Weed and Fee’d A TABOR story in two parts By Tim Hoover Communications Director Colorado Fiscal Institute

The Weed

Voting on Marijuana 2012: Amendment 64 passed Legalized recreational marijuana 15% excise tax on pot goes to BEST program 2013: Prop AA Authorized state to tax marijuana Also added an additional 10% state sales tax 2015: Prop BB Will ask voters for state to keep the revenue generated from marijuana taxes

Three Basic Pots of Money in the State Budget $22.6 billion total budget in 2014 $6.7 billion

Formula Based on Consumer Price Index State: inflation + change in population Local District: inflation + annual local growth* Property Tax: inflation + annual local growth* *Net Percentage change in actual value of all real property in a district from construction co taxable real property improvements, minus destruction of similar improvements and additions to, minus deletions from, taxable real property

TABOR Rebates Are Upon Us FY OSPB: $116.7 million above cap Leg. Council: $50.3 million below cap FY OSPB: $398 million above cap Leg. Council: $252.5 million above cap FY OSPB: $150 million above cap Leg. Council: $153.6 million above cap September 2015 Revenue Forecasts

Revenue Subject to Cap Comes from Taxes and Cash Funds FY General Fund: $9.8 billion Cash Funds: $2.7 billion

BUT NONE OF THIS IS WHY WE ARE VOTING ON PROP BB

ELECTION PROVISIONS: Sec (3) Blue Book must tell voters how much the proposed tax will raise and how much money the state will have in TOTAL revenue if the tax DOES NOT pass. If either Blue Book estimate is too low, the difference must be rebated to taxpayers, up to an amount not to exceed total collections from the new tax.

Marijuana Rebates Are Not Related to TABOR Revenue Cap Blue Book Estimate FY Preliminary Collection FY Total state revenue without new taxes State revenue from new tax $12,080 $12,504 $67 $66.1 (dollar figures in millions) Marijuana rebate not because taxes on marijuana yielded more than expected, but because total taxes/fees came in higher than expected.

How Much Money is Involved? Because the estimate of how much the state would have to spend was low by $424 million, the entire $66.1 million in pot taxes must be refunded unless voters pass Prop BB allowing the state to retain the money.

Voting a Third Time on Pot Taxes for Schools Proposition BB on November 2015 ballot Yes Vote $40 million to schools (BEST) $12 million to enforcement, education/prevent, substance abuse treatment $14.1 million (not allocated and available for future appropriation) No Vote $25 million gets returned to taxpayers ($7.80 each) $24 million gets refunded directly to marijuana growers $17.1 million gets refunded directly to marijuana users September 2015 Revenue Forecast Preliminary Collection of $66.1 million

The Fee’d

What is the Hospital Provider Fee? Adopted by the Legislature in Assesses fees on hospitals and uses revenue to draw down federal matching funds for Medicaid expansion. Adopted when the state was not in a TABOR rebate situation. Estimated to increase TABOR revenue by $665 million in FY

Why’d we pass it? Increased access to health care for 382,000 of Colorado’s most vulnerable citizens by financing insurance coverage. The HPF reduces health care costs for all Coloradans by raising Medicaid reimbursement rates to 80 percent of what it costs to provide care, allowing hospitals to pass savings on to businesses, insurers, and consumers.

Children make up 44% of enrollment but account for only 18% of total costs Elderly/Disabled make up only 13% of enrollment but account for 43% of total costs Enrollment versus cost by population

Income and Sales Tax Fees Cash Funds General Fund TABOR Rebates TABOR Rebates are Paid from General Fund

FY15-16 HPF $806 million Rebate $0-117 million FY16-17 HPF $757 million Rebate $252-$398 million FY17-18 HPF $800 million Rebate $ million The Hospital Provider Fee Causes a “Fake Surplus,” Forcing Tax Rebates From the General Fund

If the Hospital Provider Fee weren’t counted in the total, education and transportation wouldn’t be affected

The conundrum Though the HPF is not collected in the General Fund it counts toward the revenue limit. These funds are earmarked for health care and cannot go to pay rebates. Without a change, rebates that result because of the hospital provider fee will be paid at the expense of our roads, schools, and other items supported by the General Fund.

What is a TABOR Enterprise? Colorado Constitution Article X, Section 20 (d) "Enterprise" means a government-owned business authorized to issue its own revenue bonds and receiving under 10% of annual revenue in grants from all Colorado state and local governments combined.

Deer-jà vu: Colorado enterprised the Division of Wildlife in 2001 HB , sponsored by Rep. Joe Stengel, R-Littleton. Prompted by chronic wasting disease, like “mad cow” for deer and elk. Legislature still approves budget and any fees.

Kind of a no-brainer Because the HPF fees were endorsed by the payers (hospitals) and because they are earmarked for health care only, enterprise designation is both logical and appropriate. Enterprising does not expand the HPF or Medicaid eligibility. It should have been done in 2009, but the state was so far below the TABOR limit there was no sense of urgency.

The End Questions? Tim Hoover Colorado Fiscal Institute