Colorado Legislative Council Staff

STATE and LOCAL

CONDITIONAL FISCAL NOTE

TABOR Refund Impact

General Fund Revenue and Expenditure Impact

Local Government Revenue and Expenditure Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-133

Rep. Pfiffner

Sen. Coffman

Date:

Bill Status:

Fiscal Analyst:

January 18, 1998

House Finance

Harry Zeid (866-4753)

 

TITLE:            CONCERNING TAX POLICY REFORM, AND, IN CONNECTION THEREWITH, SPECIFYING THE VALUATION FOR ASSESSMENT PERCENTAGES FOR CERTAIN CLASSIFICATIONS OF PROPERTY, ESTABLISHING A HOMESTEAD EXEMPTION FOR A PORTION OF THE ACTUAL VALUE OF OWNER-OCCUPIED RESIDENTIAL PROPERTY USED AS A PRIMARY RESIDENCE, REPEALING THE “URBAN AND RURAL ENTERPRISE ZONE ACT”, AND ALLOWING THE CARRY FORWARD OF ANY INCOME TAX CREDITS AUTHORIZED BY THE “URBAN AND RURAL ENTERPRISE ZONE ACT”.


Summary of Legislation


STATE FISCAL IMPACT SUMMARY

FY 1999/00

FY 2000/01

FY 2001/02

FY 2002/03

State Revenues

General Fund

     Income Tax Increase From:

 Reduced Property Tax Deduction

 Eliminated Enterprise Zone Credits





$19,000,000




$11,380,000

$50,800,000




$23,523,000

$53,300,000




$23,722,000

$56,000,000

State Expenditures

General Fund

Other Fund

 


$320,326,000


$330,380,000


$336,876,000

FTE Position Change

None

None

None

None

Local Government ImpactProperty tax revenue reductions for schools are estimated to be $320,326,000 in 2001, $330,380,000 in 2002, and $336,876,000 in 2003. Additionally, other local governments would experience property tax revenue reductions of $281,579,000 in 2001, $292,249,000 in 2002, and $298,094,000 in 2003.


            This bill would submit a question to the registered electors of the State of Colorado at the next general election in November 1998 to amend certain statutory provisions affecting property tax and the “Urban and Rural Enterprise Zone Act”. HB 98-1182 is a companion bill to the constitutional changes identified in HCR 98-1003. Specifically, the referred bill would require that for property tax years commencing on or after January 1, 2000:

 

                      residential real property shall be valued for assessment at 10 percent of its actual value;

                      the first $50,000 of the actual value, or an amount equal to 20 percent of the actual value, whichever is less, of residential real property that is owner-occupied and used as the primary residence of the owner, shall be exempt from property taxation;

                      industrial and commercial real property shall be valued for assessment at 15 percent of its actual value; and

                      personal property shall be valued for assessment at 15 percent of its actual value.

 

            The bill also repeals the “Urban and Rural Enterprise Zone Act”. Any repealed income tax credits that were not used to offset tax liability for income tax years commencing prior to January 1, 1998, would be allowed to be carried forward.


            The bill would take effect following proclamation by the Governor of the vote of the registered electors at the 1998 general election approving HCR 98-1003. The bill would not take effect unless the voters approve HCR 98-1003. Therefore, the bill is assessed as having conditional state and local fiscal impact.



State Revenues


            Property Tax Modifications. Property taxes are deductible on federal and state income tax returns for individuals who use itemized deductions and for businesses as a business expense. Since the resolution would reduce property tax payments by individuals and businesses, the taxable income for these individuals and businesses will increase, thus increasing federal and state income taxes. Because the state is projected to have excess TABOR reserves in each of the next five years, the increases in state income taxes as a result of the property tax reduction will increase the excess TABOR reserves. The table below identifies the impact of increased state income taxes as a result of reduced deductions for property tax payments:


State Income Tax Increase Based on Reduced Property Tax Payments

 

FY 2000-01*

FY 2001-02

FY 2002-03

Businesses

Individuals

   Total

$8,945,000

    2,435,000

$11,380,000

$18,844,000

    4,679,000

$23,523,000

$19,188,000

    4,534,000

$23,722,000

                        *The FY 2000-01 impact represents a six-month impact.


            Repeal of the “Urban and Rural Enterprise Zone Act”. The value of Enterprise Zone income tax credits claimed has increased steadily in recent years. In FY 1992-93, the value of corporate Enterprise Zone credits claimed was $11,332,000. Credits claimed by individuals were not tracked separately, and therefore, cannot be identified. By comparison, during FY 1996-97, the value of the credits claimed reached $42.3 million ($22.1 million for individuals, and $20.2 million for corporations). It is projected that repeal of the “Urban and Rural Enterprise Zone Act will increase state income tax revenues by $19.0 million in FY 1999-00 (for the six-month period beginning January 1, 1999); $50.8 million in FY 2000-01; $53.3 million in FY 2001-02; and $56.0 million in FY 2002-03.


TABOR Refund Impact


            Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.



State Expenditures


            The Legislative Council staff property tax forecasting model was used to estimate the impact of the property tax provisions of the House Concurrent Resolution. The resolution would result in a reduction in property tax collections for all units of local government (see the Local Government Impact section below). However, since state aid for schools is computed as the difference between Total Program and the amount collected from property taxes and specific ownership taxes, state aid would be increased in affected school districts to make up for the lost operating budget property tax revenue through the School Finance Act. The need for additional state aid through the School Finance Act is estimated to be $320.326 million in FY 2000-01, $330.380 million in FY 2001-02, and $336.876 million in FY 2002-03.



Election Expenditure Impacts (For Informational Purposes Only)


            A General Fund line-item in the 1998-99 Long Appropriations Bill will fund the costs of publicizing any initiative or referendum proposal in newspapers and for printing and distribution of the Blue Book to all electors. The General Assembly spent $291,267 GF for one state-wide ballot proposal on the November 1995 ballot and $1,042,014 GF for the 12 proposals that appeared on the November 1996 ballot.


            The 1996 General Election fixed costs for mailing the Blue Book to 1.35 million registered voters was $174,036 for postage and $3,800 for obtaining mailing addresses. These costs will be the same regardless of the number of issues on the ballot. Variable costs included: Spanish translation of $11,215; newspaper publication of $644,828; printing costs of $206,806; and other costs of $1,328. Total costs were $1,042,014 GF. Fixed costs totaled $177,837 and variable costs were $72,015 per ballot issue.


            Based on the costs incurred for the 1996 Blue Book, one ballot issue cost $249,852 to print and mail to the public. The $72,015 of incremental cost would be added for each issue to the basic mailing costs of $177,837.



Local Government Impact


            Property tax revenue reductions for schools are estimated to be $320,326,000 in 2001, $330,380,000 in 2002, and $336,876,000 in 2003. Additionally, other local governments would experience property tax revenue reductions of $281,579,000 in 2001, $292,249,000 in 2002, and $298,094,000 in 2003.



Spending Authority


            The fiscal note would imply that no appropriations or spending authority are required in FY 1998-99 to implement the provisions of the bill. Implementation of the Resolution would require an increase in the FY 2000-01 appropriation for the Department of Education, Public School Finance, Total Program of $320,326,000.



Departments Contacted

 

            Legislative Council                Revenue                      Local Affairs