Colorado State of the State: Hickenlooper’s Pursuit of Taxes

Governor John Hickenlooper delivered his final State of the State Address, a campaign-style mix of platitudes, decidedly progressive policy stances, and a few pro-growth initiatives.  “Popular culture has tried to sell us a tall tale that Colorado’s history is only about rugged individualism and conflict. But cooperation has always been the defining part of our DNA,” pleaded the governor as he urged a continuation of bipartisanship. Unfortunately, most of the agenda centers on higher taxes or government interventionism.

The governor boasted that “we finally fixed the Hospital Provider Fee”—a tax of up to 6 percent levied on hospital inpatient and outpatient services. This collected revenue is matched by the federal government and then redistributed to hospitals based on the extent of services provided to the indigent or those on Medicaid. In FY 2016-2017, total fees exceeded $782 million; thanks to federal matching friends, the redistributed payments totaled $1.166 billion. The gusher of revenue from this Hospital Provider Fee threatened to propel overall spending growth beyond the rate of inflation plus population growth. Thanks to Colorado’s Taxpayer Bill of Rights (TABOR), taxes and spending growth are limited by the state constitution. Unfortunately, the governor colluded with some legislators to reclassify the fee as an “enterprise fund” not subject to TABOR spending limits. Voila! The state could spend more without TABOR getting in the way. The governor’s proudest accomplishment in 2017 was bamboozling the people out of hundreds of millions of hard-earned dollars through this crafty name change.

The governor called for protecting “our rural communities by addressing the intense, negative impact of Gallagher amendment has had, and will have, in the future.” This provision in the state Constitution guarantees that residential property owners bear no more than 45 percent of the overall property tax burden. Residential values have skyrocketed upwards in excess of commercial properties—forcing residential property value assessment rates downward in order to not exceed the constitutional limits on residential share of the tax base. Over time, businesses have been left with a far higher property tax rate than residential properties due to this limit. Many stakeholders across the political spectrum agree this situation is a problem to be remedied. But fiscal conservatives are likely to oppose any solution that excludes property tax revenue from the previously discussed TABOR restrictions.

In order to “reinvigorate more of our smaller communities,” the governor touted the Rural Venture Fund.  The fund is well-intentioned “to incentivize companies and…entrepreneurs.” But is “backstopping loans for rural markets” the best solution to spark more widespread economic growth? Too often, state-run investment entities divert limited capital to companies unable to successfully and fairly compete for funding on an even, private-sector playing field. The jobs “created” may be visible and thus easily referenced as evidence of “success” by politicians; but the jobs which go uncreated due to the unfair competition by state-sponsored enterprises or because of the loss of the use of capital diverted from them to fund the enterprises go unnoticed.

Oddly enough, Hickenlooper suggested the Affordable Care Act (ACA) has made it more likely for people to “take a chance and start a business.”  Many small business owners impacted by the mandates and regulations ardently disagree. And it’s getting worse in Colorado on the ACA front with individual plan premiums on the state’s insurance exchange leaping by nearly 27 percent this year on top of the 20 percent in 2017.

The governor strongly advocated for increases in taxes to fund transportation, commending El Paso County and Fort Morgan for hiking local rates. He claimed that Coloradans “under-fund maintenance by more than two-hundred million dollars per year” in addition to “a project list of nine billion dollars.”

Perhaps greater spending efficiency rather than a mere increase in funding is needed. Indeed, Colorado highway performance and cost-effectiveness ranked just 35^th in the latest Reason Foundation Annual Highway Report (22^nd edition)—by far, the lowest in the region. However, this is not necessarily due to lack of funding. Total disbursements per state mile in Colorado total nearly $189,000 annually. Capital and bridge disbursements per state mile in Colorado ranked 20^th highest in the nation. Similar lackluster rankings hold true in maintenance costs (12^th highest) and administrative costs (20^th highest).

According to USgovernmentspending.com based on Census Bureau data, state transportation spending increased 20 percent from 2005 to 2015 (the last available year). State and local transportation spending combined jumped by more than 60 percent through this period.  This exceeded the 37 percent combined population growth (17 percent) and inflation growth (20 percent) over this same period. Perhaps an examination of efficiency standards should be conducted rather than this pursuit of tax increases.

Commendably, the governor expressed a desire to “find the right solution to PERA’s [public employees’ retirement association] unfunded liability.” According to the ALEC annual Unaccountable and Unaffordable 2017, per capita unfunded public pension plan liabilities in Colorado are 16^th highest in the nation, at more than $21,300; in addition, the funded ration dipped below 29 percent.  Hickenlooper’s budget proposal from late 2017 offered several partial solutions, including increasing employee contributions by 2 percent of pay and capping cost-of-living raises to 1.25 percent. These may place the pension system in a modestly better position, but bolder reforms are needed to protect the interests of both taxpayers and public sector workers.

The governor is right that “by almost any measure, we’ve become one of the best places for business in America.” But expanding crony capitalism and increasing the tax burden make maintaining this coveted status more difficult. Following five consecutive years in the top 10 for economic outlook in Rich States, Poor States, Colorado dropped to 16^th in 2013 and has failed to fully recover. A sharpened focus on regulatory reform and pension reform are required to guarantee continued success in the Centennial State.