Joint Committee Committee on Joint Finance (01/27/2005)

Final
STAFF SUMMARY OF MEETING

COMMITTEE ON JOINT FINANCE

Date:	01/27/2005	ATTENDANCE

Time:	09:38 AM to 11:10 AM	Benefield	X
		Cloer	X
Place:	HCR 0107	Crane	X
		Frangas	X
This Meeting was called to order by		Garcia	X
	Senator Sandoval	Jahn	X
		Judd	X
This Report was prepared by		Marshall	X
	Jason Schrock	Massey	X
		May M.	X
		McCluskey	X
		McElhany	E
		Shaffer	X
		Taylor	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Briefing by the Joint Budget Committee Department of Treasury Hearing		- -

09:39 AM -- JBC Briefing on Departmental Budget Requests

Senator Sandoval, chair, called the meeting to order. Members of the Joint Budget Committee (JBC), Senator Tapia, Representative Plant, Representative Buescher, and Representative Hall, presented information on the budget requests for the Department of Revenue and the Department of Treasury. A copy of their presentation is provided as Attachment A.

Department of Revenue:

Senator Tapia discussed the funding sources for the Department of Revenue. The department is mostly funded from cash funds; the General Fund provides 17 percent of the revenue for the department in FY 2004-05. The department's key responsibilities include: taxation; transportation functions, such as the implementation of the state's motor vehicle laws relating to the issuance of driver's licenses and vehicle registration; and enforcement functions, such as the regulation of the manufacture and distribution of alcoholic beverages, and the regulation of horse and greyhound racing. Senator Tapia also highlighted the factors that drive the department's budget. These factors include: revenue and tax collections; motor vehicle licensing and registration; the increasing amount of postage required due to state population increases; commercial vehicle traffic; and the need to continue to find ways to update the department's information technology.

Senator Teck inquired about the department's computer problem that resulted in inaccurate revenue data which impacts the estimated revenue shortfall for the FY 2004-05 budget. Senator Tapia explained that the JBC has only recently found out about the issue and that he wanted to obtain more information before commenting.

Senator Tapia indicated that the department's decision items for FY 2005-06 include savings of $29,000 in General Fund money resulting from increased efficiencies in the Executive Director's Office. Further, base reductions for the department for FY 2005-06 include a General Fund reduction of $562,902 due to reduced growth in personal services expenditures. Overall, the department is requesting a $9.7 million General Fund increase from FY 2004-05 to FY 2005-06.

Senator Tapia discussed the biggest issues facing the department in the future. He indicated that the department is looking at strategies to cash fund the motor vehicle division, ensuring a smooth implementation of the state's new vehicle registration system, and improving the performance of the state lottery.

09:50 AM

Department of Treasury:

Senator Tapia discussed the funding sources for the Department of Treasury. The department is mostly funded from cash fund exempt sources; the General Fund provides 1.7 percent of the revenue for the department in FY 2004-05. He also explained the key responsibilities of the department, such as acting as the state's banking and investment officer, preparing financial and accounting reports, administering the Unclaimed Property Program, making loans under the Elderly Property Tax Deferral Program, providing short-term interest-free financing to school districts, and distributing local government shares of the Highway Users Tax Fund (HUTF).

Representative Judd asked about the impact of delaying the General Fund payments to the Fire and Police Pension Association (FPPA). Senator Tapia and Representative Buescher responded that the payments will only be extended for an additional couple of years and that the state will pay the interest for the two years that the payments were delayed.

Senator Tapia stated that the department's decision items involved only $18,187 in General Fund money. Excluding changes in the HUTF and FPPA, which are dictated by statute, the department is requesting an increase of $378,987 in total funding.

Representative Judd asked about the need to update the department's computer system to ensure the effective administration of the state's Unclaimed Property Program. Representative Plant indicated that the issue was one of the decision items for the department in FY 2005-06.

09:58 AM -- Presentation by the Department of Treasury

State Treasurer Mike Coffman introduced himself to the committee. Also present at the table was Deputy Treasurer Ben Stein. A copy of the Treasurer's presentation was distributed to the committee (Attachment B). Mr. Coffman discussed the Treasurer's short term and long term investment pools. One important responsibility of the Treasurer's Office is to ensure that money is available when it is appropriated by the General Assembly while also maximizing the return on invested money that is not being used.

Representative Witwer asked about the cash flow position of the state. Treasurer Coffman indicated that the General Fund's cash flow is doing well and that the state has only needed to issue one revenue anticipation note this fiscal year. The Treasurer borrows money in the short term through revenue anticipation notes to meet cash flow needs. The Treasurer uses competitive online bidding to issue the notes. The interest costs on the notes in FY 2003-04 was 1.6 percent.

Mr. Stein indicated that a TABOR surplus puts the state in a good cash flow position. He noted that if voters allow the state to spend surplus revenues it may cause more cash flow difficulties for the state.

10:08 AM

Mr. Coffman discussed the state's Unclaimed Property Program. It is the individual's responsibility to contact the state to claim his or her property and there is no statute of limitations on when a person can claim property. In FY 2003-04, the state collected $41 million and returned $10.1 million in collections. He indicated that his office planned to work on a better way to publish the list of individuals with unclaimed property in order to increase the program's exposure.

Mr. Coffman discussed the state's CoverColorado program. He believed that the new source of funding for the program provided by the CAPCO program will eliminate the need for the assessment paid by insurance companies which partially funds the program. There is currently a lawsuit pending regarding this assessment.

10:17 AM

Mr. Coffman discussed the state's elderly property tax deferral program. He explained that the program is not widely used and that the program should be reviewed to see if it should continue. There are a total of 491 participants in the program. He thought that the program was not widely used because the elderly do not want the state to have a lien on their property. He stated that the utilization of the program did not increase after the suspension of the senior homestead exemption. Mr. Coffman noted that he will have an analysis of whether the program should be continued by the end of the session. He indicated that few county treasurers promote the program.

Representative Vigil noted that the program should not be ended. He commented that in the future less seniors will be averse to having a lien on their property. The committee discussed the possibility of making the program means tested.

10:28 AM

Mr. Coffman discussed the state's interest-free school loan program. The program provides a loan to school districts to help them with cash flow needs during the fiscal year. Districts have to pay back the loan by the end of the year. The state bears the interest costs of the program. School districts that are dependent upon property taxes for their revenue are more reliant on the program. Mr. Coffman explained that due to the financial problems experienced by the St. Vrain school district, districts now have to provide the state their financial information when applying for a loan.

Mr. Coffman discussed the state's bond intercept program. Under the program, by law, the state backs the debt of school districts so that schools can get a lower interest rate.

10:37 AM

Mr. Coffman discussed his office's initiatives for 2005. He stated that he will work with legislators to find a comprehensive solution to the state's financial problems. He thought that the state should address both the state's spending and revenue constraints. He indicated that if Amendment 23 is not addressed, a future economic downturn could cause fiscal problems similar to the current problem. He also added that he would like to safeguard cash funds from being used as a vehicle for balancing the budget and curtail the use of special-interest tax breaks as a method of refunding TABOR surpluses.

Representative Vigil asked about when schools receive their per pupil operating revenues (PPOR) from the state. Mr. Stein explained that schools receive PPOR payments from the state monthly. The committee discussed when pupil counts are conducted for districts. Pupil counts are used for purposes of calculating PPOR payments. The committee wondered whether the money paid to schools changes when students change schools.

Representative Benefield clarified that the pupil count is only done once in October. She indicated that the monthly payments are not changed when students change schools.

10:43 AM

Mr. Coffman explained that the biggest issue the Treasurer's Office is working on for 2005 is to rationalize the treatment of income earned on property managed by the State Land Board. When the State Land Board sells property, the proceeds are exempt under TABOR. However, rental income is not exempt from TABOR. The proceeds of property sales and income earned on managed property go to the permanent school fund which is used by K-12 schools for revenue. He indicated that the State Land Board is starting to get more involved with the redevelopment and management of property which it plans to lease. Mr. Coffman explained that he wanted to refer a measure to voters to make rental income to the State Land Board exempt from TABOR. He explained that under current law, money from rental income would only add to the TABOR surplus and the state would not be able to use it for schools.

Mr. Stein explained that making the State Land Board an enterprise would not resolve the issue because once the rental income is received by the state, it counts under TABOR. Senator Teck wanted the Treasurer's Office to explore how the state could create an entity under K-12 education for receiving the rental income that could become an enterprise.

Senator Schaffer inquired about whether rental income received directly by school districts counts under TABOR.

10:52 AM

Mr. Coffman provided information on the use of tobacco securitization as a one-time revenue source to help the state solve its fiscal problems in the short term. However, he stressed that the state also needed to enact long-term structural reforms. He also stated that the state needs a rainy day fund that could be funded through tobacco securitization. He noted that he does not support the state reliance on money from tobacco companies for revenue. He thought that it was better to securitize because the settlement money is not a stable revenue source.

Representative Garcia put forth his idea of using increased tobacco tax money that the state will receive due to the passage of Amendment 35 for the state's short-term fiscal problems. He stated that the state should not use one-time revenue to fund ongoing programs. The committee discussed other options to solve the state's short-term fiscal problems.

Mr. Coffman explained that since Colorado's constitution prohibits general obligation debt, the state would not back the debt owed to bond holders should the state securitize its tobacco settlement money. Representative Witwer noted that some states have spent their tobacco money quickly after they securitized.

11:05 AM

Mr. Coffman discussed his concerns with the Public Employees' Retirement Association's (PERA) unfunded liability. He noted that he has established an independent commission co-chaired by former Governor Dick Lamm and former U.S. Senator Hank Brown to investigate PERA's unfunded liability. The commission consists of volunteers and any expenditures would have to be paid for with money raised from private sources.

Senator Tupa stated that he did not believe that PERA was in an immediate financial crisis. Mr. Coffman responded by saying that he wanted to understand why PERA has an unfunded liability, while other public pension plans in Colorado were in a better financial condition. He was also concerned that PERA had a negative amortization schedule. He indicated that he only wants to ensure that future retirees and taxpayers are protected. Further, he thought there was an opportunity to evaluate whether some beneficial changes to PERA could be made. He indicated that the majority of PERA's Board of Trustees do not think that there is a significant problem in PERA's funding ratio. Representative Vigil also indicated that he did not think PERA was in a major financial crisis.

11:10 AM

The committee adjourned.