First Regular Session

Sixty-first General Assembly

LLS NO. 97­0449.01 ABA HOUSE BILL 97­1242

STATE OF COLORADO

BY REPRESENTATIVES Arrington, K. Alexander, Bacon, Grossman, Musgrave, Paschall, and Tool.

FINANCE

A BILL FOR AN ACT

CONCERNING A REDUCTION IN THE PROPERTY TAX LEVIED BY SCHOOL DISTRICTS, AND, IN CONNECTION THEREWITH, INCREASING THE COLORADO STATE INCOME TAX RATE FOR THE PURPOSE OF RAISING ADDITIONAL REVENUE FOR PUBLIC SCHOOLS.

Bill Summary

(Note: This summary applies to this bill as introduced and does not necessarily reflect any amendments which may be subsequently adopted.)

For the 1998­99 school budget year, reduces by 25% the property tax mill levy that must be levied by each school district to pay for the district's share of its total program under the "Public School Finance Act of 1994". Since the state's share of school finance funding increases due to the mill levy reduction, provides for the raising of additional state revenue through an increase in the Colorado income tax rate. Makes conforming amendments to implement the reduction in the property tax and the increase in the income tax. Refers the measure to the electors of Colorado as required by section 20 of article X of the state constitution.

Be it enacted by the General Assembly of the State of Colorado:

SECTION 1.  Legislative declaration. (1)  The general assembly hereby finds, determines, and declares that:

(a)  In 1982, the people of Colorado amended section 3 of article X of the state constitution to include a provision that required that "For each year in which there is a change in the level of value used in determining actual value, the general assembly shall adjust the ratio of valuation of assessment for residential real property . . . as is necessary to insure that the percentage of the aggregate valuation for assessment which is attributable to residential real property shall remain the same as it was in the year immediately preceding the year in which such change occurs";

(b)  The adoption of this provision, commonly known as the "Gallagher amendment", has resulted in consequences that certainly were not intended or anticipated by the citizens of Colorado when the amendment was adopted in 1982;

(c)  The "Gallagher amendment" has had an adverse impact on the property tax base supporting public education in this state, especially in rural areas, by placing the tax base on an irreversible downward trajectory;

(d)  The "Gallagher amendment" has also had an extremely severe impact on the state's small businesses and has caused the property tax paid by suburban businesses to become the sixth highest in the nation; and

(e)  Careful consideration should be given to the means by which these various unintended and unanticipated adverse consequences of the "Gallagher amendment" may be mitigated for the long term.

(2)  Until a long­term solution to the unanticipated and unintended consequences resulting from the "Gallagher amendment" is attained, it is the intent of the general assembly in enacting this act to serve the best interests of the people of Colorado by providing limited relief, on an interim basis, to the state's public education system and to the businesses of this state.

SECTION 2.  22­54­106 (2) (a) (IV), Colorado Revised Statutes, 1995 Repl. Vol., as amended, is amended BY THE ADDITION OF A NEW SUB­SUBPARAGRAPH to read:

22­54­106.  Local and state shares of district total program. (2) (a)  Except as provided in paragraph (c) of this subsection (2), for reorganized districts, for the 1994 property tax year and property tax years thereafter, each district shall levy the lesser of:

(IV) (C)  FOR THE 1998 PROPERTY TAX YEAR, THE NUMBER OF MILLS LEVIED BY THE DISTRICT FOR THE 1997 PROPERTY TAX YEAR FOR COLLECTION IN 1998 REDUCED BY TWENTY­FIVE PERCENT.

SECTION 3.  39­22­104 (1), Colorado Revised Statutes, 1994 Repl. Vol., is amended to read:

39­22­104.  Income tax imposed on individuals, estates, and trusts ­ single rate. (1) (a)  Subject to subsection (2) of this section, with respect to taxable years commencing on or after January 1, 1987, BUT PRIOR TO JANUARY 1, 1998, a tax of five percent is imposed on the federal taxable income, as determined pursuant to section 63 of the internal revenue code, of every individual, estate, and trust.

(b)  FOR THE TAXABLE YEAR COMMENCING ON JANUARY 1, 1998, AND ENDING ON DECEMBER 31, 1998, THE TAX RATE ON FEDERAL TAXABLE INCOME ESTABLISHED BY PARAGRAPH (a) OF THIS SUBSECTION (1) SHALL BE INCREASED BY ONE­QUARTER PERCENT.

(c)  FOR TAXABLE YEARS COMMENCING ON OR AFTER JANUARY 1, 1999, THE TAX RATE ON FEDERAL TAXABLE INCOME ESTABLISHED BY PARAGRAPH (a) OF THIS SUBSECTION (1) SHALL BE INCREASED BY ONE­HALF PERCENT.

SECTION 4.  39­22­301 (1) (d) (I) (G), Colorado Revised Statutes, 1994 Repl. Vol., is amended, and the said 39­22­301 (1) (d) (I) is further amended BY THE ADDITION OF THE FOLLOWING NEW SUB­SUBPARAGRAPHS, to read:

39­22­301.  Corporate tax imposed. (1) (d) (I)  A tax is imposed upon each domestic C corporation and foreign C corporation doing business in Colorado annually in an amount of the net income of such C

corporation during the year derived from sources within Colorado as set forth in the following schedule of rates:

(G)  For income tax years commencing on or after July 1, 1993, BUT PRIOR TO JANUARY 1, 1998, five percent of the Colorado net income;

(H)  FOR INCOME TAX YEARS COMMENCING ON JANUARY 1, 1998, BUT BEFORE JANUARY 1, 1999, THE TAX RATE ON COLORADO NET INCOME ESTABLISHED BY SUB­SUBPARAGRAPH (G) OF THIS SUBPARAGRAPH (I) INCREASED BY ONE­QUARTER PERCENT;

(I)  FOR INCOME TAX YEARS COMMENCING ON AND AFTER JANUARY 1, 1999, THE TAX RATE ON COLORADO NET INCOME ESTABLISHED BY SUB­SUBPARAGRAPH (G) OF THIS SUBPARAGRAPH (I) INCREASED BY ONE­HALF PERCENT.

SECTION 5.  39­22­623 (1) (b), Colorado Revised Statutes, 1994 Repl. Vol., is amended to read:

39­22­623.  Disposition of collections. (1)  The proceeds of all moneys collected under this article, less the reserve retained for refunds, shall be credited as follows:

(b) (I)  EXCEPT AS OTHERWISE PROVIDED IN THIS PARAGRAPH (b), following apportionment of the city, town, and county shares pursuant to paragraph (a) of this subsection (1) and pursuant to section 29­21­101, C.R.S., all remaining funds shall be credited to the general fund, and the general assembly shall make appropriations therefrom for the expenses of the administration of this article.

(II)  AN AMOUNT EQUAL TO THE ADDITIONAL STATE REVENUES GENERATED BY THE INCREASE IN THE INCOME TAX RATE FOR INDIVIDUALS, ESTATES, TRUSTS, AND CORPORATIONS FOR INCOME TAX YEARS COMMENCING ON AND AFTER JANUARY 1, 1998, SHALL BE TRANSFERRED FROM THE GENERAL FUND TO THE STATE PUBLIC SCHOOL FUND CREATED IN SECTION 22­54­114, C.R.S. THE TRANSFER FROM THE GENERAL FUND TO THE STATE PUBLIC SCHOOL FUND SHALL NOT BE DEEMED TO BE AN APPROPRIATION SUBJECT TO THE LIMITATIONS OF SECTION 24­75­201.1, C.R.S.

SECTION 6.  22­54­114 (1), Colorado Revised Statutes, 1995 Repl. Vol., is amended to read:

22­54­114.  State public school fund. (1)  There is hereby created in the office of the state treasurer a fund, separate from the general fund, to be known as the state public school fund. There shall be credited to said fund the net balance of the public school income fund existing as of December 31, 1973, and all distributions from the state public school income fund thereafter made, the state's share of all moneys received from the federal government pursuant to the provisions of section 34­63­102, C.R.S., MONEYS REQUIRED BY SECTION 39­22­623 (1) (b), C.R.S., TO BE TRANSFERRED FROM THE GENERAL FUND, and such additional moneys as shall be appropriated by the general assembly which THAT are necessary to meet the state's share of the total program of all districts and the contingency reserve during the budget year. Moneys annually appropriated by the general assembly shall be transferred from the state general fund and credited to the state public school fund in four quarterly installments on July 1, September 30, December 31, and March 31 to assure the availability of funds for the required distribution of state moneys to school districts. Such quarterly installments shall be determined in accordance with estimates prepared by the department of education with respect to the required distribution of state moneys to school districts.

SECTION 7.  42­3­107 (23), Colorado Revised Statutes, 1993 Repl. Vol., as amended, is amended BY THE ADDITION OF A NEW PARAGRAPH to read:

42­3­107.  Taxable value of classes of property ­ rate of tax ­ when and where payable ­ department duties ­ apportionment of tax collections. (23) (e)  NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH (a) OF THIS SUBSECTION (23), FOR CALENDAR YEARS BEGINNING ON AND AFTER JANUARY 1, 2000, A SCHOOL DISTRICT THAT HAS DECREASED ITS MILL LEVY AS REQUIRED BY SECTION 22­54­106 (2) (d), C. R. S., SHALL CONTINUE TO RECEIVE THE SAME PERCENTAGE OF SPECIFIC OWNERSHIP TAX REVENUE THAT THE SCHOOL DISTRICT RECEIVED IN THE CALENDAR YEAR BEGINNING JANUARY 1, 1999.

SECTION  8.  Refer to people under referendum.  This act shall be submitted to a vote of the registered electors of the state of Colorado at the next election for which it may be submitted, for their approval or rejection, under the provisions of the referendum as provided for in section 1 of article V and section 20 of article X of the state constitution, and in article 40 of title 1, Colorado Revised Statutes. Each elector voting at said election and desirous of voting for or against said act shall cast a vote as provided by law either "Yes" or "No" on the proposition: "SHALL STATE TAXES BE INCREASED BY $306,300,000 ANNUALLY AND BY WHATEVER ADDITIONAL AMOUNTS ARE RAISED ANNUALLY THEREAFTER, FROM A ONE­HALF OF ONE PERCENT INCREASE IN THE COLORADO INCOME TAX RATE, FOR THE PURPOSE OF PROVIDING ADDITIONAL STATE MONEYS FOR PUBLIC SCHOOLS THEREBY ALLOWING FOR A TWENTY­FIVE PERCENT REDUCTION IN THE PROPERTY TAX MILL LEVY FOR PUBLIC SCHOOLS, AND SHALL THE AMOUNTS RAISED FROM SUCH TAX INCREASE BE EXCLUDED FROM THE STATUTORY LIMIT ON STATE GENERAL FUND APPROPRIATIONS?" The votes cast for the adoption or rejection of said act shall be canvassed and the result determined in the manner provided by law for the canvassing of votes for representatives in Congress, and, if a majority of the electors voting on the question shall have voted "Yes", said act shall become law.