Final
BILL SUMMARY for HB05-1135

HOUSE COMMITTEE ON FINANCE

Votes:
Action Taken:
Moved to postpone HB 05-1135 indefinitely. The mo
Refer HB 05-1135 to the Committee on Appropriation		PASS
FAIL



06:29 PM -- House Bill 05-1135 Concerning Reducing Tax and Spending Limits and Retaining Revenues

Representative King, prime sponsor, began by saying that solving the budgetary issue is the most important concern facing the General Assembly this session. He distributed a fact sheet on House Bill 05-1135 (Attachment R) and a set of revised General Fund Overview tables (Attachment S) to committee members. He discussed a brief history of the legislature's effort to come to an agreement on the budgetary issue during the previous session and stressed the need for a long-term solution. Representative King discussed the 2003 interim committee's effort to resolve the budgetary issues and commented on the study completed by Legislative Council Staff in the fall of 2003.

Representative King commented on the need for any long-term budgetary solution to address both TABOR and Amendment 23, have meaningful spending limits to constrain the growth of government, and solve the state's structural deficit. He discussed the differences between the proposals he supported last year and House Bill 05-1135 and outlined the major provisions of the legislation. House Bill 05-1135 reduces the state income tax rate from 4.63 to 4.45 percent and is based on the legislature's current forecast. The bill also reduces the appropriations limit to 5 percent for three years which would save $122 million for FY 2006-07 and save nearly $800 million over the next five years. Representative King mentioned House Bill 05-1135 would eliminate the structural deficit and raises the TABOR limit back up to where it would have been without the State Education Fund. By matching the State Education Fund transfer, and putting money into the General Fund, it fulfills the original philosophical concept of the surplus funding K-12 education and not the General Fund. Representative King closed by saying House Bill 05-1135 does not change TABOR or Amendment 23.

The committee discussed the foregone revenues from the state income tax rate reduction.

Representative King asked Mr. Mike Mauer, Chief Economist, Legislative Council Staff, to discuss the primary issues in the bill.

06:44 PM -- Mr. Mike Mauer, Chief Economist for Legislative Council Staff, responded to technical questions. He began by discussing provisions in the proposal that would allow the state to retain revenues that were diverted from the General Fund to the State Education Fund over the past few years. He clarified that when the diversion to the State Education Fund was first required to be made under Amendment 23, voters expected that the transfer would have been made from the state surplus. But at the time of the transfers, the economic downturn resulted in no TABOR surplus revenues and the diversion to the State Education Fund was made from General Fund revenues. Under TABOR, this required the state to ratchet down further than it would have ratcheted down had there been a TABOR surplus. Mr. Mauer estimated that the limit ratcheted down about $200 million more than it otherwise would have over the two-year period due to the requirements of Amendment 23.

Mr. Mauer clarified that House Bill 05-1135 would put the moneys back in the General Fund that were diverted to the State Education Fund since Amendment 23 was passed.

Representative King reiterated that House Bill 05-1135 simply takes away the state's unfunded mandate and allows the state to divert TABOR surplus revenues to the State Education Fund rather than General Fund moneys. Representative King stated that his bill follows the original voter intent of both TABOR and Amendment 23.

The committee discussed the state income tax rate reduction in the legislation. Representative King responded by saying that the tax rate reduction would limit future TABOR surpluses that would have to be refunded to taxpayers. The committee discussed whether House Bill 05-1135 would allow the state to fund the present and future long-term needs of the state given the fact that it would lower the state spending limit to 5 percent for three years.

Mr. Mauer clarified that by reducing the spending limit from 6 to 5 percent over the three-year period, the state's structural deficit would be removed but the state would still have to enact budgetary cuts.

Representative King commented that the state has the ability to fund its needs under the current year's budget under House Bill 05-1135. Each year, the state would be allowed to retain an additional $300 million each year under House Bill 05-1135.

The committee discussed whether House Bill 05-1135 would ultimately address the state's long-term problems that were addressed in prior testimony heard by the committee for House Bill 05-1194. Representative Vigil commented that the proposal does not address where future cuts would need to be made if the spending limit is reduced from 6 to 5 percent for three years and the state income tax rate was reduced.


07:10 PM

Mr. Mauer briefly discussed the re-basing issue that resulted from the Department of Revenue's computer error. He explained that the TABOR limit would end up $75 million higher and the state would be allowed to take a one-time credit of $104 million from moneys that were over-refunded to taxpayers as TABOR refunds. These are the changes that are incorporated into Table 3 (Attachment S). Mr. Mauer commented that the state would see a $180 million increase in the TABOR base and the limit would be increased by $75 million each year thereafter.

The committee discussed the differences between House Bill 05-1194 and House Bill 05-1135 and questioned whether House Bill 05-1135 would be able to provide the current level of state services.

Representative King noted that under House Bill 05-1135, there would be a small TABOR surplus in future years whereas under House Bill 05-1194, there would be no future TABOR surpluses. Representative King commented that under House Bill 05-1194, the state would spend every dollar that comes into the state but under House Bill 05-1135, the state would still have a spending limit in place.

The committee briefly discussed Colorado's tax and spending limits as compared to other states and the budgetary cuts that would have to be made under House Bill 05-1135.

The following persons testified:

07:31 PM -- Mr. Ben Stein, Deputy State Treasurer, explained that he has not taken a position on House Bill 05-1135. He commented that House Bill 05-1135 should provide for a rainy day fund and contain provisions that suspend state spending mandates whenever state revenues decline.

07:34 PM -- Mr. James Johnson, representing himself, suggested that any solution that the legislature approves should be a long-term fix that takes into account Colorado's future needs. He did not take a position on House Bill 05-1135. Mr. Johnson closed by saying that a rainy day fund should be part of any long-term budgetary fix.
BILL:HB05-1135
TIME: 07:43:41 PM
MOVED:May M.
MOTION:Refer HB 05-1135 to the Committee on Appropriations. The motion failed on a 8-5-0 vote.
SECONDED:McCluskey
VOTE
Benefield
No
Cloer
No
Crane
Yes
Frangas
No
Garcia
No
Jahn
No
Marshall
No
Massey
Yes
May M.
Yes
McCluskey
Yes
Witwer
Yes
Judd
No
Vigil
No
Not Final YES: 5 NO: 8 EXC: 0 ABS: 0 FINAL ACTION: FAIL
BILL:HB05-1135
TIME: 07:57:21 PM
MOVED:Garcia
MOTION:Moved to postpone HB 05-1135 indefinitely. The motion passed on a 7-6-0 vote.
SECONDED:Marshall
VOTE
Benefield
Yes
Cloer
No
Crane
No
Frangas
Yes
Garcia
Yes
Jahn
Yes
Marshall
Yes
Massey
No
May M.
No
McCluskey
No
Witwer
No
Judd
Yes
Vigil
Yes
Final YES: 7 NO: 6 EXC: 0 ABS: 0 FINAL ACTION: PASS