Colorado Legislative Council Staff



Drafting Number:

Prime Sponsor(s):

LLS 99-0412

Rep. McPherson



Bill Status:

Fiscal Analyst:

January 30, 1999

House Finance

Harry Zeid (303-866-4753)



Fiscal Impact Summary

FY 1998-1999

FY 1999/2000

FY 2000/2001

State Revenues

General Fund




State Expenditures

General Fund




FTE Position Change

0.0 FTE

0.0 FTE

0.0 FTE

Other State Impact: TABOR Impact

Effective Date: 90 days after adjournment; applies to income tax years commencing on and after January 1 of the year in which the bill becomes effective.

Appropriation Summary for FY 1999-2000: $64,922 and 0.0 FTE - General Fund - Department of Revenue

Local Government Impact: None

Summary of Legislation

            This bill creates a temporary Colorado earned income tax credit for individuals who claim a federal earned income tax credit. For income tax years commencing prior to January 1, 2004, if a resident individual claims a federal earned income tax credit, the individual would be allowed a state earned income tax credit equal to 30 percent of the amount of the federal credit claimed on the resident individual’s federal tax return. If the credit exceeds the income taxes due, the credit would be refunded to the individual.

            It is assumed that the Colorado earned income tax credit is effective for income tax years beginning on or after January 1, 1999. Therefore, there is a six-month state General Fund revenue reduction impact in the current fiscal year, FY 1998-99, on an accrual accounting basis. State expenditures will occur beginning in FY 1999-00.

State Revenues

            Background. Since 1985, the average amount of the federal earned income tax credit claimed has nearly doubled every five years. The average credit was $321, $601, and $1,342 in 1985, 1990, and 1995, respectively. Since 1991 (excluding 1993 and 1994 when qualifications for the credit changed), the total amount of credits increased by an average annual rate of 17.4 percent. Eligibility in the program increased at an annual rate of 3.1 percent during the same time period. This level of growth, however, is not expected to continue in the future.

            Due to the Omnibus Budget Reconciliation Act of 1993, the maximum credit for taxpayers with children was increased at a rate higher than inflation through income tax year 1996. According to federal sources, the earned income credit for taxpayers with one qualifying child reached its permanent level in 1995 and for taxpayers with two qualifying children reached its permanent level in 1996. Therefore, it is reasonable to assume that the number of participants will continue to grow at historic rates, but the amount of the credit per return should increase by the annual increase in the Consumer Price Index. Using these assumptions, the amount of credits claimed at the national level are projected to be $34,329 million, $36,385 million, and $38,525 million in income tax years 1999, 2000, and 2001, respectively.

            The Colorado Earned Income Tax Credit. Between income tax years 1991 and 1995, earning income credits claimed by taxpayers that reside in Colorado comprised 1.01 percent of the national amount. It is assumed that this proportion will continue in the future. Therefore, it is estimated that taxpayers that reside in Colorado will claim $346.73 million, $367.48 million, and $389.11 million in income tax years 1999, 2000, and 2001, respectively.

            By converting income tax years to state fiscal years, it is projected that the value of a Colorado earned income tax credit that is equal to 30 percent of the amount of the federal credit claimed will result in a reduction in state General Fund revenues on an accrual accounting basis of $52.0 million in FY 1998-99, $107.1 million in FY 1999-00, and $113.5 million in FY 2000-01.

State Expenditures

            The Colorado earned income tax credit would be refundable, and therefore, must be tracked by the Department of Revenue. In order to track the information provided by taxpayers about the tax credit, the department estimates the need for 900 hours of computer programming time to make the necessary changes to the current income tax system models. At the rate of $68 per hour, the Information Technology Division will require $61,200 in FY 1999-00.

            The costs for necessary computer changes in the Fair Share section of the Tax Audit and Compliance Division in FY 1999-2000 will be absorbed within the existing resources of the division.

            The Cash and Document Processing Division will experience an increased workload to data capture the information on the income tax return about the state earned income tax credit. Based on an estimated 226,000 tax returns that will qualify for the state earned income tax credit, data entry costs are projected to be $3,722 in FY 1999-00, and $3,837 in FY 2000-01. Total General Fund expenditures for the Department of Revenue to implement the bill are projected to be $64,922 and 0.0 FTE in FY 1999-00, and $3,837 and 0.0 FTE in FY 2000-01.

Other State Impacts

            The reduced state revenues will mean a reduction of the amount of state funds required to be refunded to taxpayers under the terms of TABOR, and less state funds will be available for capital construction needs. Table 1 summarizes the net impact of this bill on these state obligations. The changes in Table 1 are changes from a base that includes continuing capital construction projects.

Table 1. Additional Impact of HB 99-1264 (millions of dollars)


FY 1998-99

FY 1999-00

FY 2000-01

General Fund Revenue




General Fund Appropriations

SB 97-1 Diversion







Controlled Maintenance Trust Fund Appropriations

Excess General Fund Reserve







Federal Income Taxes Paid by Colorado Taxpayers

Additional Money Available for New Capital or Rebates







TABOR Refund (from prior year)




State Appropriations

            The fiscal note implies the Department of Revenue would require an additional General Fund appropriation in the amount of $64,922 in FY 1999-00 to implement the provisions of the bill.

Departments Contacted