Colorado Legislative Council Staff

STATE

REVISED FISCAL IMPACT

(Replaces fiscal impact dated January 12, 1999)

TITLE:            CONCERNING THE CONTINUATION OF THE ALLOCATION OF THE STATE SALES AND USE TAX TO THE HIGHWAY USERS TAX FUND.

Summary of Legislation

            This fiscal note has been revised based on the March, 1999 Economic & Revenue Forecast prepared by the Colorado Legislative Council staff. The re-engrossed bill would extend the current ten percent diversion of sales and use tax revenue to the Highway Users Tax Fund (HUTF) from ten years to a permanent diversion. It would also eliminate the contingency provision that would reduce the diversion if $140 million for capital construction was not available. The provision that requires a reduction if there is not enough money available to fully fund the six percent General Fund (GF) growth limit and the four percent reserve would not be removed.

            Background Information. The diversion of sales and use taxes was first accomplished in FY 1979-80 and continued until FY 1986-87 under what has been designated as the "Noble Bill" sponsored by Senator Dan Noble. SB 97-1 recreated the diversion of sales and use taxes to the HUTF for four fiscal years and imposed two contingency measures in cases of revenue shortfalls. HB 98-1202 extended the diversion from four years to ten fiscal years. This diversion occurs before the funds are deposited into the GF and are not considered part of GF spending under the six percent limit.

           Extending Diversion Beyond FY 2007-08. The bill would not increase or decrease revenues collected for the GF or any cash fund. However, the bill would extend the diversion of funds to the Highway Users Tax Fund (HUTF) beyond FY 2007-08 that are scheduled to go back to the GF. The ten percent diversion would become a permanent diversion. It should be noted that after these funds are deposited into the HUTF they are used for state highways and are not shared by local governments. The amount of the diversion would grow at the same rate as the growth in sales and use taxes to the GF. For purposes of this fiscal note, the estimated sales tax diversions were increased by 5.54 percent annually.

Estimated Ten Percent Sales & Use Tax Diversion to the HUTF

(millions of dollars)

            Contingency Provisions of SB 97-1. SB 97-1 imposed two contingency measures that would impact the amount of the diversion to the HUTF in times of revenue shortfalls. The first contingency is that if there is not enough revenue to fully fund the four percent statutory reserve and the six percent GF growth limit (Arveschoug-Bird), then the amount of the diversion would be reduced accordingly to fully fund the six percent GF growth limit. This contingency would remain current law. The provision that required enough revenue to divert $140 million from the GF to the Capital Construction Fund would be eliminated.

            Eliminating the Contingency and Maintaining Current Tax Structure. Under current law, these two contingencies provide some assurance that General Fund programs and state capital construction projects receive additional funding even when state revenues are reduced. It also spreads the reductions between capital construction and transportation funding. Based on the current Legislative Council Staff economic forecast and the existing tax structure, eliminating the one contingency would not have an impact on fully funding the six percent growth limit or the four percent reserve.

            Eliminating the One Contingency Provision of SB 97-1 and Reducing the Income Tax Rate to 4.75%. Based on the March, 1999 Economic & Revenue Forecast prepared by the Colorado Legislative Council staff, there would not be an impact from eliminating the one contingency even if the income tax rate is reduced from five percent to 4.75 percent.

Departments Contacted

            Revenue          Transportation