The bipartisan hug issued around the Legislature after a compromise on the state budget Tuesday was broken Wednesday as House Republicans passed a bill exempting businesses from business personal property taxes. Democrats said the bill could take millions of dollars away from local school districts and said it could require a reworking of the long bill if it becomes law.
“It is not that we don’t think that in a perfect world that we would tax differently, that we wouldn’t have a business personal property tax,” Minority Leader Sal Pace, D-Pueblo, said. “However, we are talking about–with this bill–cutting schools within a couple years by over $70 million and then by $90 million.”
Pace said this bill affects the budget.
“We can’t pay for this. Why are we running something that we can’t pay for?” Pace asked.
The bill to allow business owners purchasing personal property during a two-year period to be exempt from business personal property tax, was called a business stimulus program by Republicans. They said the tax break would raise revenue through the creation of new businesses. However, Democratic feathers ruffled at the lack of evidence for GOP predictions of revenue gains.
Rep. Daniel Kagan, D-Englewood, said that while the manner in which business taxes are collected in Colorado needs to be restructured, unless the entire structure is reformed, a moratorium on business personal property taxes will cause a budget crisis in local communities.
“This is a really serious mistake,” Kagan said Wednesday. “…It would absolutely devastate local governments.”
Bill sponsor Rep. Chris Holbert, R-Parker, said his plan would spike sales taxes and create an economic stimulus without government spending.
“The only way it would have a devastating effect on any county is if a business sheds all of its business personal property and buys 100 percent of it new during those two years,” Holbert said.
Even then, he said that if businesses did shed all old equipment and buy new personal property in order to avoid paying taxes for the life of the property then there would be a spike in sales revenue.
Holbert said that while dynamic modeling was not available for his bill, he was certain that the increased business created from the exemption would more than offset the tax break in the short term.
The bill’s fiscal note explains that eliminating the personal property tax revenue would cost local governments across the state $93.4 million in fiscal year 2013-2014 and $190.2 million in FY 2014-2015.
The bill’s fiscal note further states that its implementation would cost schools up to an estimated $37.5 million in FY 2013-2014 and $76 million in 2014-1015 in local school district property tax revenue. Those amounts would have to be backfilled through the State’s General fund.
“At the end of the day of these two years, if we’ve devastated anyone, we will come out with more sales tax revenue,” Holbert said. “I believe (this will cause) a trailing spike in income tax revenue; and we will have more companies employing more people, and that is our responsibility as a General Assembly.”
The fiscal note attached to the legislation said that any potential increases to state revenue would be offset to the degree “that tax savings realized by businesses are spent outside of Colorado; and to the degree that reduced spending by local governments reduces economic activity in their communities.”
The fiscal note also warned that the bill could trigger a reduction in residential assessment rates based on maintaining the business and residential property tax ratio mandated by the Gallagher amendment.
After the bill passed on a party line vote, Rep. Mark Ferrandino, D-Denver, moved to amend the bill during the report of the committee of the whole. He said that the bill should be amended to read that any reduction in revenues to schools would be backfilled by the state.
“If this is going to generate the revenue that you believe it is going to generate, I don’t think it is going to, but if you believe it is going to then we will have enough money for this appropriation, then we should commit to the schools today that we are not going to fire teachers or increase class sizes when we move this bill forward, and we make sure that we make our commitment to school kids that we are going to fund them while we give tax breaks to businesses, ” Ferrandino said.
While some Republicans were offended by the assertion that they did not care about education and pointed to the budget negotiations as a sign of their commitment to k-12, Rep. Mark Waller, said they would vote for the bill if Ferrandino felt that made it a better bill.
Only two Republicans voted against Ferrandino’s amendment.