With budget surpluses, lawmakers debate refunds
DENVER — After years of deficits, Colorado has finally reached the era of budget surpluses.
But state constitutional spending restrictions mean those surpluses set up an ideological battle between Democrats and Republicans over what to do with the money and the implications for future budgets. It’s a matter left unresolved in the legislative session that concluded last week, and a debate sure to play out again when legislators convene next January.
Both parties are far apart in how they see the issue. Democrats warn the refunds will bring tight budget choices starting next year, and they have suggested reclassifying a fee paid by hospital to avoid future rebates. Republicans, meanwhile, have vowed to protect the refunds they say are due to taxpayers who are just now beginning to see the benefits of an improving economy.
Refunds haven’t been given out in a decade.
Democratic Gov. John Hickenlooper said the debate over refunds will now shift to outside the Capitol before lawmakers return next year. “The idea now is to go out and make sure that there are town hall meetings all over the state and that the legislators get a chance to hear from their constituents,” he said.
At stake are refunds projected to happen in three years. Lawmakers have already budgeted for them the next two years, setting aside nearly $70 million for the first round in 2016, and about $117 million the following year.
The first refunds will average between $15 and $47 for individuals and between $30 and $94 for joint returns, depending on income.
But in three years things get tricky because the size of the refunds would grow substantially, Hickenlooper and fellow Democrats say. Their suggested solution is to reclassify what is called the hospital provider fee, a charge to facilities that the state uses to get a federal match to help with Medicaid costs. The change would mean the fee would not count toward the Taxpayer Bill of Rights (TABOR) spending limit, stopping about $435 million refunds that would otherwise go to taxpayers in three years.
The issue at the moment is that the revenue collected from the hospital provider fee does not go into the general fund, which is comprised of taxes, but it still creates a refund liability that the general fund must cover, potentially at the expense of other budget areas.
Lawmakers must start budgeting for refunds ahead of time, meaning that starting with next year’s budget about three quarters of new revenue will have to go to public schools just to keep pace with population and enrollment increases, according to Hickenlooper’s budget chief, Henry Sobanet.
Colorado is already $855 million below its constitutional funding mandate for public schools because of years of cuts when the state was dealing with deficits.
Republicans acknowledge tough years are coming, but they don’t view it as a crisis the way Democrats do.
“The real issue I think that we ought to look at is prioritizing the money that we spend now and how that affects TABOR. We were committed to protecting TABOR,” Republican Senate President Bill Cadman said.
This year, political power was divided at the Capitol with Republicans controlling the Senate and Democrats the House. So when Democrats pitched their idea to change the hospital provider fee, it passed their chamber and immediately died in the Senate.
Meanwhile, Senate Republicans proposed an idea under Senate Bill 1 to maintain TABOR refunds while keeping some money for transportation — a budget area both sides agree is hurting. Their suggestion passed their chamber only to quickly die in the House.
With many lawmakers running for re-election next year, Hickenlooper expects the debate over surpluses won’t get any easier. “I think it will probably be just as hard as it was this time, maybe even harder,” he said.
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