National Education Association Presentation
COMMITTEE ON JOINT EDUCATION
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07:36 AM -- Call to Order
Representative Merrifield, the chair, called the Joint Education Committee to order.
07:36 AM -- National Education Association Presentation
Tony Salazar, executive director of the Colorado Education Association (CEA), introduced the presenter, Dr. Richard Sims, representing the National Education Association. (Please refer to Attachment A for powerpoint slides).
Dr. Sims presented on balancing taxes, education funding, and long term economic needs. He explained that 45 states have made budget cuts for the current fiscal year, 48 have done so for the next fiscal year, and 29 states have cut education funding. He discussed the Colorado tax system and explained that it is weighted toward generating revenue from the least wealthy in the state, which is a group that experiences the least amount of income growth.
Dr. Sims explained that if the tax burden was shifted toward the wealthier population, the state would have an extra $200 million in tax revenue. Representative Murray asked where the specific ownership tax fits in the tax chart on presented on the powerpoint. Dr. Sims explained that it is part of the sales and excise bracket of the bar graphs. Representative Murray noted that she is from a wealthy state house district and many people pay high specific-ownership taxes. Dr. Sims explained that while specific ownership taxes might be high for the wealthy, as a percentage of income, the specific ownership taxes paid by the wealthy are less than paid by poorer people.
Senator King asked if the table is based on taxable income, or total income. Dr. Sims explained that it is based on total income. Senator King noted that the income tax burden rises as a percent of time as income increases. Dr. Sims explained that the chart is not ideologically based, but rather based on census data. Representative Solano asked if the $43,000 annual income includes a family of four. Dr. Sims explained that it includes all family sizes and that typically, people making less than $43,000 spend more than they make.
Dr. Sims continued his presentation by discussing how different taxes grow at different rates, and compared elasticies between income tax, sales tax, and economic growth. Dr. Sims explained that over time, state and local revenues will fall short of expenditures needed in order to maintain current programs and spending,resulting in cuts to programs due to constitutional mandates that states balance budgets. Senator Heath clarified that this graph is a general outlook for states, but does not include Colorado's budget restraints such as TABOR. Dr. Sims replied that is correct.
Dr. Sims discussed the impact on Colorado of a $100 billion in federal stimulus money going to the states for educational operation budgets. He noted that Colorado's assumed share would be $1.61 billion. He explained that the stimulus would result in 80,000 jobs, but noted that those are not new jobs, but rather jobs that would have otherwise not been filled had it not been for the stimulus funding. He estimated that the net increase of jobs would be 20,000.
Representative Peniston asked that if the stimulus share is based on total population and student population, what students does this include. Dr. Sims explained that the population includes students age 5 to 24, and that most of the money goes to infrastructure spending, which has long term value for the economy, but weak short term value. He explained that the stimulus package was aimed at mirroring state budgets because one of the most effective ways to save jobs immediately is to bolster current spending patterns, and that it is better for the economy to save existing jobs rather than create new jobs.
Dr. Sims explained that nearly half of the money that marked for Colorado would be directed toschools to supplement the existing operating budgets, and noted that school districts will retain discretion on how the money will be spent. Representative Solano clarified if the money mostly goes directly to school districts, and how the money would be distributed among school districts. Dr. Sims replied that the formula is calculated to give the poorest districts and districts with most children with special needs the most money. Representative Solano asked if any money would go to the state Department of Education. Dr. Sims explained some money would go to the state level for administration and oversight purposes, but the intent is that the majority of the money would go directly into programs, and noted much of that allocation is left to the discretion of the states.
Dr. Sims discussed research on whether low business taxes stimulate growth. He reviewed the rankings of the top 10 and bottom 10 states for business tax climate, and compared that with the average growth rates of these states. He stated that the top 10 states had an average growth rate of 4.3 percent, and the bottom 10 states had an average growth of 4.2 percent. He also noted that states have 6 percent corporate income tax or less have an average growth rate of 4.2 percent, while states with corporate income taxes higher than 6 percent have an average growth rate of 4.6 percent. He also compared the best business climate rank with average growth rate, and noted that the rankings did not correlate with the best average growth in that state.
Dr. Sims explained that state corporate income taxes for business is .27 percent of it expenditures, and direct labor costs equate to 48 percent of total expenditures. He further noted that businesses report that their major cost factor when expanding or relocating is labor, accounting for 72 percent for offices and 36 percent for manufacturing. He shared other research on factors influencing business relocation, which includes the quality of K-12 education, higher education, and vocational education; speeding up the permitting process and simplifying bureaucracy; and tax incentives.
Dr. Sims also shared that research found that there is a strong correlation between public spending and GDP per capita growth, according to a July 2008 World Bank report. He noted that the World Bank also recently published a report on the taxpayer's return on investment in public education, and it reported that the taxpayer received a return on investment of 14.3 percent for education, compared to the long term return on common stocks, which is 6.3 percent. He explained that well educated communities result in fewer people in jail, noting that up to 70 percent of people in county jails have less than a college education, fewer low birth weight babies, noting that in Arkansas, cost to the state can be upwards of $60,000 over the lifetime of the person), and lower unemployment rates.
Senator Bacon asked if it is a one time stimulus, would it be able to bring systemic economic change. Dr. Sims explained that on average, the initial stimulus program lasts for 9 quarters, or roughly two and a half years. He noted that states will continue to have losses from the property tax revenue for five to six years, and that Colorado will mathematically never get back to previous revenue levels because of TABOR restrictions, and that Colorado is at 80 percent of revenue it could have realized if TABOR were not in place.
Representative Solano explained that she and Senator Heath are on the Joint Select Committee on Job Creation and Economic Growth, and stated that she would like that committee to hear the presentation as well because that committee has mainly focused on tax incentives. Dr. Sims noted that, according to the business community, a skilled workforce, not tax incentives, is the most important for economic stimulus. Senator Bacon explained that Colorado has relied on educated people locating to Colorado to foster an educated and skilled workforce.
Tony Salazar explained that he would be happy to work with the committee and Dr. Sims to present again to other committees and members.
The committee adjourned.