rolling the dice

The legislative habit of gambling on the future

One of the many peculiarities of Colorado’s complex state budgeting process is the legislature’s weakness for spending – or at least promising to spend – money before it’s even collected.

The latest example popped up just last week, when the House approved House Bill 14-1342, a measure that would provide extra funding for higher education construction projects – but only if the 2013-14 budget year ends with more surplus revenues than currently predicted.

K-12 education has benefited from such tactics in the past, and there has been some fear in districts that this year’s higher ed plan might disadvantage K-12.

The scheme probably means that the State Education Fund would receive a smaller infusion of cash than it might have otherwise. But in any event the higher ed finance plan won’t affect district funding in 2014-15, an issue that’s the focus of a separate – and bigger – debate.

“It’s based on ‘if’ there’s money left at the end of the year,” said Dillon Democratic Rep. Millie Hamner, chair of the House Education Committee.

So the K-12 lobby has decided not to pick a fight over HB 14-1342 and instead to remain focused on its main goal for 2014 – persuading lawmakers to make as large a dent as possible in the state’s $1 billion K-12 funding shortfall.

“Do we like this amendment? No!” Bruce Caughey, executive director of the Colorado Association of School Executives wrote in an email to members last week. He said the CASE legislative team recommended “that we do not get drawn into a battle with higher education, the governor and the Joint Budget Committee” and remain focused on reducing the shortfall, known at the statehouse as the “negative factor.” A group of superintendents is pushing for a reduction of as much as $275 million. A pending bill, House Bill 14-1292, proposes $100 million.

That doesn’t mean HB 14-1342 will get a free ride in the Senate. Denver Democratic Sen. Pat Steadman, vice-chair of the Joint Budget Committee, doesn’t like the idea of earmarking unknown future revenues. “I’m not the biggest fan,” Steadman said Tuesday morning before the bill was approved by the Senate Appropriations Committee. “I expect we’ll be talking more about the bill on the floor,”

Budget timeline
  • The legislature will vote by May 7 on a budget for the 2014-15 fiscal year, which starts July 1.
  • That budget is based on revenue estimates that were issued in late March.
  • Actual tax collections almost always differ from those estimates, especially when revenues are increasing.
  • So, backers of HB14-1342 are betting that when the state closes its 2013-14 books next fall there will be a bigger actual surplus than was predicted this spring, providing money for buildings.

Summary of HB 14-1342

Like virtually every other budget fight, the HB 14-1342 tussle has its roots in the 2008 recession, which sent state tax revenues into a tailspin. Among the many programs cut was construction on college campuses.

Revenues have been slowly recovering over the last two years, and lawmakers, lobbyists and executive branch bureaucrats hoped the 2014 legislative session would provide the opportunity to put some catch-up spending in the 2014-15 budget.

Even before the session started, Gov. John Hickenlooper proposed a $100 million increase in higher ed operating funds, a plan widely supported in the legislature. And college leaders and lobbyists also were looking forward to a boost in construction funding.

The Capital Development Committee, a joint House-Senate panel that reviews construction projects, produced a list that included some college projects. But the committee’s plans were derailed on March 20 when JBC members announced they would back an alternative project list supported by Gov. John Hickenlooper, which included only two higher education buildings, one at the Auraria Higher Education Center and one at the University of Colorado campus in Colorado Springs.

That’s when the higher education lobby and sympathetic legislators sprang into action and came up with the plan to spend possible future money on those campus buildings. The amendment was added to the bill last Thursday and given final approval in the House on Friday.

The amended bill protects two programs that the 2013 legislature had designated as recipients of sany urplus funds – the Colorado Water Conservation Board ($30 million) and the State Education Fund ($31.1 million).

In theory, that means the SEF would get less money than it would have under a 2013 law that allocated 75 percent of any surplus to the fund. (The SEF is a dedicated account that is used to supplement state General Fund spending on schools and for other K-12 spending.)

Even with the cap on the SEF transfer, Hamner called the bill “a fair compromise,” adding, “I have to look at the bigger view” of both K-12 and higher ed needs.

If there’s enough surplus to cover the water board and SEF transfers (plus $10.3 million to be kept in the General Fund), then any money above that would go to a ranked list of higher education construction projects. There’s a cap of $119.5 million on the campus spending. If the surplus revenue is more than about $190 million, the money above that goes to the SEF.

In past years lawmakers have used the future-revenues gambit to benefit the education fund, and those gambles have paid off. For instance, the SEF last fall received slightly more than $1 billion in 2012-13 surplus funds.

And K-12 advocates are trying to go back to that well. A House amendment to House Bill 14-1298, the annual School Finance Act, proposes diverting 75 percent of any 2014-15 surplus into the SEF.

Earmarking to-be-collected funds, whatever the purpose, bothers Steadman, one of the legislature’s budget experts. “It’s not the way to do it,” he said in an interview. Noting that the legislature meets every year, he notes, “We’ll be here next year to spend next year’s money.” Budgeting should be done “in real time,” he said.

He also said earmarking too much money ahead of time might limit the 2015 legislature’s ability to make annual mid-year budget adjustments.

The Senate is considering HB 14-1342 this week, along with the main 2014-15 budget, House Bill 14-1336. Steadman says he’ll have some proposed amendments for the higher ed construction bill, so the debate will continue.

Use the Education Bill Tracker for links to bill texts and other information.

School Finance

Facing tax opposition, Indianapolis leaders may settle for less than schools need

PHOTO: Alan Petersime

One day before the Indianapolis Public Schools Board is expected to approve a ballot measure to ask taxpayers for more funding, district officials appealed to a small group of community members for support.

Fewer than 40 people, including district staff, gathered Monday night at the New Era Church to hear from leaders about the need for more school funding. School board members plan to vote Tuesday on whether to ask voters to approve a tax hike to fund operating expenses, such as teacher salaries, in the November election. But just how much money they will seek is unknown.

The crowd at New Era was largely supportive of plans to raise more money for district schools, and at moments people appeared wistful that the district had abandoned an early plan to seek nearly $1 billion over eight years, which one person described as a “dream.”

Martha Malinski, a parent at School 91 and a recent transplant from Minneapolis, said the city appears to have a “lack of investment” in education.

“Is the money that you are asking for enough?” she asked.

Whatever amount the district eventually seeks is likely to be dramatically scaled down from the first proposal. Superintendent Lewis Ferebee has spent more than seven months grappling with the reality that many Indianapolis political leaders and taxpayers don’t have the stomach for the tax increase the district initially sought.

“We are trying to balance what’s too much in terms of tax burden with the need for our students,” said Ferebee, who also raised the possibility that the district might return to taxpayers for more money if the first referendum does not raise enough. “If we don’t invest in our young people now, what are the consequences and what do we have to pay later?”

After withdrawing their initial plan to seek nearly $1 billion over eight years, district officials spent months working with the Indy Chamber to analyze Indianapolis Public Schools finances and find areas to trim in an effort to reduce the potential tax increase. But the district and chamber are at odds over how aggressive the cuts should be.

Last week, the chamber released a voluminous list of cuts the group says could save the school system $477 million over eight years. They include reducing the number of teachers, eliminating busing for high schoolers, and closing schools. The chamber has paired those cuts with a proposal for a referendum to increase school funding by $100 million, which it says could raise teacher salaries by 16 percent.

District officials, however, say the timeline for the cuts proposed by the chamber is not realistic. The analysis mostly includes strategies suggested by the district, said Ferebee. But steps like redistricting and closing schools, for example, can take many months.

“Where we are apart is the pace, the cadence and how aggressive the approach is with realizing those savings,” he said.

Not everyone at the meeting was supportive of the administration. Tim Stark, a teacher from George Washington High School, asked the superintendent not to work with charter high school partners until the district’s traditional high schools are fully enrolled. But Stark said he is still supportive of increasing funding for the district. “It is really important for IPS to get the funds,” he said.

The chamber has no explicit authority over the tax increase but it has the political sway to play an influential role in whether it passes. As a result, Indianapolis Public Schools officials are working to come to an agreement that will get that chamber’s support.

A separate measure to fund building improvements was announced by the district in June and incorporated into the chamber plan. That tax increase would raise $52 million for building improvements, primarily focused on safety. That’s about one-quarter of the initial proposal.

finish line

A $1.6 billion tax increase for Colorado education just got a lot closer to the ballot

Joi Lin, a Boulder Valley Education Association employee, checks notary pages on petitions for Great Schools, Thriving communities. (Erica Meltzer/Chalkbeat)

Supporters of more funding for Colorado schools turned in more than 170,000 signatures Wednesday to place a $1.6 billion tax measure on the November ballot.

If approved, the measure would increase the corporate tax rate and the income tax rate on individuals earning $150,000 or more, with the additional revenue going to increase base per-student funding, to pay for full-day kindergarten, and to put more money toward students with special needs, such as those learning English, those with disabilities, and those who are gifted and talented.

Organizers said volunteers collected more than 111,000 signatures, with paid canvassers collecting the rest to build up a substantial cushion and make approval more certain.  The measure needs 98,492 valid signatures to get in front of voters. Inevitably, some signatures are rejected for a variety of reasons. The day before the Wednesday deadline, volunteers were going over petition packets a third time to check for mistakes before turning them in.

The Colorado Secretary of State’s Office still needs to verify the signatures. Under tougher requirements approved in 2016, those signatures need to represent 2 percent of the registered voters in each of the state’s 35 senate districts – and to pass, the measure will need support from 55 percent of voters.

Getting that support will be no easy task, considering that the last attempt to raise taxes for schools, Amendment 66 in 2013, was defeated 2 to 1. Colorado’s Taxpayer’s Bill of Rights requires all tax increases to be approved by voters, and they’ve been loathe to approve statewide taxes for any cause, even as local school districts have been more successful.

Cathy Kipp, a school board member from the Fort Collins-based Poudre district, personally collected more than 4,000 signatures around the state, and she said she was pleased to see support from ordinary people even in many conservative communities. That decisions about how to spend the money would be made locally is key to winning over voters, she said.

“The money will be spent however the local school district wants to spend it,” she said. “I knew teachers last time who didn’t want to vote for (Amendment 66) because it was so proscriptive.”

Kipp said Poudre likely would use the money to improve mental health services for students and raise teacher salaries.

Supporters believe the more challenging petition process, which required them to fan out across the state, will ultimately be to their advantage in the campaign to come.

“We have education supporters having conversations around the state about what additional revenue could mean for them,” said Susan Meek, a spokeswoman for Great Education Colorado, a key organization backing the tax increase. “The money will be spent locally. Every school district can go out and say what it would mean for them. Perhaps it is vocational-technical education. Perhaps it’s having school five days a week. Perhaps it is having a counselor in every school.”

And to make the case that a statewide tax on businesses and those with higher incomes is a better way to raise money than local taxes, supporters have broken down how much money each district would get and how large a property tax increase it would take to raise that money locally. Often, it’s a very big number.

Colorado ranks 28th among the states in per-student funding, according to the most recent report from the National Education Association, which includes local, state, and federal funding in its comparison. However, Colorado spends much less than other states of comparable wealth and generally gets poor marks for equity. School districts vary enormously in how much they spend on each student, and half the districts in the state are operating on four-day weeks because they can’t afford to be open more than that.

Since the Great Recession, state lawmakers have withheld roughly $7.5 billion that would have gone to K-12 education under a constitutionally mandated formula. The 2018-19 state budget includes a 6.95 percent increase for education, roughly $475 more per student, but supporters of more money for schools say that the increase doesn’t begin to address years of underfunding.

“It’s hard for people to understand how you can have one of the fastest growing economies in the nation and can’t fund schools at the level you did before the Great Recession,” said Tracie Rainey, executive director of the Colorado School Finance Project, another backer of the initiative.

The only way to really address the issue is a major source of new revenue, they say. And that’s what Initiative 93 would provide.

The tax measure calls for:

  • Raising the corporate income tax rate from 4.63 percent to 6 percent.
  • Raising the income tax rate from a flat 4.63 percent to between 5 percent and 8.25 percent for people earning more than $150,000. The highest tax rate would be paid by people earning $500,000 or more.
  • Setting the residential property assessment rate at 7 percent for schools. That’s lower than it is now but higher than it is predicted to be in 2019 because current law has the unintended effect of gradually reducing the residential assessment rate.
  • Setting the non-residential property assessment rate at 24 percent, less than the current 29 percent.

According to a fiscal analysis by the state, the average taxpayer earning more than $150,000 would pay an additional $519 a year, while those earning less would be unaffected. The average corporate taxpayer would pay an additional $11,085 a year. The change in property taxes would vary considerably around the state, but based on the average statewide school levy, many property owners would pay $28 more on each $100,000 of market value in 2019 than they otherwise would. Commercial property owners will see a decrease.

Total property tax revenue collected by school districts is expected to go down statewide, but the measure would partly stabilize property assessments, whose volatility has complicated school finance in Colorado.

A 1982 provision called the Gallagher Amendment sets a formula for the share of property taxes paid by residential and commercial owners, with the effect that skyrocketing values along the Front Range have ratcheted down residential assessment rates across the state. But in poorer rural communities without the tax base of cities like Denver or Boulder, that’s had devastating consequences for school districts, fire districts, and other small taxing entities, even as business owners, ranchers, and farmers have faced a heavier burden.

The state has had to make up much of the difference, and lawmakers are meeting during the off-season to try to come up with a fix. Any change would require voter approval – and could be a tough sell in part because it would be hard to explain.

Initiative 93 only deals with the assessment rate for schools in order to comply with Colorado’s single-subject rule for ballot measures, but it does represent a partial Gallagher fix. This provision was included for several reasons. One, it means that new revenue will actually increase school funding, rather than simply backfilling ever declining local taxes, and two, it provides some tax relief to ranchers and farmers, a selling point in rural communities that have been more reluctant to approve tax increases. And there’s a third argument, that stabilizing property tax revenue will free up more money in the state budget for other needs beyond education.

There are other things that make this effort different from past attempts, supporters say. Amendment 66 was widely perceived as a top-down effort that came from Denver. It raised taxes on everyone, and it made changes to the school finance formula that created winners and losers among districts, making it hard for many school board members and superintendents to support it.

Supporters of Initiative 93 describe it as being built from the ground up over a two-year process that included lots of input from school districts across the state, as well as from advocacy organizations like the NAACP and Padres y Jóvenes Unidos. It raises taxes only on businesses and higher-income earners, who represent less than 8 percent of individual income tax returns, and while it encourages the legislature to adopt a new school finance formula, it ensures that every district will see an increase.

Skeptics see just another attempt to throw money at the problem.

“Things are different this time, and it’s that they’re asking for more money,” said Luke Ragland of the conservative education reform group Ready Colorado.

A better approach, Ragland said, would be to tie increased funding to policies that could be expected to improve educational outcomes. There’s no guarantee that this money will make it into the classroom or into teachers’ paychecks, he said.

“There are places in terms of human capital, in terms of attracting talent and keeping it in the classroom, where more money would make a difference, but not just pouring more money into the current system,” he said.

Supporters of the measure will be campaigning in a complicated political environment, possibly sharing the ballot with a major tax increase for transportation, as well as a governor’s race and legislative contests that will determine control of the state Senate, where Republicans currently hold a one-seat majority.

Candidates up and down the ballot likely will be asked to take a position on the ballot measure, layering partisan politics over a measure that supporters hope will have broad appeal.

“You start this analysis with the assumption that it’s an uphill battle because we don’t really pass statewide tax increases, while schools pass lots of local taxes and bond measures,” said political consultant and pollster Floyd Ciruli. “The difference is trust. At the statewide level, people don’t trust that the money will go to benefit their local schools.”

Ciruli sees advantages, though, to asking voters in a mid-term election. Turnout will be higher than in an off-year, when older, more conservative voters tend to dominate, and even-year voters are more likely to have Democratic tendencies and be more open to taxes.

The contentious Democratic primary, which focused on education, also “primed” voters to see low funding as a key problem for schools, he said.

“The environment is pro-education,” Ciruli said. That places the tax measure “in the ballpark, but it’s still a challenge to do a statewide tax increase.”

Lisa Weil, executive director of Great Education Colorado, said the organizations working on the measure decided not to worry too much about “conventional wisdom” and move forward until they saw a compelling reason not to put something on the ballot.

“We’re not naive about the fact that we’re in a political environment, but we’re also creating that political environment,” she said. “Our entire state has a hunger to do right by kids.”