Final
Overview of Tax Issues
SCHOOL FINANCE SYSTEM
Votes:
Action Taken:
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01:37 PM
-- How Colorado's Tax Burden Compares to Other States
Josh Harwood, Economist, Legislative Council Staff, provided background information on Colorado's tax structure and state rankings. A hand-out of his presentation was distributed to the committee (Attachment G). He noted that the data that he is using is based on the latest census data available. He began by providing information on where Colorado taxes go, with approximately 70 percent going to the federal government, and the remaining 30 percent split almost evenly between state and local governments. He showed how state and local taxes are distributed and noted that local government revenue consists primarily of fees and charges, property taxes, and state aid. In regard to who pays state taxes, Mr. Harwood stated that residents pay approximately 69 percent of state taxes, with business paying almost one-quarter, and nonresidents accounting for the remaining tax revenues. In regard to local taxes, the share that residents and businesses pay is much more evenly split, due to the Gallagher Amendment, with residents at about 48.7 percent and businesses at 47.5 percent. Nonresidents account for the remainder of local taxes.
01:42 PM
Mr. Harwood continued with a discussion of how Colorado compares in tax burden relative to other states. Colorado is 6th lowest in the nation in combined state and local tax collections, based on figures for FY 2001-02. It ranked lowest in state tax collections, but 12th highest in local tax collections. Mr. Harwood said that in terms of income taxes for individuals, Colorado is 31st highest; in regard to corporate income taxes, Colorado ranks 43rd. Mr. Harwood also broke down the rankings by sales and property taxes. In regard to total sales taxes, Colorado is 19th highest, with local state sales taxes 2nd highest, and for state sales taxes, 44th highest.
01:45 PM
Mr. Harwood provided an overview of where Colorado stands in regard to property taxes. Other state taxes include fuel taxes, tobacco taxes, and liquor taxes. Representative Merrifield requested information on severance taxes. Based on FY 2003-04 total state taxes, Mr. Harwood said that Colorado has the lowest tax burden in the country.
01:49 PM - Overview of School District Property Tax Issues
Deb Godshall, Assistant Director, Legislative Council Staff, along with Mr. Harwood, began their overview of school district property tax issues. A staff memorandum was distributed (Attachment H). Ms. Godshall said that two issues arise, the first being the total dollar contribution property taxes provide for school finance and the second being how that property tax contribution is spread among school districts. Ms. Godshall provided background data on the state's property taxes and its contribution to school funding. She said about 53 percent of all property taxes are collected by school districts, a total of over $2.5 billion. In FY 2003-04 school districts received 50 percent of their revenue from local sources, 73 percent of which came from property taxes. 60 percent of school district property taxes support the school finance act. Building upon Mr. Harwood's presentation, Ms. Godshall discussed how Colorado compares by sources of revenue. Colorado ranks 13th in local revenue, and 24th in the amount of state revenue. In regard to how Colorado ranks in absolute funding, on a per pupil basis, and by source, Colorado ranks 17th in local revenue, and 39th in state revenue. Representative Pommer asked about Colorado's ranking in regard to federal sources, to which Ms. Godshall responded that Colorado ranks 43rd in the country in regard to federal funding. The committee asked further questions about how the rankings relate to each other. Ms. Godshall noted that school district face limits on every source of their funding. Representative King asked questions concerning how the local sources of revenues such as revenue from mill levy overrides and bonded indebtedness have trended over time.
02:02 PM
Ms. Godshall described the school finance formula as a basic formula that is state aid = School Finance Act funding minus the local share. She said that prior to 1992, the General Assembly would look at all three components and try to mesh them together to come up with a desirable funding level. In 1992, Ms. Godshall noted, the local share became more fixed. There was discussion that the school district mill levy is calculated independently of any other factor. She described the other issue as the fact that funding is a zero-sum proposition. School districts with big increases in value do not have more access to school funding. She also described how increases in the state share have resulted from a shift from local revenue sources.
02:07 PM
Ms. Godshall continued her presentation with a description of how school districts' property taxes are determined. She discussed several specific examples and noted the impact of the two-year reassessment cycle. The examples of how the formula works highlighted different circumstances under which enrollment growth or assessed value growth is at different levels. Senator Anderson commented on the examples used and the equalization done with state aid. Ms. Godshall said that changes in assessed value tend to matter more than changes in relative wealth. The presentation included a discussion of the pattern of falling mill levies. She also showed the results of the shift from local sources to an increased state share.
02:14 PM
The next portion of the presentation discussed the evolution of the mill levy. Under the 1988 law, a uniform mill levy drove state aid. In 1991, Ms. Godshall said that almost everyone had the same mill levy. Currently, the variance in mill levies for school districts is 2.725 to 40.080.
02:19 PM
Mr. Harwood continued
the presentation with a discussion of the causes of declining mill levies.
He indicated that levies decline when there are rapid increases in values. Increasing values may result from new construction, such as power plants, oil and gas production prices, or high housing and commercial demand. He noted that this type of growth does not necessarily translate to growth in school district enrollment. As an example, Mr. Harwood showed the impact of a new power plan on the Hanover School District, where a dramatic increase was seen in assessed value, but school district property taxes and state share of total program received stayed relatively constant. Mr. Harwood also provided a comparison of neighboring school districts, and showed how mill levies and property tax revenue can be dramatically different.
02:25 PM
Ms. Godshall concluded the presentation with a discussion of specific ownership taxes, which account for about 10 percent of the local share of school finance funding. She said it was brought into the 1994 school finance act because specific ownership taxes were considered a wealth-based factor. Senator Anderson raised the issue of allowing construction growth to become a factor in school district finance. Mr. Harwood indicated that the Legislative Council Staff could look into that data. Senator Windels also requested information averaging the reassessment values over the two-year cycle.
02:30 PM
The committee recessed.