Date: 10/01/2009

Impact of TABOR - Gallagher - Amendment 23


Votes: View--> Action Taken:

09:25 AM -- Impact of TABOR, Gallagher, and Amendment 23 on School Finance

Todd Herreid, Legislative Council Staff, came to the table to speak to his memo on the impact of the Taxpayer's Bill of Rights (TABOR), the Gallagher Amendment, and Amendment 23 on school finance (Attachment A). He also noted that members had been provided a copy of a September 2003 Legislative Council Staff publication "House Joint Resolution 03-1033 Study: TABOR, Amendment 23, the Gallagher Amendment, and Other Fiscal Issues" (available on the Internet at Senator Romer asked Mr. Herreid in his presentation to focus on the possibility that the state will be facing deflation for the first time since these amendments were adopted and on the impact of housing prices as they relate to Gallagher.


09:31 AM

Mr. Herreid began his presentation, explaining that state and local funds are the primary sources of revenue for school finance, and noting that there has been a shift in the proportion of funding from each of these sources. He explained that since the early 1990s, the state share has been rising as the local share has been falling. Mr. Herreid said he would explain how TABOR and Gallagher had contributed to this shift. He said Gallagher was adopted in 1982 as part of a larger property tax reform package, House Concurrent Resolution 82-1005. Mr. Herreid explained that it was meant to maintain a fixed relationship between residential and nonresidential tax rates, and he explained how that relationship works.

09:36 AM

Mr. Herreid responded to a question from Representative Massey about how second- and third-home ownership impacts tax receipts by causing more growth in residential property than in nonresidential property. Mr. Herreid, referencing figure 1 on page 2 of the memo (see Attachment A), talked about the progressive decline of residential assessment rates, explaining that the intent of Gallagher was that assessment rates would adjust up and down, but the adjustment has trended downward. Mr. Herreid explained that Gallagher impacts school finance by forcing the local share of total program down. Before TABOR was adopted, he said, districts had the flexibility to raise their mill levy to recoup decreased tax receipts. He also noted that, prior to the passage of TABOR, the General Assembly could set the local share by setting a uniform mill levy.

09:42 AM

Mr. Herreid next described the impact of TABOR on school finance. He noted that TABOR requires voter approval for mill levy increases and increases in the assessment rate for any class of property. Mr. Herreid responded to committee questions, including a question from Senator Romer who asked if TABOR eliminated the statewide mill levy for schools that was used in the 1950s and 1960s. Representative Massey asked what happens to residential assessment rates if nonresidential rates decrease. Mr. Herreid responded, explaining that there is gap between where the residential rate should be under Gallagher and where it is now. Committee discussion ensued.

09:48 AM

Mr. Herreid spoke next about the assessed value forecast, which is a yearly forecast. He explained that a new assessed value forecast will be released with the December economic forecast. He said information from the Colorado Department of Education (CDE) shows that assessed values are coming in stronger than forecast in December of 2008. Discussion on this issue continued, with further conversation around the possibility of a precipitous drop in the next reassessment cycle and how that will impact the state and local share of school finance.

09:54 AM

Committee conversation with Mr. Herreid continued, with Senator Romer noting that the 2011 reassessment will be a snapshot of the previous two years. Mr. Herreid clarified that it will reflect values from January 1, 2010 through June 30, 2011, so the rate will depend on what happens with the real estate market during that 18-month window. Discussion between Senator Romer and Mr. Herreid on this issue ensued, with Senator Romer asking if the 18-month window should be revisited. Mr. Herreid stated that this is the fundamental issue for the December forecast. Discussion continued between Senator Romer and Mr. Herreid.

09:59 AM

Representative Middleton asked, when dealing with the constitutional requirement for a thorough and uniform education and the differences in local share from district to district, whether the commercial assessment rate is a mirror of the residential rate. She also asked whether there is a way to level the playing field in terms of the disparities among districts. Mr. Herreid responded that the nonresidential rate is fixed at 29 percent of the actual value of those properties. He said questions around equity are a policy issue. Following passage of TABOR, he explained, the state lost control of the local share so the policy decision became one of setting total program, which sets the state share. He said the General Assembly has to decide what is equitable.

10:03 AM

Mr. Herreid continued his presentation, talking about school operating mill levies. He explained that in reassessment years there tends to be a ratcheting down of the school district mill levy, which impacts the declining local share and increasing state share. Senator Romer talked about how districts use the down years, speaking specifically to local debt service. Mr. Herreid talked about other mills districts can impose. Representative Massey commented on the difficulties faced in some districts around passing a mill levy override. Mr. Herreid provided an additional handout that lists school district mill levies and assessed values for FY 2008-09 (Attachment B), noting there are wide variations in total program mills.


10:11 AM

Mr. Herreid spoke next to Amendment 23, saying the inflation plus one provision is applied to base pupil funding and impacts the total program amount. He explained that the same formula applies to categorical funding. He talked about what the current decline in the consumer price index (CPI) means in terms of Amendment 23. Committee discussion on this issue ensued, with Senator Romer explaining the opinion of the Office of State Planning and Budgeting (OSPB) with regard to the formula. Mr. Herreid and Senator Romer discussed the formula issue as well as the enrollment and inflation forecasts made by Legislative Council Staff and OSPB. Mr. Herreid discussed the maintenance of effort (MOE) provision of Amendment 23, saying the General Fund obligation grows substantially because the State Education Fund does not contain the funds to make up the difference. Conversation between Senator Romer and Mr. Herreid ensued, with Senator Romer making comments about the intent of Amendment 23 and saying that the committee should make a policy statement about this issue.

The committee took a brief recess.