Legislature(2017 - 2018)BUTROVICH 205
03/02/2017 03:30 PM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB26 | |
| SJR2 | |
| SB48 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SJR 2 | TELECONFERENCED | |
| += | SB 48 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 26 | TELECONFERENCED | |
SJR 2-CONST AM: APPROPRIATION LIMIT
3:37:42 PM
CHAIR DUNLEAVY called the committee back to order. He announced
the consideration of SJR 2.
He welcomed invited testimony and announced that Mr. Penn
Pfiffner from the TABOR Foundation will be the first to address
the committee. He detailed that Mr. Pfiffner is a state
representative from Colorado's legislature and has served for
eight years. He detailed that Mr. Piffner's major bills included
the enhanced sentences for dangerous pedophiles, the state's
full restitution policy, repealed the capital gains tax
revision, created performance-based pay for state employees, and
wrote major deregulation bills. He added that Mr. Pfiffner has
taught college economics part-time for 13 years, earned a
master's degree in finance from the University of Colorado, and
currently serves as the chairman of the TABOR Committee and its
sister organization the TABOR Foundation.
3:38:49 PM
PENN R. PFIFFNER, Chairman, Taxpayer's Bill of Rights (TABOR)
Committee, Lakewood, Colorado, testified in support of SJR 2. He
opined that SJR 2 will receive pushback from people who want to
see bigger and bigger government without restriction. He
suggested that SJR 2 be recognized as a spending limitation
rather than a repeat of Colorado's TABOR. He pointed out that
Colorado's TABOR is more ambitious with a larger reach. He noted
the differences between TABOR and SJR 2 as follows:
· SJR 2 is state-only where Colorado's TABOR has a
restriction on every level of government.
· SJR 2 has no restriction of debt.
· SJR 2 has 14 exceptions.
· SJR 2 is silent on the rebate of taxes that are collected
above the cap.
· SJR 2 does not have election provisions.
He remarked that resetting a spending cap with SJR 2 makes a
great deal of sense because there is not much point of having a
cap that is ineffective.
3:41:13 PM
He contended that Alaska's effective appropriations cap will
mirror that of Colorado's positive experiences. He said the
overarching concept is to strike a healthy balance between
family budgets and public goods which results in citizens and
elected officials asking the right questions. He opined that
having a good spending limitation forces people to ask questions
that are related to prioritizing within a given budget rather
than trying to fund wild dreams. He set forth that the value of
everyone living within a budget extends to government with smart
and fair measures that limits taxes and expenditures limitations
such as SJR 2.
He said Colorado has seen a very successful economy and noted
that the state did not have a successful economy before 1992. He
stressed that he was not suggesting causation as much as
recognizing that some of TABOR's opposition claimed that it
would damage the state's economy. He pointed out that Colorado
has a roaring economy.
MR. PFIFFNER noted that Colorado has program stability by
recognizing the natural inclination for government to grow too
fast in good times and to over promise and set up the base that
is far too high when fiscal challenges come. He said Colorado
has seen its fiscal crises limited, especially when compared to
states such as California and Illinois, states that have grown
their budgets immensely and then had to adjust to fiscal
challenges.
3:44:21 PM
He addressed typical challenges to government limitation where
budgets and K-12 spending will be damaged. He disclosed that
Colorado's fiscal and spending policies have compared favorably
to its neighboring states. He added that naysayers have said
Colorado does not have enough money, but noted that Colorado is
one of four states that spends more on a local basis than on a
state basis.
3:47:43 PM
He addressed SJR 2 and opined that some things have been done
that he thought would help gain support and allow citizens to
understand the measure better. He opined that there really is no
issue about rebasing to a lower level. He disclosed that
Colorado has dealt with a troubling aspect through the courts to
its voter approval requirement for new taxes where "fees" are
used. He said SJR 2 avoids the "fee" problem. He added that
states with successful expenditure limitations place them in
their constitution and SJR 2 does that. He summarized that SJR 2
takes the right step as a good and effective measure.
CHAIR DUNLEAVY stated that he wanted to contrast what Colorado
has done and what SJR 2 tries to accomplish. He asked if
Colorado's TABOR exists on both state and local levels.
MR. PFIFFNER answered correct. He pointed out that Colorado's
TABOR pertains beyond what Chair Dunleavy queried. He detailed
that Colorado has more than 3,400 special districts, mostly for
road, water and sewer, in addition to library and cemetery
districts.
3:51:42 PM
CHAIR DUNLEAVY noted that SJR 2 strictly pertains to state
spending. He asked if in Colorado, any type of revenue measure
must be voted on by the people.
MR. PFIFFNER described Chair Dunleavy's query as an
overstatement. He explained that new taxes, sunsetting taxes and
an increase in tax rates must be approved by voters, but fiscal
policy modifications that do not result in an increase in
revenues are exempt. He added that pension plan funding and
items that deal with fees are also exempt.
CHAIR DUNLEAVY asked if the same guidelines apply to local and
district levels as well.
MR. PFIFFNER answered correct. He detailed that local districts
specify their need for more debt or raising taxes and pointed
out that local measures have passed more than 80 percent of the
time.
3:54:24 PM
BARRY POULSON, Emeritus Professor of Economics, University of
Colorado, Boulder, Colorado, testified in support of SJR 2 with
added provisions. He detailed that he is also an advisor to the
American Legislative Exchange Council (ALEC). He disclosed that
Chair Dunleavy asked him to address Colorado's "Taxpayer Bill of
Rights" (TABOR) and experience with "Tax and Expenditure Limits"
(TEL) in other states.
He explained the Colorado's history with TELs as follows:
· Colorado was one of the first states to introduce a TEL in
the 1970s.
· Colorado's TEL in the 1970s was not effective because state
legislators chose to exempt major parts of the budget from
a limit.
· Colorado's spending was not constrained in the 1980s and
the state was a lot like California where government
spending grew more rapidly than the private economy.
· Colorado's TABOR constitutional amendment initiative was
enacted in 1992.
He said TABORs turned out to be one of the most effective tax
and spending limits in the country through substantive
constraints and procedural constraints. He detailed that
substantive constraints limit the growth of spending by any
jurisdiction to the sum of inflation plus population growth. He
added that any revenue above the limit must be rebated to
taxpayers. He specified that procedural constraints require
voter approval for any increase in taxes, tax-base, or increase
in debt.
He disclosed that Colorado's TABOR resulted in surplus revenue
in the late 1990s where over $3 billion was rebated to
taxpayers. He added that the TABOR set the stage for significant
tax reductions at all levels of government where Colorado ended
up with one of the best business tax climates that resulted in
the state experiencing the second highest rate of economic
growth of any state in the country.
3:58:27 PM
MR. POULSON detailed that Colorado ran into problems with TABOR
in 2001 when the state experienced a sharp recession with an 18
percent fall in revenue that resulted in the "ratchet effect"
where surplus revenue was rebated to taxpayers prior to the
state fully recovering from the recession. He disclosed that a
referendum in 2005 resulted in a timeout for TABOR from 2005
through 2009 and TABOR was applied again in 2010. He pointed out
that Colorado's economy recovered well from its recession and
the state is now growing more rapidly than most other states. He
opined that Colorado's positive tax climate has been a
significant factor in the state's rapid recovery and economic
growth.
He addressed procedural limits in TABOR regarding voter approval
for increased taxes, tax-base, and debt at all level of
government. He said for two decades, Colorado citizens have been
voting on hundreds of measures proposing increased taxes and
increased debt. Measures at the municipal level have passed
about 50 percent of the time, but at the state level taxpayers
have been more stringent. He disclosed that only two minor-tax
increases and a debt increase have been approved over the past
two decades. He set forth that citizens have been able to
constrain the growth of government significantly at all levels
and especially at the state level because of both the procedural
limits and the substantive limits in TABOR.
He reiterated that he serves as advisor to ALEC and disclosed
that model legislation for tax and spending limits was drafted
by ALEC using Colorado's TABOR as a model. He detailed that
refinements were made in ALEC's model legislation to include
providing for an emergency fund and a capital fund via surplus
revenue. He added that additional surplus revenue is rebated or
offset by tax cuts.
4:02:39 PM
He opined that Alaska's TEL is poorly designed and as a result
the limit has increased more rapidly than state revenue so the
TEL never constrains anything. He said a TEL must be carefully
designed to achieve a desired result. He concurred with Mr.
Pfiffner that SJR 2 appears to be a well-designed tax and
spending limit that will be much more effective than the TEL
that Alaska currently has in place. He opined that imposing the
limit on appropriation based on population growth and inflation
will constrain the growth of state spending very effectively in
addition to providing a much more stable spending growth over
the business cycle. He said Alaska, like many energy states, has
revenue volatility that results in spending volatility. He said
SJR 2 is an important step in the right direction. He added
Alaska's emergency fund and capital construction fund should
also assist in what the state is attempting to achieve.
4:04:27 PM
MR. POULSON addressed problems that Alaska might expect with SJR
2 as follows:
· TELs often put pressure on the state to fund programs with
fees.
· SJR 2 only constrains spending at the state level.
He suggested that the state address "fees" by having a very
strict definition of user fees and distinguish user fees from
taxes so that the state is sure to only restrict tax revenues
and expenditures. He added that unfunded mandates should be
limited by the state on local governments and suggested that the
restriction be included in SJR 2.
He recounted that he has suggested in the past that Alaska
legislators consider requiring a procedural limit that would
require voter approval for increased taxes and debt. He noted
that he has been told that his suggestion was a step too far. He
said legislators should reconsider his voter-approval suggestion
as either part of SJR 2 or as separate legislation. He asserted
that the procedural limits that require voter approval for
increased taxes and debt have proven to be very important in
Colorado and other states. He opined that the procedural limits
really do allow citizens to determine how much government they
want and how much they are willing to finance in terms of
government spending. He pointed out that outside of the U.S.,
citizens of Switzerland have been voting on increased taxes and
debt for more than a century and they have created one of the
strongest fiscal systems in the world.
4:07:50 PM
CHAIR DUNLEAVY asked that Mr. Poulson explain how TABOR has
either negatively or positively impacted Colorado's private
economy.
MR. POULSON replied that he often answers Chair Dunleavy's
question by contrasting Colorado and California. He explained
that Colorado and California had very similar government
spending patterns in the 1980s where government spending grew
much more rapidly than the state economy; in fact, both states
introduced tax and spending limits. He disclosed that California
gutted their tax and spending limits by shifting many state
programs and expenditures off budget to avoid tax and spending
limits. California ultimately experienced a continued rapid
growth of government spending where the state ended up with high
deficit and debt levels where their economy has underperformed
over the last two decades comparted to Colorado. He said his
experience is that with an effective tax and spending limit in
place, Alaska can create a better business-tax climate with the
right incentives created for business investment and growth, a
scenario that Colorado continues to do due to the success of
constraining government growth.
4:09:57 PM
CHAIR DUNLEAVY asked if Colorado's improved business climate is
due to businesses not having to worry about a predatory tax
regime.
MR. POULSON answered yes. He disclosed that Colorado's tax
climate rates among the top-ten states in terms of business
climate. He opined that TABOR allows citizens to decide how much
taxes they are willing to pay, how much spending they are
willing to incur, and how much government they want and are
willing to pay for.
CHAIR DUNLEAVY asked Mr. Poulson to address Colorado's debt and
how it relates to having TABOR in place.
4:12:33 PM
MR. POULSON admitted that the state has figured out a way around
debt limits. He explained that Colorado's original constitution
prohibited any new debt without citizen approval. He detailed
that state and local governments have used non-general
obligation debt; for example, certificates of participation
designate a specific revenue stream to pay off debt and the
courts have ruled that the debt is not a general obligation debt
and therefore not subject to the TABOR limit or to the original
constitutional limit. He said Colorado has not necessarily
constrained debt in the way that many might anticipate, but the
state has limited debt compared to what would have occurred
without TABOR. He revealed that Colorado has proposed five
different measures over the last two decades to increase debt
and only one measure has passed. He remarked that TABOR has been
important, but has not been 100-percent successful in
constraining debt.
4:14:06 PM
CHAIR DUNLEAVY asked Mr. Poulson if TABOR's restraint on
Colorado's growth of government has placed more money in
citizen's pockets and encouraged new business development.
MR. POULSON answered yes.
CHAIR DUNLEAVY pointed out that SJR 2 is not based on ALEC's
model legislation, but rather a modification of the existing
constitutional amendment that has been in place in Alaska since
1982 and reaffirmed in 1986. He reiterated that the amendment
was a result of increased government spending when the state
started to receive large sums of oil revenue in the 1970s;
however, the formula would require $10 billion in unrestricted
general funds to hit the limit. He said the idea is to revisit
the constitutional amendment to reflect today's new realities to
restrain government's growth and encourage investment from other
industries. He emphasized that the discussion on SJR 2 will
continue.
4:16:22 PM
MATTHEW MITCHELL, Senior Research Fellow, Mercatus Center at
George Mason University, Arlington, Virginia, testified in
support of SJR 2 and provided suggestions on fiscal policies. He
disclosed that the Mercatus Center has been studying fiscal
policies and institutions that govern them for several years. He
detailed that the Mercatus Center has consulted decades of peer-
reviewed academic research in addition to their own analysis
using comprehensive data sets and the best empirical techniques
that are available.
He set forth that there are three lessons to concentrate on:
1. Rules matter and rules are often a better alternative to
everyday politics:
· Sustainable solutions to budget problems require
institutional change versus short term remedies.
· Institutional change:
¾Changes to the rules that shape the political
legislative and budgeting process.
¾States with good institutions or good rules are
more likely to make good budgetary decisions.
2. Rule details make a big difference and small changes can
set states on very different paths:
· Characteristics that make for a good tax and
expenditure limit (TEL):
¾Effective TELs have a statistically significant
effect on state spending as measured by per
capita spending.
¾Effective TELs target spending rather than
revenue. Alaska's TEL targets spending.
¾Effective TELs limit budget growth via formula
that looks at the sum of inflation and population
growth. Alaska's TEL is focused on inflation and
population growth.
¾Effective TELs are codified into the
constitution, as is Alaska's.
¾Effective TELs require a super majority or public
vote to be overwritten, as is Alaska's. A lot of
states have tax and expenditure limits that can
simply be overwritten with simple majority vote.
¾Effective TELs prohibit unfunded mandates to
lower governments, Alaska's does not.
¾Effective TELs immediately refund any revenue
collected more than taxpayers' limits, Alaska's
does not. Returning money does not provide the
state with a chance to spend as well as giving
people some "skin in the game" in terms of tax
and expenditure limits.
· Use an appropriate base by picking a year that is
neither extraordinarily high in revenue,
extraordinarily tight, or a recession year. The base
should be founded on a year where spending was deemed
prudent. The base should not be "just the previous
year" in order to avoid the "ratcheting effect."
Alaska's TEL is based on 1981 and the Legislature
should make sure the year is appropriate.
3. Alternative rules for fiscal budgeting other than tax and
expenditure limits:
· Item reduction vetoes are effective. States that have
item reduction vetoes spend less. Alaska has item
reduction vetoes.
· Separate spending and taxing functions into two
separate committees in each chamber. States with
separate taxing and spending committees spend between
$300 and $400 less per person and tend to spend more
prudently.
4:26:48 PM
MR. MITCHELL noted that there are some rules that do not always
work the way people think they will. He pointed out that states
that have biannual budgets spend significantly more than states
that have annual budget cycles. He detailed that states with an
annual budget cycle spend $120 less person per year.
CHAIR DUNLEAVY asked Mr. Mitchell to identify a "model state"
that have separate taxing and expenditure committees that seems
to work well.
MR. MITCHELL replied that Arizona, Colorado, Utah, and Nevada
have separate taxing and spending committees.
4:29:06 PM
CHAIR DUNLEAVY held SJR 2 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 48 - DOA Fiscal Note.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |
| SB 48 - DPS Updated Fiscal Note.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |
| SB 48 - Letter of Support Teamsters Local 959.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |
| SB 48 - Brandy Johnson Testimony.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |
| SJR 2 -Mitchell, Mercatus Testimony.pdf |
SSTA 3/2/2017 3:30:00 PM |
SJR 2 |
| SB 48 - Mayor Matherly Letter of Support.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |
| CS SB 48, Version O.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |
| SB 48 - STA CS Summary of Changes.pdf |
SSTA 3/2/2017 3:30:00 PM |
SB 48 |