Colorado Legislative Council Staff

STATE

CONDITIONAL FISCAL NOTE

TABOR Refund Impact

State General Fund Revenue Impact

TITLE:            CONCERNING A TEMPORARY REDUCTION IN THE STATE INCOME TAX RATE FOR THE PURPOSE OF REFUNDING STATE EXCESS REVENUES THAT VOTERS HAVE NOT AUTHORIZED THE STATE TO RETAIN.

Summary of Legislation

            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 (7)(a) of Article X of the State Constitution. The bill requires that for the amount of excess state revenues that the voters have not authorized the state to retain and spend, the Executive Director of the Department of Revenue would temporarily reduce the rate of state income tax. Excess state revenue from FY 1997-98 would reduce the individual and corporate income tax rate for the taxable year commencing on or after January 1, 1999, but prior to January 1, 2000. 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 state income tax revenues for the applicable tax year prepared by the staff of the Legislative Council of the General Assembly.

            The bill would only become effective following proclamation of the Governor of the vote of the registered electors at the 1998 General Election approving SCR 98-3, that would extend by one year the period to refund state revenues in excess of the constitutional limitation on state fiscal year spending. Therefore, the bill is assessed as having conditional state fiscal impact.

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 that the voters have not authorized the state to retain. Upon voter approval of SCR 98-3, this bill would extend by one year the period to refund state revenues in excess of the constitutional limitation on state fiscal year spending. For example, the excess TABOR revenue for FY 1997-98 would affect the income tax rate for 1999 income tax returns filed after January 1, 2000. 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 for income tax year 1999 through 2004 is identified in the table below.

Projected TABOR Excess Revenue and Projected Temporary Income Tax Rate

(in millions of dollars)

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