Joint Committee Committee on Joint Finance (01/26/2006)

Final
STAFF SUMMARY OF MEETING

COMMITTEE ON JOINT FINANCE

Date:	01/26/2006	ATTENDANCE

Time:	10:04 AM to 11:03 AM	Benefield	X
		Brophy	X
Place:	HCR 0107	Cloer	X
		Crane	X
This Meeting was called to order by		Frangas	X
	Senator Sandoval	Garcia	X
		Harvey	X
This Report was prepared by		Jahn	X
	Jason Schrock	Judd	X
		Kerr	X
		Marshall	X
		Massey	X
		McCluskey	X
		Shaffer	X
		Taylor	X
		Teck	X
		Tupa	X
		Veiga	X
		Vigil	X
		Sandoval	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Department ofTreasury Property Tax/Rent/Heat Rebate Program Local Affairs Presentation - Severance Tax Joint Budget Committee on DOR and Treasury		- - - -

10:04 AM -- Presentation by the Department of Treasury

Senator Sandoval, chair, called the meeting to order. Treasurer Mark Hillman began his presentation by discussing divisions in the Treasury, including its operations and unclaimed property divisions, and budget information. A copy of his presentation was distributed to the committee (Attachment A). He provided information on the department's investments. The market value of the largest fund currently under the Treasurer's management (T-Cash/T-Pool) is $4.2 billion, which yielded about 3.7 percent in FY 2004-05. Total interest earnings for FY 2004-05 for all investments were $150.8 million. He also discussed the Treasurer's accounting and distributions functions. The Treasurer accounts for all cash received by the state and is responsible for distributing money out of the Highway Users Tax Fund to the Department of Transportation and Colorado's counties and municipalities. Another Treasury function is managing the state's cash flows. The department must issue revenue anticipation notes to ensure that the state has enough cash flow during the budget year. The Treasurer uses an on-line bidding system to obtain a low interest rate on the notes. The interest cost on $700 million in notes issued in FY 2004-05 was 2.62 percent.

Treasurer Hillman also discussed the state's Unclaimed Property Program. The primary goal of the program is to reunite owners with their lost property. The program also provides funding for tourism by selling unclaimed securities held more than one year. The interest earned on the securities is then used to fund tourism. About $2.4 million in interest is expected for tourism from the program in FY 2005-06. The Unclaimed Property Program also provides funding for CoverColorado.

Treasurer Hillman continued by discussing the state's elderly property tax deferral program. In FY 2004-05, the program lent about $566,000 to the elderly for property tax deferrals. There are currently 425 participants in the program. The senior property tax exemption program is scheduled to resume this year. The Treasurer is requesting $61.2 million for the program in FY 2006-07. He continued by discussing the interest-free school loan program. There are 17 school districts participating in the program which allow districts to borrow money to help with their cash flow throughout the year. He indicated that the department must be careful and limit the amount of funds districts borrow. All districts now use the same format to apply to the program which helps the Treasurer pinpoint any financial issues occurring in districts. He also provided information on the bond intercept program which ensures full and timely payment of school debt. No district has ever defaulted on their debt under the program. He also indicated that legislation could be sought this year to raise the cap on the amount of money that can be borrowed by charter schools under the charter school bond intercept program.

10:14 AM

Treasurer Hillman continued by discussing the Department's initiatives in 2006. One initiative is PERA reform. He discussed the causes of PERA's unfunded liability. Solving the problem by increasing the employer contribution, which ultimately is funded by taxpayers, would cost more than $400 million per year and would represent seven percent of payroll this year. He noted that the problem requires all stakeholders to come to the table. He thought that any future changes in contributions and benefits should require an independent analysis. Also, reform should include reducing the cost of future benefits.

Treasurer Hillman discussed the need for a rainy day fund (RDF). A RDF should be constitutional with clear guidelines for saving and spending. He also discussed the state's Permanent School Fund, which receives proceeds from the sale and lease of publicly held lands and from the royalties earned from mineral sales. Colorado's constitution requires the fund to support K-12 public education in the state with the fund's investment income. Treasurer Hillman discussed the Department's initiative to build the fund so that it is large enough to generate $100 million annually for public schools and so that the fund includes a diversified portfolio with a long-term horizon to improve returns. Legislation this year would help implement these objectives (SB 06-007). Treasurer Hillman closed by discussing the securitization of tobacco settlement money. He stated that the money is unstable as there is a declining number of smokers and continued tobacco litigation. He indicated that the state could receive about $1.3 billion this year if it were to securitize.

10:20 AM

Representative Judd asked about the implementation of the program that uses the Unclaimed Property Program to intercept back taxes and child support payments. Mr. Ben Stein, Deputy Treasurer, indicated that the department is still testing the computer system used in administering the new program and that it will be fully implemented soon. In response to Representative Marshall, Mr. Stein indicated that CoverColorado only received a small amount of money this fiscal year because it is the only amount that the program requested. The program is requesting much more in the upcoming fiscal year.

10:25 AM -- Overview of the Property Tax/Rent/Heat Assistance Program

Mr. Richard Giardini, Department of Revenue, explained the Property Tax/Rent/Heat Rebate Program. He provided a sample program application booklet and some statistics on the program (Attachments B and C). The program was expanded in 1987 to include the disabled. Currently, the majority of participants in the program are disabled, as many elderly now have too much income to qualify for the program. He discussed the fluctuation in the number of participants in the program as the economy changes. There are less participants and lower rebates when the economy is booming. The increase in participants and amount of rebates in FY 1999-00 was due to a 1998 law change that increased the rebates and the income level under which people could qualify for a rebate.

Mr. Giardini continued by discussing the rebate amounts and how the rebate is calculated. He explained proposed legislation (HB 06-1013) that would increase the base amount of income under which participants could claim the highest rebate amount. This law change would enable more people to claim a higher rebate amount and would cause more people overall to be eligible for the program.

10:32 AM -- Presentation by the Department of Local Affairs on the Severance Tax

Ms. Barbara Kirkmeyer, Executive Director, Department of Local Affairs, presented information on the state severance tax. A copy of her presentation is provided as Attachment D. She discussed the statutory allocation of severance tax revenue. The money is required to be distributed to areas that are impacted by the development, processing, or energy conversion of minerals and mineral fuels. The money is used for the planning, construction, and maintenance of public facilities and for the provision of public services. She discussed severance tax revenue balances since 1995; revenue has increased considerably since FY 2003-04. She also explained the formula for distributing severance tax revenue. Fifty percent of the money is allocated to the State Severance Tax Fund and fifty percent is allocated to the Local Government Impact Fund. The Local Government Impact Grant Fund received the largest amount of revenue (41 percent). She also briefly discussed federal lease revenue received by the state. This revenue has also increased recently. Most of the lease revenue is distributed to the state's Permanent School Fund (52 percent).

Ms. Kirkmeyer continued by discussing the counties where severance tax revenue is generated. Most of the revenue is distributed back to the counties most impacted by the development, processing, or energy conversion of minerals and mineral fuels. There is mineral impact statewide, but some areas are more impacted than others. Weld, La Plata, and Moffat counties have received the most severance tax and federal mineral lease revenue since FY 1994-95. She also discussed the mineral impact grant program for local governments, including the guidelines for the program. A recent evaluation of the program found that the department was not implementing the local impact grant program according to the statute. The department is working on changing the program so that it is more aligned with state statute.

10:40 AM

Representative Vigil stated the need for the committees to understand how severance tax revenue is allocated under current law before it considers legislation this year that would use severance tax revenue.

10:43 AM -- Presentation by the Joint Budget Committee

Senator Tapia, Representative Buescher, and Representative Hall, Joint Budget Committee (JBC) members, provided information on the budget requests for the Department of Revenue (DOR) and the Department of Treasury. Other members of the JBC, Senator Keller and Representative Plant, arrived later. Information on these departments was distributed to the committee (Attachment E). Senator Tapia began by discussing the DOR. The DOR receives only 1.3 percent of the total General Fund revenue appropriated to all state departments. Most of the funding for the DOR in FY 2005-06 is cash fund exempt (75.3 percent). Information on DOR's functions - taxation, motor vehicle, and enforcement - as well as factors driving DOR's budget was provided.

Representative Buescher discussed DOR's antiquated tax computer system. He explained his concerns with providing the DOR their $8.1 million funding request to begin the first phase of acquiring a new computer system. He thought that the state needs to demonstrate that it can do a better job of implementing and managing major new computer systems. Senator Tapia discussed the history of the DOR's efforts to acquire a new tax computer system. A previous effort at implementing a new system failed. He noted that the state needs to make sure it is diligent when considering new computer systems and explained that there are discussions on creating a new position to oversee the acquisition and development of new computer systems.

Senator Teck discussed his SB 06-063 that addresses the issue of bringing computer system expertise to the state to oversee computer projects. He also discussed the information management commission's responsibility of providing oversight to computer system projects. However, many departments have been circumventing the commission when they implement new computer projects.

Senator Tapia discussed the DOR's major funding changes since FY 2004-05. He indicated that the JBC has not taken action on DOR's funding requests and decision items and that the committee welcomed the input of the finance committees in their decisions. The DOR is requesting a total of $6.4 million in new funding, but no new FTE for FY 2006-07.

10:52 AM

Senator Tapia continued by discussing the Department of Treasury's budget. Treasury also receives a small portion of the General Fund and most of its funding is cash fund exempt. He quickly discussed the key responsibilities of Treasury, such as investment and cash management, the Unclaimed Property Program, the Senior Property Tax Exemption (which is scheduled to come back in FY 2006-07 at a cost of $61.2 million), and providing financing assistance to school districts and charter schools. He also provided information on the Fire and Police Pension payments that the state is resuming in FY 2005-06 at a cost of $25 million per year. The state delayed payments for a few years due to its budget problems.

Senator Tapia continued by briefly discussing the Treasurer's responsibility in distributing money from the Highway Users Tax Fund to the state and local governments. He also discussed funding for CoverColorado from the state's Unclaimed Property program. He thought there would be discussions this year on making CoverColorado more affordable and accessible. He provided a quick summary of recent major legislation impacting the Department and major funding changes in recent years. He provided information on the decision items for the Treasury for FY 2006-07 which is on pages 18 and 19 of the JBC's briefing. He concluded his presentation on the Department of Treasury by discussing the overview of the budget numbers for the Department. Excluding funding changes for statutorily mandated programs, the Department is requesting an increase in funding of 4 percent. The largest increase relates to a funding increase for marketing of the unclaimed property program.

10:57 AM

Senator Tapia discussed the JBC's request for each department to look at 5 year budget plans and how they can strive to better serve the state over the next 5 years. He directed the finance committees to evaluate DOR's and Treasury's responses to the JBC's questions on how the departments can more efficiently and effectively provide services. These responses are attached to the budget briefing document.

Senator Teck discussed DOR's request for a new computer system and its plan to implement the system in four stages. He asked the JBC to thoroughly explore DOR's request to acquire an off-the-shelf system because the state may not be able to make any necessary adjustments to it after it is acquired. Representative Plant discussed the need for the state to thoroughly evaluate any long term projects and ensure that there is continuity in such projects, especially with the upcoming change in administrations. He indicated that the JBC has not made any decisions on DOR's request for a new computer system and that the DOR is requesting the funding through the capital budget process.

11:03 AM

The committee adjourned.