Colorado Legislature 2018: Shortfalls in a time of plenty

When lawmakers convene next week, they face familiar pocketbook challenges as allegations of sexual harassment and November elections hang over the session.

Colorado Legislature 2018: Shortfalls in a time of plenty

When lawmakers drive to Denver next week to convene the 2018 legislative session, they will see about a dozen cranes across the city’s skyline, a sign of a growing economy. And if they walk through Liberty Park, they will see about a dozen men and women sleeping on the frozen turf beneath the golden dome.

“The economy is going well. But there are a lot of people who have been left behind,” said Claire Levy, a former lawmaker and current head of Colorado Center for Law and Policy. “I don’t think our budget has kept up with the needs of this state at all.”

When the gavel sounds on Jan. 10, lawmakers will begin writing a budget for the year. And thanks to the current economic boom, they will begin drafting a budget with a revenue surplus.

But across the state, roads remain congested and unkept, schools struggle to hire teachers and special needs staff, and over 585,000 public workers face cuts to their wages or retirement benefits. These are the familiar issues lawmakers will again grapple.

“I think you have tough decisions to make whether you’re in a time of plenty or [time of] cutbacks,” House Majority Leader KC Becker, D-Boulder, told The Colorado Independent. “It’s going to be hard this year like it is every year.”

Elections in November will make it harder despite hope among lawmakers for continued bipartisanship. Colorado has a divided government: Democrats hold a nine-seat majority in the House and Republicans hold a one-seat majority in the Senate.

Battlegrounds have already emerged. Rep. Faith Winter, D-Westminster, plans to challenge Sen. Beth Martinez Humenik, R-Thornton, for the district Humenik won in 2014 by less than 2 percentage points and Hillary Clinton carried in the 2016 presidential election. Other lawmakers will feel the pressure too: 17 of 35 seats in the Senate and all 65 seats in the House will be up for grabs. It remains to be seen if the so-called blue wave will wash over Colorado.

Speaking of waves, at least four complaints of sexual misconduct filed during the off-season continue to ripple through the statehouse, and may reverberate all session. Democratic leadership has already stripped committee leadership roles from Reps. Steve Lebsock, D-Thornton, and Paul Rosenthal, D-Denver, for allegations of sexual misconduct. House Speaker Crisanta Duran, D-Denver, has asked Lebsock, who has denied the allegations and is running for State Treasurer, to resign. Duran has dismissed the complaint against Rosenthal.

Other complaints have been filed against Sens. Randy Baumgardner, R-Hot Sulphur Springs, and Jack Tate, R-Centennial.

Lawmakers plan to hire an outside expert and human resources person to review the legislature’s policy and procedures on sexual harassment. In addition to a policy change, House Majority Leader Becker said there needs to be a cultural change so victims feel comfortable reporting incidents and others know when they cross the line.  

Gov. John Hickenlooper will deliver his final State of the State address on Jan. 11. Hickenlooper proposed an approximate $30.5 billion budget to lawmakers in November, and added more money for high priority issues on Jan. 2. His spending plan aims to pay down the state’s debt to schools, increase money to deal with an expected rise in the prison population, and provide money for transportation projects.

“Education and transportation are grossly underfunded. This new revenue should go to these priorities. We also must acknowledge that we have a long way to go with each for long-term solutions,” Hickenlooper said in a statement Tuesday.

The nonpartisan Legislative Council is projecting a surplus for the 2018-19 fiscal year of about $748 million, according to the December forecast. More money is expected due to increased state tax collections resulting from the federal Tax Cuts and Jobs Act. How this money is spent will be debated.

Lawmakers hope to address a range of issues this year, including how to adjust severance taxes and local regulations on fossil fuel extraction, get broadband internet access into rural Colorado and increase affordable housing. The state may also react to changes at the federal level, such as efforts to roll back parts of the Affordable Care Act and open up fossil fuel extraction on public land.

But the top priorities this year may sound familiar: education, the Public Employees’ Retirement Association, or PERA, and transportation.  Here is the latest.

House Speaker Crisanta Duran spoke to a crowd of businesses during a legislative preview breakfast hosted by the Denver Metro Chamber of Commerce at the Hyatt Regency Denver on Thursday. Photo by John Herrick.

 

Education

Glenn E.Gustafson is the deputy superintendent and chief financial officer for District 11 in Colorado Springs. Like many schools across the state, the Great Recession created austerity throughout the district: He closed 14 schools, implemented two furlough days, cut administration and changed transportation routes. The list goes on.

“We did everything we could,” Gustafson told The Independent. “We even increased class sizes.”

He said class sizes and the two furlough days have been restored. But he still hears from neighborhoods where schools, such as Wasson High School, closed. He said there is no plan to reopen the schools, in part due to declining enrollment.

Schools receive most of their money from the state and local property taxes. Both those funding sources dropped following the Great Recession, and in 2010, the state was forced to issue an IOU to schools. That IOU is currently about $828 million and is known as the budget stabilization factor, or BS factor for short.

Public schools are dealing with the additional costs to provide services like security and support for students’ needs like learning English as a second language.

“Not only has funding not kept up with simple enrollment growth and inflation, it has done nothing to address the significant expansion of programmatic issues that we are all expected to provide,” Walt Cooper, chief financial officer in Cheyenne Mountain School District 12, said.

Gov. Hickenlooper is requesting the required amount to cover enrollment and inflation for K-12 with an additional $100 million to pay down the budget stabilization factor. A debt of about $728 million would remain.

A group of superintendents hope to revisit the Public School Finance Act, which lays out a funding formula for Colorado schools, so it may include funding for students with needs not thought of in 1994 when the law passed. Lawmakers may start hearing ideas at the Legislative Interim Committee on School Finance meeting on Jan. 9.

PERA

House Minority Leader Patrick Neville, R-Castle Rock, said PERA reforms are needed during a legislative preview breakfast hosted by the Denver Metro Chamber of Commerce at the Hyatt Regency Denver on Thursday. Photo by John Herrick.

 

Retirees with the Public Employees’ Retirement Association, or PERA, may see their benefits cut when cost-of-living adjustments are paid at the end of July. And public workers may see more of their earnings taken from their paychecks to pay for retirement as soon as this year. 

Proposed changes to the pension fund will likely affect all of PERA’s 585,000 members. Costs are rising because members are living longer than expected and the rate of return was adjusted down, generating less money for the fund than expected.

Proposals vary on how to address the pension fund’s $32.2 billion unfunded liability. Most proposals seek a reduction in the cost-of-living adjustment, or COLA, and a larger contribution from employees who currently pay about 8 percent of their wage to the pension, and 13 percent by other measures. 

Fairness is the top concern for House Majority Leader Becker. She supports part of the PERA’s proposal to increase both the employer and employee contribution by 2 percent, arguing “there has to be shared sacrifice.”

This would come at a cost to taxpayers. The 2 percent increase to the employer contribution would add personnel costs totaling $54 million for the state division and $87 million for the school divisions, according to PERA estimates. The governor proposes only increasing the employee contribution by 2 percent, but that may require a greater cut to the cost-of-living adjustment.

PERA wants a reform measure passed soon to protect against another economic downturn. But some lawmakers, including Senate Minority Leader Lucia Guzman, D-Denver, are still unsure the issue needs to be addressed this year.

Senate Majority Leader Chris Holbert, R-Parker, wants to see more members on the PERA Board of Trustees with financial experience managing such large portfolios. This could include a degree or years of experience requirement.

“Structural reform” is needed, said House Minority Leader Patrick Neville, R-Castle Rock,  during a legislative preview breakfast hosted by the Denver Metro Chamber of Commerce at the Hyatt Regency Denver on Thursday.

Neville did not rule out moving toward a defined contribution plan. But PERA opposes changing the fund from a defined-benefit plan to a defined-contribution plan similar to a 401K, in part, because it does not have the immediate effect of bringing more money into the fund.

The goal for the latest round of austerity proposals is to have PERA 100 percent funded in the next 30 years. Currently, it would take 78 years to pay off the unfunded liability for the school division and 58 years for the state division.

Transportation

Rep. Dan Thurlow, R-Grand Junction, can point to a bottleneck on Interstate 70 between Denver to the Western Slope that he would like to see fixed.

“Everybody has their own project,” Thurlow told The Independent. “I would expand that corridor from Floyd Hill to Eisenhower.”

Colorado’s recent population surge peaked in 2015 when the state added 101,000 people to its population, two-thirds of that accounts for people moving to the state, according to U.S. Census data. People left Colorado in record numbers last year, but tens of thousands of people still arrive every year.

This is adding traffic congestion to roads across the state, including I-70 this time of year when skiers in the Front Range flock to the resorts. According to a 2017 report by TRIP, a Washington, D.C.-based nonprofit research group, Denver drivers lose 49 hours a year to traffic.

The Hickenlooper administration is requesting $148.2 million for the State Highway Fund for high-priority state transportation projects, according to a Jan. 2 budget request amendment. Senate Majority Leader Holbert said his party would like to see around $300 million for transportation projects.

Both proposals lack long-term funding to cover the $8.6 billion the Colorado Department of Transportation estimates it needs for highway expansion projects, drawing criticism from some lawmakers.

“The money from the general fund is a downpayment on the long-term needs of the transportation system,” Henry Sobanet, the governor’s budget director, said. “We’ve had 26 years of the same gas tax. With inflation and fuel efficiency, it’s not doing its job anymore.”

Some Republicans want to borrow money by issuing bonds and use this money to help pay the debt service. It is unlikely lawmakers will propose a tax increase to put on the ballot. An effort last year failed in the Republican-controlled Senate.

“It’s just not favorable,” Senate Majority Leader Holbert said. “I believe the voters are asking us to do more with what they already pay us.”

Some lawmakers want to change tax policy in a way that may not technically raise taxes at all.

Due to a combination of constitutional amendments dealing with fiscal policy, rural municipalities and school districts funded by property taxes are watching their budgets shrink as home values rise elsewhere in the state.  

In the Front Range, already higher home values are rising. This is causing the statewide residential assessment rate to drop due to a formula in the Gallagher amendment. The amendment, which was enacted in 1982, prevents residential property owners from paying more than 45 percent of the total property tax base. As home values rise faster than business property values, the rate drops. When that same residential rate is applied to static home prices in rural Colorado, revenue for municipalities, schools and fire districts drops as well.

Prior to the Gallagher amendment, residential properties were assessed at around 30 percent. The residential assessment rate is now 7.2, and expected to drop to about 6.1 in 2019, according to the December forecast by the Legislative Council. Holding this rate down is TABOR, the Taxpayer Bill of Rights, which requires a public vote to raise taxes. The result is less money that could go to programs like education and transportation.

Sen. Larry Crowder, R-Alamosa, and Rep. Thurlow have some ideas for what to do with Gallagher. One idea is freezing the residential assessment rate in place. Another is using a different rate for rural and metro areas.

“I think it’s something we should seriously consider at this time,” Crowder said. “Do you want us to govern or do you want us to pinch pennies until services dwindle?”

The problem, Thurlow said, is equality. Gallagher is creating a disparity between the Front Range and rural Colorado, the Eastern Plains and the Western Slope.

“It’s driving this vast divide between the prospering part of Colorado and the non-prospering part of Colorado,” Thurlow said.  

Photo: The Colorado statehouse on Dec. 27, 2017. Photo by John Herrick. 

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About the Author

John Herrick

John is covering the 2018 legislative session. Follow him on Twitter @herrickjohnny and email him at John@coloradoindependent.com.

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