Colorado Legislative Council Staff

STATE

FISCAL NOTE

TABOR Refund Impact

State General Fund Revenue Impact

Drafting Number:

Prime Sponsor(s):

LLS 98-717

Rep. C. Berry

Date:

Bill Status:

Fiscal Analyst:

January 24, 1998

House Finance

Harry Zeid (866-4753)

 

TITLE:            CONCERNING A TEMPORARY STATE INCOME TAX RATE REDUCTION FOR THE PURPOSE OF REFUNDING STATE REVENUES IN EXCESS OF THE LIMITATION ON STATE FISCAL YEAR SPENDING FOR ANY GIVEN FISCAL YEAR.



Summary of Legislation


STATE FISCAL IMPACT SUMMARY

FY 1998/99

FY 1999/2000

State Revenues

General Fund (reduction)

Other Fund


($324,800,000)


($286,100,000)

State Expenditures

General Fund

Other Fund


 


 

FTE Position Change

None

None

Local Government Impact — None


            This bill would provide a method of refunding the state’s revenues that are in excess of the state fiscal year spending limitation beginning with FY 1997-98, as required by Section 20 of Article X of the State Constitution. The bill requires the Executive Director of the Department of Revenue to calculate the adjusted income tax rate necessary for the refund using the most recent estimate of General Fund revenues attributable to the state income tax for the applicable tax year prepared by the staff of the Legislative Council of the General Assembly. The adjusted income tax rate would apply to corporate and individual income tax filers for the taxable year commencing on or after January 1, 1998. It is projected that the bill would reduce General Fund revenues beginning in FY 1998-99. Therefore, the bill is assessed as having state fiscal impact.


            The bill will become effective at 12:01 a.m. on the day following the ninety-day period after adjournment sine die of the General Assembly, or on the date of the official declaration of the vote of the people as proclaimed by the Governor, if a referendum petition is filed pursuant to Article V, Section 1 (3) of the State Constitution.






State Revenues


            The current individual and corporate income tax rate is 5.0 percent. The bill authorizes a temporary state income tax rate reduction for the purpose of refunding state revenues in excess of the limitation on state fiscal year spending for any given fiscal year. For example, the excess TABOR revenue for FY 1997-98 would affect the income tax rate for 1998 income tax returns filed after January 1, 1999. Projected TABOR excess revenues based on the Colorado Legislative Council staff December 1997 economic forecast for FY 1997-98 through FY 2002-03, and the effect on the state income tax rate is identified in the table below.


Projected TABOR Excess Revenue and Projected Temporary Income Tax Rate

(in millions of dollars)




Fiscal Year

Projected

TABOR

Excess

Revenue



Individual

Taxpayers



Corporate

Taxpayers


Income Tax Year

Projected Temporary Income Tax Rate

FY 1997-98

FY 1998-99

FY 1999-00

FY 2000-01

FY 2001-02

FY 2002-03

$324.8

286.1

276.4

280.0

228.6

203.0

$302.7

262.0

253.2

256.8

210.0

186.5

$22.1

24.1

23.2

23.2

18.6

16.5

1998

1999

2000

2001

2002

2003

4.50%

4.60%

4.63%

4.65%

4.73%

4.77%



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


            This fiscal note analysis presumes that no expenditures would be required by the Department of Revenue in order to modify income tax forms and instructions to reflect a temporary change in the income tax rate. Furthermore, it is assumed that there will not be a significant increase in the number of telephone calls to the Department with questions regarding the rate change. Based on an agreement with the Joint Budget Committee, Legislative Council Fiscal Note Staff, and the Department of Revenue, the Department of Revenue will absorb the costs of approximately 150 hours of programming time necessary to make the rate changes during the normal annual rewrite by the Department.



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.



Departments Contacted

 

          Legislative Council                Revenue