01 October 2008

Colorado Ballot Issues 51, 52, 58 and 59 (Taxes)

Colorado Ballot Issues 51, 52, 58 and 59 all increase the amount of revenue the state can collect and/or earmark tax revenues for specific purposes. Amendments 51 and 58 are statutory changes. Amendments 52 and 50 are amendments to the state constitution.

I recommend that you support Amendment 51 (sales tax for developmentally disabled persons), 58 (severance tax increases for need based college scholarships and other purposes), and 59 (increased state budget flexibility), while I urge you to vote "no" on Amendment 52 (shifting state severance tax revenues to highway funding with a preference for I-70).

Colorado Amendment 51 increases state sales taxes from 2.9% to 3.0% starting July 1, 2009, and from 3.0% to 3.1% starting July 1, 2010. This will raise about $89 million in the first year, and about $186 million in the next year. It is also expected to produce $19 in federal matching funds the first year, and $39 million in federal matching funds the next year. It allows these funds to be collected notwithstanding TABOR limits.

The money will goes to services with children and adults with developmental disabilities. In other words, people with conditions like mental retardation, autism, Down syndrome, and cerebral palsy. Current state spending for this purpose would also be locked in at current levels.

Currently, there are 9,700 adults eligible for services for developmentally disabled people who are on wait list and don't receive them because there are insufficient funds. This number will grow over time at current rates to 12,000 by 2012. Currently, total federal, state and local government spending for the developmentally disabled is about $372 million, of which $184 million comes from the state government, and this provides services for about 11,800 people. Even with a sales tax increase, there will probably be a small waiting list for these services.

The tax will make Colorado's tax system overall more regressive. Sales tax revenues also tend to increase significantly in good economic times and fall significantly in bad economics times. But, the sales tax is a tax usually and appropriately used as a general revenue source because it has a relatively broad base not tied to any particular need, and instead to general societal obligations. This makes the sales tax a fairly good match for this general social welfare obligation of the state.

The amount of money involved in this proposed tax increase is proportionate to the proven need for services for the developmentally disabled, and there is very little that the state can do with incentives or different policies to change this need in the short to medium term. Most developmental disabilities last for a person's entire adult life, and in a society that strongly rewards mental ability in the workplace, and operates on the assumption that people can look out for themselves, the vast majority of the time, the developmentally disabled are a clear exception.

While there is good reason to oppose constitutional earmarks, Amendment 51 isn't a constitutional amendment, covers a need whose costs is either stable or likely to grow (given the growing incidence of autism and rising costs for professional services), and doesn't appropriate an excessive amount.

In sum, Colorado Amendment 51 deserves your vote, because it protects a group of people who have a legitimate claim on the state's charity, for no fault of their own, who have been slighted in the current political process, on a long term basis.

Colorado Amendment 52 changes the state constitution to allocate any inflation adjusted increases in severance tax revenue (i.e. taxes on amounts produced from mining) to highways, with priority given to I-70. Currently, severance taxes are primarily spent on water projects, with wildlife conservation, low income energy assistance, and mining industry regulation also receiving significant funding. The portion spent on mining industry regulation is basically fixed, so wildlife conservation, low income energy assistance and water projects would bear the brunt of the measure.

This change is expected to transfer about $225 million (about a third of total severance tax collections) to highway projects from existing revenue sources, over four years. The cost of I-70 improvements alone are expected to be in the low billions, and Colorado has many billions of unmet highway construction needs.

Currently, highway construction is financed mostly with gas taxes (which operate like a users fee on road users), state and local general funds, and federal matching funds in the case of interstate highways.

Severance taxes are paid by the mining industry, and because energy and mineral commodity markets approach perfect competition in a national or world market, they are hard to pass on to consumers. One way to think about severance taxes is as a royalty for the privilege of accessing Colorado's sovereign rights in its minerals. Another is to view it as a fairly simple version of an income tax on the oil and gas and mining industries. One can also view severance taxes as a crude form of carbon tax, because oil and gas production is the principal source of severance tax revenues.

Severance tax revenues vary wildly based upon mineral prices and the productivity of Colorado mines and oil wells.

There is nothing terribly liberal about severance taxes. The federal government collects the equivalent of severance taxes through royalty interests in mineral rights that were retained when surface rights were granted to ordinary citizens under the homestead acts. Severance taxes are the most important source of state revenue in conservative Alaska, and are also important revenue sources in historically conservative Montana and Wyoming.

Many oil producing countries, like Venezuela, Mexico and Saudi Arabia simply nationalize all mineral resources, contract to have the minerals extracted, and uses these natural resource revenues as an alternative to tax revenue. The United States situation, where only some mineral rights have been retained by the national government, while others are privatized, is the exception to the leading international position.

Amendment 52 would:
* put into our state constitution a preference for highways over rail, especially in the I-70 corridor,
* favors I-70 highway spending even if other projects are a higher priority in the state transportation budget, from funds generated for the benefit of the state as a whole,
* constitutionally limits the amount of revenue that can be collected from severance taxes,
* reducing the share of state spending going towards water projects, energy assistance for low income people and wildlife protection
* defeat the worthwhile incentives associated with funding highways through a quasi-users fee that matches the cost of providing highways to those who use them and discourages unnecessary driving.

Severance tax revenues have very little to do with highway funding needs. The I-70 corridor is the interstate highway most heavily used by mining companies, but interstate commerce and skiing industry traffic, rather than mining company vehicles, are the overwhelming drivers of I-70 traffic.

In summary, you should vote "no" on Colorado Amendment 52 because it locks tax increase protections for highly profitable oil and gas industry into the constitution, uses a revenue source that is a poor fit for the earmarked expenditure, sets bad transportation funding policies for the state of Colorado, and diverts funds from more worthy beneficiaries that make Colorado sustainable or are linked more closely to the impact of the oil and gas industry on Colorado.

Colorado Amendment 58 is a statutory increase in severance taxes. Existing spending of severance tax revenues is left largely unchanged, while the increased revenue is spent 60% on college scholarships for lower and middle class Coloradans, 15% to protect wildlife habitat, 10% for energy efficiency and renewable energy, 10% for transportation projects (including but not limited to highways) in areas impacted by the oil and gas industry, and 5% for community drinking water and domestic wastewater treatment. The total amount of revenue for new programs as a result of the severance tax increase will be about $300 million per year (i.e. $180 million a year for higher education, $45 million a year for wildlife habitat, $30 million for renewable energy, $30 million for transportation projects in impacted areas, and $15 million for drinking water and domestic wastewater treatment).

Contrary to industry claims, this will not kill the state's oil and gas industry. The oil and gas industry is the most profitable industry in the country, and Colorado's severance tax rates are a quarter those of Montana and the lowest in the American West. Since the minerals are located in the state, moving oil and gas operations elsewhere is not an option in the long term. The oil and gas industry, as explained above, is also in a poor position to pass these taxes onto consumers. The effective tax rate associated with nationalized oil and gas operations in most of the rest of the world is much higher than combined federal and state lease revenues and severance taxes.

College scholarships are an investment in Colorado's long term future. Countries and states with significant oil revenue typically use oil and gas tax revenues for long term investments in the local economy, because oil and gas tax revenues will cease in the long term and need to be replaced with other economic drivers.

Colorado is near the bottom nationally in its funding for higher education. Also, research cited on this blog in the past, has shown that ability to pay is an important factor in the likelihood that low and middle income students will attend college. And, while need blind funding for higher education tends to mute this benefit and subsidize college students from families making far more than the state average income, need based scholarships target higher education funding where it has the greatest impact. As a general funding source for higher education, severance taxes are too variable and too small to suffice, but the amount directed towards need based scholarship is proportionate to the need. The amounts appropriated for other purposes is also proportionate.

In summary, Colorado Armament 58 deserves your support because it is a statutory change that makes the oil and gas industry pay its fair share of taxes, and spends the funds in ways that invest in Colorado's long term future and mitigate the negative impacts of the oil and gas industry on the state.

Colorado Amendment 59 diverts money that would otherwise have to be refunded to taxpayers in small checks under TABOR to P-12 education, partially for immediate use, and partially for a rainy day fund earmarked for education that can only be spent with a supermajority vote or in bad economic times. In exchange, it eases the requirement for P-12 funding per student in 2011 and beyond to equal or exceed the rate of inflation.

Amendment 23 taken together with TABOR and other provisions of the state constitution over constrain the state budget process. Education spending at the P-12 level must keep up as a result of Amendment 23 in good times and bad, regardless of pressures on state revenues in weak economic times. TABOR limits the ability of the state to compensate by spending more in good economic times. Corrections spending and Medicaid spending are, in practice, very difficult to cut in the time frame associated with a short term drop in state revenues during a recession. Most state government functions make up a very small percentage or state revenues, or are funded with earmarked taxes rather than out of state general funds.

As a result, high education funding must usually be sacrificed in bad economic times as a result of reduced state revenue which TABOR limitations means it can take years for state revenues to recover from, even if the economy recovers more quickly.

Colorado Amendment 59 effectively effects a gradual repeal of Amendment 23 spending mandates at the rate of inflation in the years 2010 and thereafter, increasing the ability of state legislators to balance P-12 education spending against other state spending.

Amendment 59 effectively eliminates TABOR spending limitations by diverting funds otherwise used for TABOR refunds when revenues are in excess of TABOR to one of the largest items in the state general fund budget, easing pressure on other general fund line items.

Amendment 59 also creates a rainy day fund, that while earmarked for P-12 education, has the effect of easing the strain on the entire general fund budget, by earmarking rainy day funds for purposes that would otherwise have to be funded from the state general fund.

Basically, Amendment 59 is a partial repeal of TABOR and Amendment 23 at the state level that limits its impact to the requirement that changes in tax rates be approved by voters. This gives lawmakers more flexibility in hard economic times, and makes the state of Colorado more fiscally sound. Colorado's bond rating will probably improve as a result.

Colorado Amendment 59's impact on P-12 education is, at best, a wash and more likely than not, weakens the claim of P-12 education on the state general fund budget in the long run. The earmark it creates for education in TABOR refund years and in rainy day fund years, probably does give education an edge over other programs, even though, in theory, spending on programs competing for general fund dollars are fungible. But, an edge in the budget process isn't nearly as powerful as the inflation adjusted per student funding mandate of Amendment 23, which has demonstrably protected P-12 spending in the last period in which Colorado tax revenues fell.

In summary, Amendment 59 reduces state constitutional constraints on the state budget, in a way that gives the state legislature more control over state spending, and makes Colorado's state finances more stable and less prone to dramatic fluctuations in higher education spending, at the price of an end to TABOR refunds (typically tens or hundreds of dollars per year per taxpayer in good economic times) and reduced security for P-12 spending. But, supports of P-12 spending have considerably more political clout than, for example, mental illness or developmentally disabled persons, even in the absence of Amendment 23.

Amendment 59 is the brainchild of Andrew Romanoff, term limited speaker of the state house from House District 6. It is a close call, in my view. But, ultimately, the prospect of some slippage in P-12 education funding in hard times, in exchange for an overall significant improvement in Colorado's budget process, and greater flexibility for state legislators to balance higher education cuts against P-12 cuts, is worth it. I support Colorado Amendment 59, particularly when it is viewed in connection with Referendum O that will, if adopted, discourage efforts to put tax and budget policies into the state constitution.


I've covered Colorado Amendments 46 (end affirmative action), 47 (prohibits closed shops with mandatory management fees), 48 (egg as person), 49 (anti-public employee union dues deductions) and 50 (expands gambling in casino towns), as well as all four Referendums in previous posts. To recap, I urge you to oppose Amendments 46, 47, 48, and 49, to support all four Referendums (two repeal obsolete provisions of the tate constitution, one makes constitutional amendments harder than statutory changes to get on the ballot, and one allows people 21-24 years of age to serve in the general assembly), and I give my lukewarm support to Amendment 50 (gambling expansion).

Sneak Preview

In future posts, I will discuss Colorado Amendments 53 (criminal accountability of business executives), 54 (campaign contributions of public sector unions and government contractors), 55 (just cause for employment termination), 56 (health insurance mandate), and 57 (certain suits in addition to worker's compensation claims).

I strongly oppose Colorado Amendment 54, which is an overbroad gag rule designed to target a much narrower pay to play issue. I also weakly oppose Colorado Amendment 57, which accurately calls attention to the fact that worker's compensation benefits are frequently too stingy, but accomplishes that end with poorly drafted language which is far too vague on its critical points, and a process that is unduly expensive.

I support Colorado Amendment 53, mostly because a close reading of the proposed statutory change proves it to be far narrower in scope and impact than its opponents, and many of its supporters believe it to be, and because in the cases where it really does apply, personal responsibility for corporate executives is appropriate (and mostly exists already).

I have skimmed Colorado Amendments 55 (just cause termination) and 56 (health care benefit mandate), but have not looked at them carefully enough and analyzed them enough to make a strong recommendation on them. Both concepts have merit, but have so many important elements that they deserve closer attention.

I also intend to support the Denver Public Schools bond issue (Referred Issue 3A), something that I will also explain in a later post in more detail.

It appears that, despite rumors to the contrary, no City of Denver ballot issues have materialized for the 2008 General Election.


Dex said...

thanks proph - one of my classmates and i were just jawing about the slew of amendments that were on our plates for fall.

Anonymous said...

Thank you for supporting 51!

Anonymous said...

Thanks for supporting 51! For more information people can go to www.endcoloradowaitlist.org and read your non-biased voter guide books you get in the mail. FYI This will not tax gas, medicine, medical services, utilities, or groceries. It will save lives! Yes on 51!

Anonymous said...

It'll hurt the oil & gas industry more than you think. Before you vote, remember we provide over 71000 jobs, the number one revenue source for the state, and hundreds of millions of dollars in tax revenue. Additionally, theories of high/low gas prices should not be voted on carelessly. When oil prices decrease and no one is concerned about prices anymore can we have this back? Probably not. p.s. oil will continue to drop. Simple supply/demand