Presentation by State Treasurer Cary Kennedy
INTERIM COMMISSION TO STUDY FISCAL STABILITY
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All materials referred to in this summary are available on the web at Legislative Council Staff's website for the Long-Term Fiscal Stability Commission.
09:04 AM -- Department of Treasury - Cary Kennedy
The meeting was called to order by the Chair Senator Rollie Heath.
Ms. Cary Kennedy, State Treasurer, began her discussion. Members of the commission received a copy of her slides (Attachment A), the Standard & Poors Ratings rating of Colorado entitled "Colorado; Appropriations; General Obligation" (Attachment B), and the State Taxpayer Accountability Report (STAR) for Fiscal Year 2006-07 (Attachment C).
Ms. Kennedy began with a history of U.S. gross domestic product (GDP) to provide the big picture of economic growth. Ms. Kennedy explained the Treasury update that followed, including a summary of the state's investments, which she noted are also included in the appendix in Attachment A as well as on the agency's website. A summary of the state's financial affairs concluded the state's credit rating (AA) was upheld this week, accompanied with investments that show positive earnings and no losses in the state pool. Ms. Kennedy explained that due to the positive outlook in Colorado, the state obtained a lower interest rate. Examples of some of the projects include the new history museum, Justice Center, and qualified school construction bonds with all interest costs paid by the federal government. The treasury has not issued variable rate debt and opposed proposals to issue variable rate Certificates of Participation.
Ms. Kennedy further explained that long term financial stability was viable since the state showed strong economic performance and below average debt levels. She explained that in regard to the components of a healthy economy, Colorado ranked 4th in GDP nationally and unemployment is lower than the national average. Ms. Kennedy discussed the stability of home prices in the state and suggested Colorado would rebound quicker than other states due to its diverse economy. She further noted the state has a 4 percent uncommitted statutory general fund reserve which is low. Also, Senate Bill 09-228 created a new statutory requirement to increase state General Fund reserves by 0.5 percent each year for five years. Ms. Kennedy explained Colorado has below average Debt/Certificate of Participation (COP) levels and the state continues to pay all of its bills.
Senator Heath asked for a definition of COPs, and Ms. Kennedy explained that they were Certificates of Participation, which allow the state to enter into obligations. Since a COP is a lease-purchase, she said, there is no legal obligation.
Ms. Kennedy provided information to the commission about the assets of the Public Employees' Retirement Association (PERA). She also said that Colorado does not do asset liability studies, which Ms. Kennedy suggested the commission should consider every five years. Due to term limits, she stated that having this type of information available would be helpful.
Senator Heath asked about PERA and what it would take to get PERA back to a better funding ratio. Ms. Kennedy did not have the calculated numbers but will provide those numbers.
Ms. Kennedy presented a picture of tax revenues nationwide which showed Colorado and California are both states heavily reliant on personal income taxes and high ratios of capital gains as a percent of adjusted gross income, leaving tax revenues volatile. Ms. Kennedy recommended a comprehensive study of Colorado's tax structure.
The commission discussed the cost of conducting such comprehensive studies. Ms. Kennedy explained in prior years, resources were not available and legislators recommended a private company conduct this. Colorado University (CU) and the University of Denver combined had done a similar study. Ms. Natalie Mullis, Legislative Council Staff (LCS), came to the table to respond to the commission's questions, noting that staff would investigate how the 1959 report was funded. The presentation continued by moving to areas where the state was underperforming. Ms. Kennedy explained institutional financial flexibility is the area where Colorado is not doing well. The state requires voter approval for tax rate increases, and the state Constitution does not allow revenue or spending to rise and fall with economic and demographic growth or decline. She further noted additional shifts in burden between state and local levels of government create challenges.
The commission asked about the limits imposed by TABOR. Ms. Kennedy suggested this could be maintained but that the limit should not be tied to inflation or population growth, that statewide personal income or other measures that better reflect economic growth (or economic expansions and contractions) should be used. The commission also asked about any studies that might have been modeled to show different scenarios. Ms. Kennedy suggested that Legislative Council Staff could do such a study. The commission asked about the impact inflation would have on fiscal stability, and areas such as K-12, requesting Ms. Kennedy's opinion. Ms. Kennedy discussed Amendment 23 and its effect in addressing K-12 funds that had diminished over the last 10 years, but that Colorado is still well below the national average as far as funding per student. She further explained the state's constitution prevents the state from making such investments when the economy is strong. The commission requested a representative from PERA be scheduled to provide information.