February 26, 2011 07:02 AM UTC

DU Study: Colorado Revenue System Unsustainable

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• by: c rork

(Read it and weep – promoted by Colorado Pols)

Yesterday, members of DU’s Center for Economic Progress presented their findings from the first comprehensive study of Colorado’s tax system commissioned by the legislature since 1958.

The findings of the study should reinvigorate supporters of a proposed ballot measure. The presenters were adamant that Colorado’s revenue system is wholly unsustainable and needs to be modernized to support a growing need for state services:

• Reforms of the revenue system

Colorado’s current revenue system could be made more productive and  flexible with measures that broaden revenue bases to capture a larger share of economic activity. This may be accompanied by lower rates and still result in a more productive and equitable revenue system. In addition, reconsidering the earmarking of certain revenues for specific purposes could increase elected officials’ flexibility to deal with changing circumstances in a timely manner.

After the presentation, Sen. Rollie Heath announced he would be presenting a ballot measure that could be referred to voters. The press conference will be Monday, noon, at the state capitol.

The gist of the report: even with the solid economic recovery that is projected to take place, Colorado can’t grow itself out of it’s revenue problems. No matter how many jobs we create or whether we create a “pro-business” atmosphere, budget problems will continue to plague the state until long-term, structural changes are made to our revenue system.

The researchers characterized Colorado’s revenue system as the most volatile of all 50 states.

Here are they key points from the summary of the preliminary report:

The long-term, persistent structural imbalance between General Fund revenues and expenditures will not be corrected without structural solutions. Below are the policy directions we have identified and will pursue further in the next phase of the project:

• A long-term planning approach to complement the annual budget process. Structural problems take years to develop; they will not be resolved overnight or during a single budget process. A long-term plan should address the persistent fiscal imbalance. It would be adjusted as necessary when economic circumstances and policy decisions exert different pressures on revenue and expenditure trends.
• Budget rules that address the volatility of revenue streams. Given Colorado’s volatile tax structure, the management of state finances requires an explicit recognition of that volatility and rules for managing it. A budget stabilization fund would capture revenues generated during unusually large upswings and save it to cover shortfalls that result from large negative swings.
• A redefinition of the state-local partnership for funding schools or a new way to fund schools. Tax-base erosion under the Gallagher Amendment, property tax limits imposed by the school finance act and TABOR, and the mandated cost increases of Amendment 23 have shifted the burden of funding K-12 education substantially to state resources. The partnership between state and local revenues should be rebalanced or Colorado should consider a new way to pay for public schools.
• Strategies to address programs, particularly Medicaid, which grow faster than revenues. As Colorado’s large baby boom cohort ages, the state will experience slower per-household revenue growth coupled with greater Medicaid expenses. Strategies include planning for cost increases, more cost-effective ways to deliver Medicaid services and ways to improve the productivity of current revenues.
• Stable and permanent funding sources for transportation, capital needs and controlled maintenance. In the long term, the General Fund cannot provide surplus funding for transportation, capital needs and controlled maintenance. Other financing mechanisms will need to be identified.

The report’s findings mirror those of a similar report by the Buechner Institute of Governance at the School of Public Affairs, CU Denver. While there may be agreement around the problems with Colorado’s budget, concensus is far from being reached on any solutions.