Colorado Legislative Council Staff

STATE

FISCAL NOTE

TABOR Refund Impact

General Fund Revenue and Expenditure Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-925

Rep. Paschall

Date:

Bill Status:

Fiscal Analyst:

April 27, 1998

House Finance

Harry Zeid (866-4753)

 

TITLE:            CONCERNING THE REFUNDING OF STATE REVENUES IN EXCESS OF THE CONSTITUTIONAL 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


($371,586,600)


($339,900,000)

State Expenditures

General Fund

Other Fund


$251,668


$251,668

FTE Position Change

1.2 FTE

1.2 FTE

Local Government Impact — None


            This bill would provide a method for refunding a portion of the state’s revenues that are in excess of the state’s fiscal year spending limitation beginning with FY 1997-98 to be refunded in the following year, as required by Section 20 of Article X of the State Constitution. The bill provides that for qualified individuals (full-year resident filers, or full-year residents 18 years of age and older), the excess state revenues that the voters of the state have not authorized the state to retain and spend would be refunded in the next fiscal year. The Director of the Department of Revenue would determine a single percentage that, when used to calculate the amount of the credit, would cause the total amount of credit allowed to equal the amount of excess state revenues required to be refunded. The amount of the credit would be derived in the following manner:

 

               for individuals whose federal adjusted gross income (FAGI) for the tax year is less than or equal to $25,000, the credit would be a fixed amount determined by the Executive Director of the Department of Revenue ($25,000 multiplied by the single percentage);

               for individuals whose FAGI for the tax year is greater than $25,000 but not more than $80,000, the credit would be based on a sliding scale determined by multiplying the qualified individual’s FAGI by the single percentage; and

               for qualified individuals whose FAGI for the tax year is greater than $80,000, the credit would be a fixed amount determined by multiplying $80,000 by the single percentage.


            Persons serving a sentence of confinement in a correctional facility under the supervision of the Colorado Department of Corrections or the United States Government as a result of conviction of a crime would not be eligible for the credit. The Executive Director of the Department of Revenue would annually calculate the amount of the single percentage in accordance with the provisions of the bill. Beginning with taxable years commencing on or after January 1, 1999, the federal adjusted gross income brackets would be annually adjusted to reflect the percentage change in the consumer price index, rounded to the nearest $1,000.


            The bill would reduce General Fund revenues beginning in FY 1998-99, and would require an expenditure of General Fund moneys for the administrative costs of operating the program. Therefore, the bill is assessed as having state fiscal impact. The bill would become effective upon signature of the Governor.



State Revenues


            The bill provides a mechanism for refunding the excess state revenues that are not otherwise authorized by the voters to be retained by the state. Projected TABOR excess revenues based on the Colorado Legislative Council staff March 1998 economic forecast for FY 1997-98 is $365.9 million. For the FY 1997-98 excess revenues to be refunded in FY 1998-99, the amount of the refund per qualified individual would be $82 for individuals with FAGI less than $25,000, and $262 for individuals with FAGI over $80,000. For individuals with FAGI between $25,000 and $80,000, the amount of the credit would be based on a sliding scale equal to 0.328 percent of FAGI (rounded to the nearest dollar). Table 1 below identifies the amount to be refunded in FY 1998-99 by FAGI class, the estimated number of qualified individuals by income category, and the refund that would be necessary for each income group. The total amount to be refunded of $371.6 million exceeds the excess revenue projection of $365.9 million due to the rounding of the single percentage.


Table 1. HB 98-1417 Credit for Qualified Individuals

 by Federal Adjusted Gross Income Class - FY 1998-99

 

Less than

$25,000

$25,000 to

$80,000

Over

$80,000


Total

Number of Qualified Individuals

Amount to be Credited

Percent of Total Credits

Credit per Qualified Individual

1,070,198

$87,756,236

23.6%

$82

1,153,719

$182,369,030

49.1%

sliding scale

387,257

$101,461,334

27.3%

$262

2,611,174

$371,586,600

100.0%

n/a


            The projected excess TABOR revenue in FY 1998-99 to be refunded in FY 1999-00 is anticipated to be $339.9 million. The amount of the credit per qualified individual would be calculated no later than October 1, 1999 by the Executive Director of the Department of Revenue.


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


            It is projected that the Department of Revenue will experience administrative costs in the amount of $251,668 and 1.2 FTE in order to implement the three-tiered income tax credit required by the bill. These expenses are summarized in Table 2 below.


Table 2. HB 98-1214 Department of Revenue Administrative Costs

 

FY 1998-99

FY 1999-00

Personal Services

  Cash & Document Processing Division* (0.9 FTE)

  Taxpayer Services Division* (0.3 FTE)

     Personal Services Subtotal


$18,980

    8,491

$27,471


$18,980

    8,491

$27,471

Operating Expenses

 Refund Processing

 Remittance Savings

 Microfilm and Other Processing

 Pueblo Data Entry

   Operating Services Subtotal


$141,672

(7,100)

4,834

    84,791

$224,197


$141,672

(7,100)

4,834

    84,791

$224,197

Total Administrative Costs

$251,668

$251,668

             *Includes PERA at 11.5% and Medicare at 1.45% of salary.



Expenditures Not Included


            Pursuant to the Joint Budget Committee’s budget policies, the following expenditures have not been included in this fiscal note:

 

               health and life insurance costs;

               short-term disability costs;

               inflationary cost factors;

               leased space; and

               indirect costs.

Spending Authority


            The fiscal note implies that the Department of Revenue would require an additional General Fund appropriation in the amount of $251,668 and 1.2 FTE during FY 1998-99 in order to implement the provisions of the bill.



Departments Contacted


            Revenue          Legislative Council Staff


FACTS AND ASSUMPTIONS



Assumptions

 

1.    That the credit will impact the workload for processing income tax returns for the Department of Revenue. It is estimated that 2,598,000 individuals will be eligible for the credit (2,006,000 filers with a tax liability, 429,000 filers with no tax liability, and 163,000 non-filer returns).

   

2.    That part-year residents, non-resident filers, non-resident military, non-resident students, and persons serving a sentence of confinement in a state or federal correctional facility in the state as a result of conviction of a crime will not be eligible for the credit under the terms of the bill.

 

3.    That the Cash & Document Processing Division of the Department of Revenue will incur additional administrative expenses of $141,672, including postage ($112,503), printing ($4,169), envelopes ($8,333), and mail service costs ($16,667) associated with the processing of approximately 416,679 additional refunds.

 

4.    That the Division will also experience a cost savings of $7,100 for the processing of checks from taxpayers receiving a refund rather than sending a check to the Department.

 

5.    That the Cash & Document Processing Division will require 0.9 FTE (Admin. Asst. II, grade 67, step 1) and $18,980 annually to process the additional returns. In addition, microfilm and other processing costs of $4,834 will be required annually.

 

6.    That the Taxpayer Services Division indicates that additional errors are expected to occur on income tax returns. This will increase the workload of the income tax accounting section to review these returns. It is estimated that the Division will require 0.3 FTE Tax Examiner I (grade 81, step 1) to handle the additional workload. The total personal services cost for this service is projected to be $8,491, including base salary, PERA at 11.5 percent, and Medicare at 1.45 percent.

 

7.    That since a three-tiered system of income tax credits is currently in place, the Information Technology Division will not require additional resources in order to modify the computer programs associated with the modifications.

 

8.    That additional data entry requirements for the Pueblo Data Entry facility will require $84,791 annually.