January 23, 2015
Honorable John Hickenlooper
Governor
136 State Capitol
Denver, CO 80203-1792
Dear Governor Hickenlooper:
The undersigned organizations have become aware of your request to the Joint Budget Committee to backfill Colorado Medicaid expenses and TABOR tax refunds with monies from severance tax dollars. This is bad fiscal policy.
We adamantly oppose this course of action. The use of severance tax funds to offset TABOR requirements saying they have served to trigger refunds is overreaching. While severance tax revenues fluctuate year to year, the annual increase is not the cause of a TABOR refund. The most significant contributors to the TABOR refund are sales tax revenue and income tax revenue which have increased 26% and 39% over the past five years, as opposed to severance tax revenues which are down 20% from five years ago. Furthermore, the hospital provider fee is a new source of revenue created by the general assembly that did not exist five years ago. These Revenues are the cause of the TABOR refund, not severance tax.
It was our understanding that Colorado taxpayers would not be asked to cover Colorado Medicaid expansion as the Hospital provider fee was to cover the cost of expansion yet there appears that not only is there a shortfall but that fund is responsible for driving refunds under TABOR. We urge the legislature to identify future funding for this expansion and express our dismay that a funding solution was not identified before expanding such a large program without an identified and committed funding source. Unlike the uses identified in statute for severance tax support, Medicaid and TABOR refunds are unrelated to the source of the severance tax.
The statutes set forth various purposes to which severance tax is to be expended, including the operation of various state programs, water development, and support to local communities which generate the tax and experience the impacts of mineral development. In the past during times of economic crisis that money has been diverted to the General Fund to balance the state budget; however, the expansion of Medicaid and potential reduction in federal funding does not constitute an economic crisis as these events are foreseeable and should be planned for. It is indeed ironic that severance taxfunds should be redirected not only during times of economic crisis but now in good economic times when state revenues are increasing significantly.
Once again the state is looking to tax revenues derived from mostly rural communities to address shortfalls that it failed to consider in making past policy decisions. The communities that are to benefit from the severance tax funds under the statutory formula are those that have to deal with impacts related to energy development; that typically means communities largely dependent on a fluctuating mineral economy and least able to sustain a loss in revenues. Many of those communities are in Western Colorado. These communities rely on severance tax funds and do not see them as unallocated or unappropriated.
It is important to note that when the state and the administration take this approach, it is like going to Boulder, Cherry Creek and other communities in the Front Range where property tax revenue may be growing and tellingthem that the state will use that growth to offset general fund shortfalls. When the state arbitrarily takes severance tax funds to balance the budget away from impacted rural communities, it’s like asking for property tax revenues from other counties in Colorado. Many of the energy producing counties cannot tax property associated with energy development because they remain in federal control; severance tax is one offset available to those communities in dealing with the impacts of energy development.
We all know energy development is cyclical in nature. A major purpose of severance tax is to help communities impacted by energy development to overcome the troughs in those cycles by developing infrastructure and working to diversify their economies using severance tax funds. By taking severance tax funds to consistently backfill the General Fund, the state further disadvantages communities that are still reeling from the recent economic downturn and impedes their ability to address the needs of those communities and citizens.
Thank you for considering the concerns of rural Colorado as you evaluate taking one more resource from our communities and citizens. The budget resolution you seek needs to be a statewide solution and not one that leaves rural Colorado bearing a disproportionate share of the burdenfor balancing the state’s budget.
Sincerely,
Les MergelmanGJ ChamberProgressive 15AGNC Chairman Action 22
Copies to: Rural Legislative Caucus
Joint Budget Committee