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House Committee Approves “Rural Sustainability” Bill, which Senate Endorsed on Bipartisan Vote
With only two days remaining in the session, the Senate this morning, with a vote that split the Republican Caucus, approved the 76-page SB-267 on final, Third Reading by a 25-to-10 vote.
Joining the 17 minority Democrat Senators to vote for the bill were eight majority Republican Senators:
- Randy Baumgardner (Hot Sulfur Springs)
- Don Coram (Montrose)
- Larry Crowder (Alamosa)
- Bob Gardner (Colorado Springs)
- Senate President Kevin Grantham (Canon City)
- Kevin Priola (Henderson)
- Jerry Sonnenberg (Sterling)
- Jack Tate (Centennial)
House Speaker Crisanta Duran (D-Denver) immediately assigned the bill to the House Finance Committee, which heard the bill this afternoon. On an 11-to-2 vote, the Committee approved the bill mid-afternoon and sent it to the House Appropriations Committee, which should hear the bill later today.
The bill should go to the House Floor for Second Reading debate and vote tomorrow, which would be followed by final, Third Reading debate and vote on Wednesday, the last day of the session.
Indications are that the House will not amend the bill. In this case, it will go directly to Governor John Hickenlooper (D) for his signature following House approval.
CACI supports SB-267 because CACI last year endorsed HB-1420, which would have converted the hospital provider fee to a state enterprise. HB-1420 died at the end of the 2016 session in the Senate Finance Committee.
At the heart of the SB-267 compromise are the four legislators who are the prime sponsors of the measure:
- Senate President Pro Tem Jerry Sonnenberg (R-Sterling)
- Senate Minority Leader Lucia Guzman (D-Denver)
- House Majority Leader KC Becker (D-Boulder)
- Representative Jon Becker (R-Fort Morgan)
Political compromise is the hallmark of SB-267 that mainly aims to revitalize rural roads and schools and save rural hospitals in particular from significant State funding cuts.
The bill is very complicated, perhaps the most complex bill that the legislature has considered in many years other than the annual budget known as the Long Bill and K-12 school finance.
SB-267 covers the policy waterfront:
- Protects hospitals from funding cuts,
- Creates a “state enterprise” for the hospital provider fee,
- Increases spending on State capital maintenance,
- Provides $1.8 billion for transportation infrastructure,
- Reins in Medicaid spending,
- Provides businesses with business personal property tax relief,
- Increases funding for rural K-12 education and the State Education Fund,
- Strongly encourages–but cannot mandate–state agencies in future years to cut spending by 2 percent, and
- Lowers the Taxpayers’ Bill of Rights (TABOR) revenue cap by $200 million.
On Friday morning, the Senate Appropriations adopted a “strike-below” amendment that reflects the compromise reached by Republican and Democrat legislative leaders in both the Senate and the House. The Committee passed the bill on a bipartisan 5.2 vote, but with three separate amendments, which constituted the “strike below.”
Here’s the summary of the bill according to its latest, third fiscal note, which was issued Friday:
This bill, as amended by the Senate Appropriations Committee, makes several long-term changes to areas of state policy that affect rural communities. These are described in the following paragraphs.
Colorado Healthcare Affordability and Sustainability Enterprise. The bill creates the Colorado Healthcare Affordability and Sustainability Enterprise (enterprise) within the Department of Health Care Policy and Financing (HCPF) beginning in FY 2017-18. The enterprise is responsible for the collection of the new Healthcare Affordability and Sustainability Fee, which replaces the Hospital Provider Fee assessed under current law. The enterprise uses fee revenue to draw down federal matching funds and expends fee revenue and federal funds for administration, reimbursements to hospitals, and business support purposes including:
- consulting with hospitals to improve cost efficiency;
- advising hospitals regarding changes to federal and state laws and regulations;
- assisting hospitals with state performance tracking and payment systems; and
- providing other services to aid hospitals participating in state programs.
Fee revenue and federal matching funds are continuously appropriated to the enterprise. Expenditures for enterprise administration will be limited to 3 percent according to a methodology approved by the Office of State Planning and Budgeting (OSPB) and the Joint Budget Committee (JBC) Staff.
The bill transfers all unexpended revenue from the existing Hospital Provider Fee Cash Fund to the newly created Unexpended Hospital Provider Fee Cash Fund at the end of FY 2016-17. Until October 30, 2018, HCPF is authorized to use money in the fund to pay reimbursements to hospitals under the existing Hospital Provider Fee statute, and must refund any money not used for this purpose to hospitals that paid the fees. The Unexpended Hospital Provider Fee Cash Fund is repealed effective November 1, 2018.
Enterprise status and TABOR limit adjustment. The Colorado Healthcare Affordability and Sustainability Enterprise is designated as an enterprise under the Taxpayer’s Bill of Rights (TABOR) and has the authority to issue revenue bonds. Fee revenue collected by the enterprise is not subject to the state’s TABOR limit.
The bill adjusts the state TABOR limit as the new enterprise is created. For FY 2017-18, the TABOR limit (Referendum C cap) is reduced by $200.0 million relative to the level at which it would otherwise be set.
Enterprise board. The bill abolishes the Hospital Provider Fee Oversight and Advisory Board, which administers the existing Hospital Provider Fee, and the board’s functions are transferred to a new Colorado Healthcare Affordability and Sustainability Enterprise Board in the enterprise. The enterprise board comprises the membership of the existing board at the time of its abolition, and future appointments are to be made by the Governor with the advice and consent of the Senate.
Health care delivery system reform incentive payments program. The bill requires the enterprise to seek federal waivers necessary to form and implement a health care delivery system reform incentive payments program. The bill requires that implementation of the program begin on or after October 1, 2019. When implemented, the program will focus on care coordination, integration of physical and behavioral health services, chronic condition management, targeted population health, and data-driven accountability and outcome management.
Federal approval. The portion of the bill that creates the enterprise and reduces the Referendum C cap does not take effect if, prior to June 1, 2017, the federal Centers for Medicare and Medicaid Services determine that it does not comply with federal law.
Repeal of Senate Bill 17-256. This bill repeals SB17-256, which constrained Hospital Provider Fee revenue and correspondingly reduced appropriations to HCPF for hospital reimbursements by $528.2 million.
Lease-purchase agreements. The bill authorizes the creation of lease-purchase agreements on existing state facilities that are not part of the state emergency reserve. The bill requires the State Architect, in consultation with OSPB and higher education institutions, to select a list of state facilities with a net present value of at least $2.0 billion by December 31, 2017. Between FY 2018-19 and FY 2021-22, the State Treasurer will execute lease-purchase agreements on these facilities in amounts up to $500.0 million annually. The state’s obligation for lease payments may not exceed $150 million annually, or $3.0 billion over 20 years.
Proceeds from the lease-purchase agreements totaling $120.0 million in FY 2018-19 are available for controlled maintenance and capital construction projects. The remaining proceeds are credited to the State Highway Fund (SHF) . Proceeds are exempt from the TABOR limit as a property sale, and leases must be renewed by annual appropriation so as not to constitute multi-year debt requiring voter approval under subsection (4) of TABOR. Interest earned by participants in agreements is exempt from the state income tax.
State Highway Fund. Proceeds from the sale of lease-purchase agreements that are credited to the SHF must be used by the Department of Transportation (CDOT) for projects in the Strategic Transportation Project Investment Program that are designated for Tier 1 funding as ten-year development program projects. Additionally, at least 25 percent of proceeds credited to the SHF must be expended for projects located in counties with populations of 50,000 or fewer as of July 2015.
Controlled maintenance and capital construction. From proceeds allocated for capital construction in FY 2018-19, the first $113,852,921 will be used to fund controlled maintenance at levels identified in the bill. The remaining allocation will be used for construction projects as prioritized by the Capital Development Committee (CDC).
The bill stipulates that new academic buildings, or existing buildings repurposed for academic use, are not eligible to receive state controlled maintenance funding if their construction or repurposing is funded solely from cash funds in an institution of higher education.
Lease payments. The first $9.0 million in lease payments each year are required to be made from the General Fund or any other legally available source of money at the discretion of the General Assembly. The next $50.0 million in annual lease payments are paid from the SHF. Any additional amount may be paid from the General Fund or any other legally available source.
Medicaid copayments. For all services provided in 2018 and subsequent years, the bill requires that HCPF double copayments for certain Medicaid services in rule to the extent that this can be achieved without exceeding allowed federal maximums. Copayments affected are those for pharmaceuticals, outpatient services, and emergency services. HCPF is required to evaluate options for exempting recipients who are qualified for institutional care but who instead receive home care or community-based care.
Marijuana taxes. Beginning in FY 2017-18, the bill exempts sales of retail (recreational) marijuana from the 2.9 percent state sales tax assessed on the sale of tangible personal property. Local governments will continue to collect their general sales taxes on retail marijuana unless they adopt a specific exemption.
Beginning in FY 2017-18, the bill increases the rate of the special sales tax on retail marijuana to 15 percent. The distribution is adjusted so that the state receives 90 percent of tax revenue and local governments receive 10 percent. Revenue from the state share of the tax is deposited in the General Fund and allocated as follows:
- for FY 2017-18 and all subsequent years, 71.85 percent is transferred to the Marijuana Tax Cash Fund (MTCF);
- for FY 2017-18 only, $30.0 million is transferred to the State Public School Fund (SPSF);
- for FY 2018-19 and all subsequent years, 12.59 percent is transferred to the SPSF; and
- the remainder is retained in the General Fund. For FY 2018-19 and all subsequent years, this allocation is equal to 15.56 percent.
School funding. For FY 2017-18 only, marijuana tax revenue transferred from the General Fund to the SPSF is appropriated to the Department of Education (CDE) for disbursement to schools in rural and small rural school districts in shares proportionate to these schools’ pupil counts. For FY 2018-19 and subsequent fiscal years, marijuana tax revenue transferred to the SPSF is appropriated to CDE to meet the state’s share of total program funding for school finance, and for funding charter schools overseen by the Charter School Institute (CSI).
Business personal property tax income tax credit. Under current law, businesses that pay business personal property tax on property with an actual value of $15,000 or less, adjusted for inflation, may claim a state income tax credit equal to the amount of tax paid minus the tax benefit received from deducting the tax from their federal taxable income. This credit is set to expire after tax year 2019. The bill repeals this credit after tax year 2018.
Beginning in tax year 2019, the bill creates a refundable income tax credit equal to business personal property tax that a taxpayer pays on the first $18,000 in actual business personal property value. To claim the credit, the taxpayer must file a copy of the applicable property tax statement with the Department of Revenue. In contrast to the current credit, the new credit is available regardless of the total actual value of the property on which tax was paid. The credit only may be applied against the tax paid on locally assessed property; tax paid on state assessed property is not eligible for the credit.
Senate Bill 17-262 transfers. For FY 2018-19 and FY 2019-20, this bill repeals transfers to the Highway Users Tax Fund (HUTF) scheduled pursuant to SB17-262. Under SB17-262, these amounts are to be deposited in the SHF to be used for transportation projects. Under SB17-267, the amounts of the transfers, $160.0 million annually, will remain in the General Fund to be spent, saved, or transferred elsewhere at the discretion of the General Assembly. Transfers to the Capital Construction Fund (CCF) are unaffected.
TABOR refund mechanisms. The state disburses money to local governments to backfill property tax revenue that these governments forego as a result of the senior homestead exemption and disabled veterans property tax exemption. In future years in which the state administers a TABOR refund obligation, the bill decrees that these disbursements qualify as a refund mechanism. Revenue collected in excess of the Referendum C cap will be refunded via existing refund mechanisms, the six-tier sales tax refund and the temporary income tax rate reduction, only if the amount of the refund obligation exceeds aggregate disbursements to local governments to backfill the senior and veterans property tax exemptions.
Budget requests. The bill requires executive departments that submit budget requests to OSPB, except CDE and CDOT, to submit FY 2018-19 budget requests that are 2 percent lower than the amounts that they receive in FY 2017-18. OSPB is required to strongly consider the budget reduction proposals submitted by departments and shall seek to ensure that the executive budget proposal for each department is at least 2 percent lower than the department’s actual budget for FY 2017-18. Final authority in matters relating to the executive budget remains with the Governor pursuant to current law.
Enhanced pediatric health home. Conditional on enactment of the federal Advancing Care for Exceptional Kids Act (ACE Kids Act), and subject to available appropriations, HCPF is required to seek federal waivers to fund an enhanced pediatric health home for children with complex medical conditions in cooperation with qualifying hospitals. The bill directs HCPF to follow procedures specified in the ACE Kids Act in seeking federal approval.
Hospital Provider Fee. Pursuant to House Bill 09-1293, the state collects a provider fee from hospitals. Hospital Provider Fee revenue is matched with federal dollars and used to reimburse hospitals for uncompensated care and to expand coverage under the Medicaid and Child Health Plan Plus (CHP+) programs. Currently, 37.4 percent of Medicaid and CHP+ caseload is funded with Hospital Provider Fee revenue and federal matching funds. Under current law, Hospital Provider Fee revenue is subject to the TABOR limit.
Actual and projected Hospital Provider Fee revenue and interest earnings through FY 2018-19 under current law and SB17-256 are shown in Table 1. The permitted amounts of Hospital Provider Fee collections for FY 2016-17 and FY 2017-18 were limited in the 2016 Long Bill and SB17-256, respectively.
Table 1. Hospital Provider Fee Forecast through FY 2018-19
FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 Hospital Provider Fee Revenue $804.0 million $656.6 million $600.6 million $859.2 million
Source: Legislative Council Staff Economic and Revenue Forecast, March 2017, and Senate Bill 17-256.
State enterprises. TABOR defines an enterprise as “a government-owned business authorized to issue its own revenue bonds and receiving under 10 percent of annual revenue in grants from all Colorado state and local governments combined.” Because the share of revenue that an enterprise may receive from government sources is capped, enterprises are largely financially independent of core government agencies. Additionally, enterprises cannot levy taxes.
TABOR limits the amount of money that can be spent or saved by the state government and all local governments within the state. However, revenue collected by enterprises is not subject to these constraints. When an existing state government entity becomes an enterprise, its revenue is exempted from the state TABOR limit, and a corresponding downward adjustment is made to the level at which the TABOR limit is set. This adjustment is not required when a new enterprise is created.
Lease-purchase agreements. The state enters into lease- purchase agreements using financial instruments called certificates of participation (COPs). In this type of lease-purchase agreement, the state transfers its interests in a property to a lessor in exchange for cash and then leases the property back through annual lease payments. The lessor assigns its interests to a trustee, usually a commercial bank, who holds the title to the property, collects lease payments from the state, and makes payments to the investors. The state renews the lease each year and makes annual payments authorized through the Long Bill. The interest rate paid by the state is fixed and depends on market conditions at the time COPs are priced for sale. When the lease ends, the state owns the facility at no or minimal additional cost.
Medicaid copayments. Medicaid copayments are set in rules promulgated by HCPF and are subject to certain restrictions under federal law. Most significantly, total copayments paid by a recipient may not exceed 5 percent of the recipient’s income. Under this requirement, copayments are not collected from recipients with no income.
Copayments for pharmaceuticals differ by client circumstances but averaged $1.27 in FY 2015-16. Copayments for outpatient and emergency services were $3.00. Copayments for outpatient services are capped at $4.00 under federal law and regulations, while copayments for pharmaceuticals and emergency services may be doubled without exceeding federal maximums.
Marijuana taxes. Retail (recreational or non-medical) marijuana is subject to three state taxes. Two of these are sales taxes assessed when marijuana is sold to a consumer. Like most tangible personal property, retail marijuana is subject to the 2.9 percent state sales tax. Revenue from the state sales tax is subject to TABOR. Additionally, retail marijuana is subject to a special sales tax approved by voters as a component of Proposition AA in 2013. This tax is currently assessed at a rate of 10 percent, but voters have authorized the General Assembly to raise or lower the rate without further voter approval so long as it does not exceed 15 percent. Under current law, the rate of the special sales tax is scheduled to fall to 8 percent beginning in FY 2017-18. Revenue from the special sales tax is exempt from TABOR as a voter-approved revenue change.
Revenue from the 2.9 percent state sales tax on retail marijuana is collected in the MTCF. Revenue from the special sales tax is collected in the General Fund and transferred to the MTCF upon receipt. Revenue credited to the MTCF is spent in arrears; for example, revenue credited to the fund in FY 2016-17 is subject to appropriation by the General Assembly during the 2017 legislative session and expended to fund programs in FY 2017-18.
Business personal property tax. Unless they have adopted a specific exemption, local governments collect taxes on business personal property. Personal property generally includes machinery and equipment that is used by a business. Business personal property taxes are paid to counties and revenue from the tax is distributed by county treasurers to the appropriate taxing jurisdictions. Business personal property that spans multiple counties, such as railroads, pipelines, and utilities, are assessed by the Division of Property Taxation in the Department of Local Affairs. The division allocates these property values to different areas of the state.
TABOR refund mechanisms. For fiscal years when state revenue subject to TABOR exceeds the TABOR limit (Referendum C cap), the state is required to set aside the excess and issue refunds to taxpayers in the following fiscal year. The refund obligation also includes under refunds of and other adjustments to previous TABOR refunds. TABOR allows the state to use any reasonable method for refunds. Under current law, two mechanisms exist. When the refund obligation is sufficiently large, the state income tax rate is temporarily reduced from 4.63 percent to 4.50 percent. Other than the amount refunded through the temporary income tax rate reduction, all refunds are administered through a tiered sales tax refund available on annual income tax returns. Taxpayers are allowed to claim refund amounts in tiers according to their adjusted gross income, and per taxpayer refund amounts are set in order to approximate the amount of the total refund obligation.
Senior homestead exemption and disabled veterans property tax exemption. The Colorado Constitution allows a property tax exemption to qualifying seniors and disabled veterans. Currently, state policy is set so that 50 percent of the first $200,000 of a senior or disabled veteran’s home is exempt from taxation. The General Assembly is constitutionally empowered to adjust the $200,000 threshold for the exemption, and this was set to $0 during tax years 2003 to 2005 and 2009 to 2011. The state is required to reimburse local governments for lost property tax revenue attributable to the exemptions. Actual and projected state expenditures for reimbursements are presented in Table 2.
Table 2. State Expenditures for Senior and Disabled Veterans Exemptions through FY 2019-20
FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 tax year 2016 tax year 2017 tax year 2018 tax year 2019 Senior Homestead Exemption $133.1 million $144.8 million $157.2 million $171.2 million Disabled Veterans Exemption 2.9 million 3.3 million 3.5 million 3.8 million Total State Expenditures $136.0 million $148.0 million $160.7 million $175.0 million
Source: Legislative Council Staff Economic and Revenue Forecast, March 2017. Totals may not sum due to rounding.
Statutory transfers. Senate Bill 17-262 amends transfers previously authorized by Senate Bill 09-228. Pursuant to SB17-262, these transfers are scheduled as follows:
- for FY 2017-18, $79.0 million to the HUTF;
- for FY 2018-19, $160.0 million to the HUTF and $60.0 million to the CCF; and
- for FY 2019-20, $160.0 million to the HUTF and $60.0 million to the CCF.
Advancing Care for Exceptional (ACE) Kids Act. First introduced in Congress in 2015, the ACE Kids Act proposes changes to the coordination of health care for children with complex medical conditions who receive health care coverage through Medicaid. Under the act, states would be authorized to coordinate care through medical homes providing comprehensive health services. The ACE Kids Act has not yet been enacted at the federal level.
For more information on SB-267, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.
For news media coverage of SB-267, read:
“Debates rage over whether Colorado Legislature has done enough for transportation,” by Ed Sealover, The Denver Business Journal, May 8th.
“Insights: The Colorado legislative session’s end is like a mad dash for Christmas, with amendments,” by Joey Bunch, Colorado Politics, May 7th.
“Colorado’s legislation session is ending. Here’s what you missed and what to watch in final days.” By John Frank and Brian Eason, The Denver Post, May 6th.
“With deal brokered, hospital-and-road funding bill moves through Colorado Legislature,” by Ed Sealover, The Denver Business Journal, May 5th.
“Deal to save rural hospitals clears first hurdle,” by Marianne Goodland, The Colorado Independent, May 5th.
“Senate Gives Omnibus Revenue-and-Spending Bill Preliminary OK,” CACI Colorado Capitol Report, May 5th.