Federal Stimulus Package May Hurt Colorado Budget, Group Says

Advocacy groups says federal stimulus plan may cost Colorado $109 million. State estimates are lower.
The federal plan to stimulate the economy via some income tax breaks will cost Colorado $109 million in revenue because of the state’s “coupling” of its tax code with the federal government, according to the Colorado Fiscal Policy Institute.

But Gov. Bill Ritter’s office says that their preliminary analysis indicates that the amount in peril is considerably less than CFPI indicates, and there are no plans to try to deal with the issue legislatively at this time.

Colorado’s tax code by law is “coupled” with the federal government’s, which means that most deductions allowable on a federal return are also allowable on a Colorado return. CFPI is concerned about a provision in the federal economic stimulus package that will allow businesses to depreciate capital equipment purchases in a single year, rather than over five years.

According to CFPI spokesman Scott Downes, the changes in these provisions will result in a loss in state revenue of about $104 million, while other technical changes will cost the remaining $5 million.

Downes said:

“It’s not a tax increase. It’s not an increase in spending or anything like that. It’s a case where leaders and the legislature can take steps to fix a problem before it happens – which is kind of a novel idea in government.”

In a release, CFPI said:

“To avoid losing $109 million, the state legislature must pass a bill “decoupling” the Colorado tax code from the federal tax code. This would not raise taxes by a single cent, it would not increase state spending by a penny, and businesses would still benefit from the federal bonus depreciation. This solution would simply disconnect our tax code from the federal tax code and in turn avoid losing more than $109 million.”

But Evan Dreyer, press aide to Gov. Bill Ritter, says the problem isn’t as large a CFPI says. And he adds that in any case, it may be money well spent.

“We don’t think the impact is quite as severe as they think,” Dreyer said. “Our budget office is still crunching numbers, but we don’t think the impact will nearly that high.

“The economy has softened. The federal government is taking steps to address that, to their credit. We need to figure out how to make this work for the overall economy and people who are experiencing difficult economic times of their own, including businesses.”

Dreyer says that the governor’s office currently has no plans to pursue a “decoupling” bill like CFPI wants. Asked if there was a revenue loss threshold – given the difference in estimates between CFPI and the state budgeters – that would trigger such a plan, Dreyer said he wasn’t aware of any. “We’re trying to get a firm grasp and determine the strategy, if there needs to be a strategy,” he said.

According to an analysis by the Center on Budget and Policy Priorities, Colorado is one of 36 states that would lose a total of $2.9 billion in state revenue from the accelerated depreciation and “expensing” provisions in the stimulus package.

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Dan Whipple

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