms. Brohl discussed the various initiatives that the department has considered and implemented for the division that have made division-wide improvements.


11:11 AM

Senator Grantham asked Ms. Brohl to address rural division offices and the long wait times that his constituents have suffered. Mike Dixon, Senior Director, Division of Motor Vehicles, came to the table and spoke to recent issues that outer regions of Colorado have experienced, and the solutions that the department has implemented to address this problem.

Ms. Brohl continued in her presentation, covering the activity within the Division of Motor Vehicles. She spoke to the high turnover rate that the department has experienced with driver's license examiners, and how they are addressing this.

Ms. Brohl explained that they have presented their technology improvement plans to the Joint Technology Committee and the Joint Budget Committee and have made appropriations requests for a number of system upgrades.














11:20 AM

Representative DelGrosso asked Ms. Brohl why the average waiting time for tax call center inquiries has gone up over the last year, and discussed his experience with a long wait time. Mr. Vechiarelli explained that the department has tried to reduce the number of calls that it blocks to avoid user frustration, which has increased the wait times somewhat, and that the department is working towards improving this.

Senator Grantham asked Mr. Vechiarelli to talk to conservation easements and the backlog that the state had for rejected and contested appraisals within the department. Mr. Vechiarelli responded that many accounts of disallowed credits have been resolved through legislation passed in 2013, and that he believes the department has the tools available to deal with the remaining unresolved credits, which are complex in nature. Committee questioning and discussion ensued.


11:25 AM -- Department of Treasury SMART Act Presentation

 The Senate members of the committee left the meeting to swear in their newest member.

Brett Johnson, Deputy Treasurer, came to the table. He provided the committee with a copy of his presentation (Attachment E). Mr Johnson stated that the department recently updated its performance plan, but that it was still looking for ways to improve it ahead of the July 1, 2014 deadline for completion of the plan. He also noted that the department does not fall under the Office of State Planning and Budgeting, and therefore has unique reporting requirements as part of the SMART Act. He proceeded with an overview of the department's recent activities and the changes that have been made in recent years, covering the financial management policies of the Treasury and where they currently stand. Mr. Johnson stated that the department is now 100 percent in compliance with Securities and Exchange Commission and federal requirements for reporting and disclosure.

13JtFinance1213AttachE.pdf13JtFinance1213AttachE.pdf

11:34 AM

Representative Priola asked about a prison that the state built using certification of participation (COPs) that has remained empty due to difficulties and technicalities in finding a tenant. Mr. Johnson stated that the public sector is benefiting from tax-exempt rates on its COPs, and that the department could only work with the federal government or private sector by turning these projects into taxable enterprises. He noted that the financing has been restructured so that the department can consider private enterprises as tenants of the prison and avoid any forms of arbitrage in leasing the prison in a for-profit manner.

Representative Becker asked Mr. Johnson about the Treasury's refinancing opportunities, and what the process is that they use to look at refinance rates. Mr. Johnson spoke to the refinance consideration process of the office, and said that the state has no debt, as COPs are not technically debt, meaning that there are few refinancing needs or options.












11:39 AM

Mr. Johnson spoke to the state's financial obligation policy, and noted again that the state does not have any true debt. Mr. Johnson mentioned that the state has a $9 billion investment portfolio. He continued with an overview of the department's performance measures and goals, and appropriations that are being sought for the Treasury with the Joint Budget Committee.

Representative Court asked Mr. Johnson about the state's unclaimed property program, and how long it can hold property before it can be sold. Mr. Johnson responded, noting that it depends on the type of property held by the state. He then described the overall size of unclaimed property held by the state and the obligations that the state has with this property.


11:45 AM -- Other Business

Kori Donaldson, Legislative Council Staff, came to the table to discuss the liaisons that need to be assigned to the departments that the Joint Finance Committee oversees. She explained the parameters of these designations. Committee members expressed their various interests in being a department liaison, and Representative Court proposed settling the designations outside of committee.


11:48 AM

The committee adjourned.