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State Policy News
Governor Signs “Rural Sustainability” Bill
On Tuesday, in Fowler, a small town east of Pueblo on U.S. 50, Governor John Hickenlooper signed into law SB-267, perhaps the most notable achievement of the legislative session for the statewide business community because the complex law will, among many other things, provide almost $2 billion for roads and bridges. The law takes effect immediately.
Granted, the Colorado Department of Transportation (CDOT) estimates that the funding shortfall for road-and-bridge projects is $9 billion. SB-267, therefore, represents a step in the right direction to address Colorado’s transportation funding challenges, which is certainly a major accomplishment for the legislature, given that it has been politically stalemated in recent years on the issue. The issue of transportation funding, however, may not be over for this year because it’s very possible that Colorado voters could face ballot initiatives on this issue in November.
For a part of the session, the business community’s hopes for increased transportation funding largely rested on the bipartisan bill, HB-1242, co-sponsored by the presiding leaders of the two chambers, until it died in the Senate Finance Committee. With the demise of HB-1242, all eyes turned to SB-267 as the last, best hope for the session for additional funds for transportation.
CACI supported SB-267 first 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. The second major reason for CACI’s support of the bill is that it will provide funds for transportation.
The hallmark of the bill was the singular political compromise–painful for rural Republican legislators in both chambers who supported the bill–required to pass SB-267.
The 59-page bill is perhaps the most complex bill that the legislature has considered in recent years other than the annual budget known as the Long Bill and the annual K-12 school finance bill.
Although SB-267 covers a wide range of policies, revenue and spending, at its political heart rested the deep concern of rural Republican legislators that hospitals in their areas would face severe state funding cuts—if not outright closure in some cases–if the hospital provider fee was not converted to a state enterprise.
The bill protects hospitals across the state from funding cuts totaling $528 million if SB-267 had not been passed. The state’s budget contained a $264 million cut in the hospital provider fee, which would have caused the loss of an additional $264 million from the Federal Medicaid match.
The bill creates a “state enterprise” called the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) that will collect the hospital provider fee, which the State will then use to secure matching Federal funds. The combined funds will be used to pay hospitals for uncompensated care and for the expansion of Medicaid recipients under the Federal Affordable Care Act. During the 2015 and 2016 sessions, Democrats unsuccessfully sought to convert the HPF to a state enterprise because the Senate Republicans opposed it.
By removing the hospital provider fee revenue from under the Referendum C state spending limit, general fund revenues will be freed up for other purposes instead of having revenue above the Referendum C cap sent back to the taxpayers in the form of TABOR refunds while programs were cut. Democrats supported this provision but Republicans opposed it. Consequently, the compromise contained SB-267 is that the Referendum C cap will be lowered by $200 million, although Republicans argued for a greater reduction in the cap.
SB-267 generates $2 billion by, in effect, mortgaging state buildings by entering into lease-purchase agreements by selling “certificates of participation” to private investors. Of this $2 billion, $1.8 billion will be allocated to road projects and $120 million to state capital construction projects. Of the transportation dollars, 25 percent must go to rural counties and ten percent must go for transit purposes and transit-related capital improvements.
Republicans objected to this debt obligation because it would not go to the voters for approval. To pay off the debt, the legislature must spend up to $94 million from General Fund revenue and $50 million more from Colorado Department of Transportation revenue.
Other major provisions of the bill include:
- Providing businesses with business personal property tax relief by boosting the exemption to $18,000.
- Reining in Medicaid spending by increasing some co-pays.
- Increasing recreational marijuana taxes to the maximum 15 percent, with $30 million of the revenue going to rural K-12 education and additional revenue being allocated to the State Education Fund
- Protecting the senior and disabled veterans homestead tax exemption and allowing it to be the first refund to reimburse local governments in future years when taxpayers are due a refund under TABOR.
- Strongly encouraging–but not mandating–state agencies in future years to cut spending by 2 percent.
Here’s the legislature’s final detailed description of the bill after it was passed by the Senate. It traversed the House without any amendments, with final approval coming on the last day of the session, May 10th.
Section 16 of the bill repeals the existing hospital provider fee program, effective July 1, 2017, and section 17 creates a new Colorado healthcare affordability and sustainability enterprise (CHASE) within the department of health care policy and financing (HCPF), effective July 1, 2017, to charge and collect a healthcare affordability and sustainability fee that functions similarly to the repealed hospital provider fee. Because CHASE is an enterprise for purposes of the Taxpayer’s Bill of Rights (TABOR), its revenue does not count against the state fiscal year spending limit (Referendum C cap).
Section 17 of the bill also requires CHASE to seek any federal waiver necessary to fund and, in cooperation with HCPF and hospitals, support the implementation, no earlier than October 1, 2019, of a health care delivery system reform incentive payments program. Sections 2, 3, 6, 7, 11, 13, 15 through 20, 22, and 32 make conforming amendments, with section 32 extensively modifying FY 2017-18 appropriations to reflect the repeal of the hospital provider fee program and the creation of CHASE. Section 34 specifies that the effective date of sections 2, 3, 6, 7, 11, 13, 15 through 20, 22, and 32 of the bill is July 1, 2017, and that those sections do not take effect if the centers for medicare and medicaid services determine that they do not comply with federal law.
Section 11 of the bill permanently reduces the Referendum C cap by reducing the FY 2017-18 cap by $200 million and specifying that the base amount for calculating the cap for all future state fiscal years is the reduced FY 2017-18 cap. As is the case under current law, the reduced cap is annually adjusted for inflation, the percentage change in state population, the qualification or disqualification of enterprises, and debt service changes.
Section 24 of the bill specifies that for any state fiscal year commencing on or after July 1, 2017, for which revenue in excess of the reduced Referendum C cap is required to be refunded in accordance with TABOR, reimbursement for the property tax exemptions for qualifying seniors and disabled veterans that is paid by the state to local governments for the property tax year that commenced during the state fiscal year is a refund of such excess state revenue. The exemptions continue to be allowed at current levels and the state continues to reimburse local governments for local property tax revenue lost as a result of the exemptions regardless of whether or not there are excess state revenues. Section 27 prioritizes the new TABOR refund mechanism ahead of the existing temporary state income tax rate reduction refund mechanism as the first mechanism used to refund excess state revenue.
Section 12 of the bill requires the state, on or after July 1, 2018, to execute lease-purchase agreements, including associated certificates of participation (COPs), for up to $2 billion of eligible facilities identified collaboratively by the state architect, the office of state planning and budgeting (OSPB), and state institutions of higher education for the purpose of generating funding for capital construction projects and transportation projects. The lease-purchase agreements must be issued in increments of up to $500 million in FYs 2018-19, 2019-20, 2020-21, and 2021-22. The first $120 million of lease-purchase agreement proceeds from the FY 2018-19 issuance must be used to fund capital construction projects with most of that amount being dedicated for funding of level I, II, and III controlled maintenance projects. The first $120 million of lease-purchase agreement proceeds from the FY 2019-20 issuance must be used for capital construction projects as prioritized by the capital development committee. Remaining proceeds are credited to the state highway fund and are required by section 31 to be expended to fund state strategic transportation project investment program projects that are designated for tier 1 funding as 10-year development program projects on the department’s development program project list, with at least 25% of such proceeds being expended to fund projects that are located in rural counties. At least 10% of such proceeds must be expended for transit purposes or for transit-related capital improvements.
The maximum term of the lease-purchase agreements is 20 years, and the maximum total annual repayment amount for lease-purchase agreements is $150 million. Lease-purchase agreements must be paid, subject to annual appropriation by the general assembly or annual allocation by the transportation commission, first from up to $9 million from the general fund or any other legally available source of money, next from up to $50 million of legally available money under the control of the transportation commission solely for the purpose of allowing the construction, supervision, and maintenance of state highways to be funded with the proceeds of lease-purchase agreements, and last from up to $85 million from the general fund or any other legally available source of money.
Sections 5 and 8 of the bill specify that an academic facility is not eligible for controlled maintenance funding if it is acquired or constructed, or, if it is an auxiliary facility repurposed for use as an academic facility, solely from a state institution of higher education’s cash and operated and maintained from such cash funds and if the acceptance of construction or repurposing occurs on or after July 1, 2018.
Section 29 of the bill, in accordance with previously granted voter approval, increases the rate of the retail marijuana sales tax, which is currently 10% and is scheduled under current law to decrease to 8%, to 15%, effective July 1, 2017. Section 30 holds local governments that currently receive an allocation of 15% of state retail marijuana sales tax revenue based on the current tax rate of 10% (i.e. the amount attributable to a 1.5% tax rate) harmless by specifying that on and after July 1, 2017, they receive an allocation of 10% of state retail marijuana sales tax revenue based on the new rate of 15% (i.e., the same amount attributable to a 1.5% tax rate).
Of the 90% of the state retail marijuana sales tax revenue that the state retains for state FY 2017-18:
- 28.15% less $30 million stays in the general fund;
- 71.85% is credited to the marijuana tax cash fund; and
- $30 million is credited to the state public school fund and distributed to rural school districts as specified in section 4.
- Of the 90% of the state retail marijuana sales tax revenue that the state retains for state fiscal year 2018-19 and for each succeeding state fiscal year:
- 15.56% stays in the general fund;
- 71.85% is credited to the marijuana tax cash fund; and
- 12.59% is credited to the state public school fund and distributed to all school districts as specified in section 4.
Section 4 of the bill requires the $30 million of state retail marijuana sales tax revenue that is transferred to the state public school fund for FY 2017-18 to be appropriated to the department of education and allocated 55% to large rural school districts and 45% to small rural school districts and then distributed to the large and small rural school districts on a per pupil basis. Section 4 requires all of the state retail marijuana sales tax revenue that is transferred to the state public school fund for FY 2018-19 and for each subsequent fiscal year to be distributed to all school districts and institute charter schools as part of the state share of total program funding. On and after July 1, 2017, section 28 offsets a portion of the state retail marijuana sales tax rate increase by exempting retail sales of marijuana upon which the state retail marijuana sales tax is imposed from the 2.9% general state sales tax and section 23 makes a conforming amendment to ensure that local governments can continue to impose their local general sales taxes on retail sales of marijuana.
Section 9 of the bill requires each principal department of state government, other than the departments of education and transportation, that submits an annual budget request to the OSPB, when submitting its budget request for FY 2018-19 to the OSPB, to request a total budget for the department that is at least 2% lower than its actual budget for the FY 2017-18. The OSPB must strongly consider the budget reduction proposals made by each principal department when preparing the annual executive budget proposals to the general assembly for the governor and must seek to ensure that the executive budget proposal for each department for FY 2018-19 is at least 2% lower than the department’s actual budget for FY 2017-18.
Section 10 of the bill eliminates FY 2018-19 and FY 2019-20 general fund transfers to the highway user tax fund required by current law. The eliminated transfers are in the amounts of $160 million on June 30, 2019, and $160 million on June 30, 2020.
Section 14 of the bill specifies that on and after January 1, 2018, for pharmacy and for hospital outpatient services, including urgent care centers and facilities and emergency services provided under the ‘Colorado Medical Assistance Act’, HCPF rules that specify the amount of copayments for such services must require the recipient to pay:
For pharmacy, at least double the average amount paid by recipients in state fiscal year 2015-16; or
For hospital outpatient services, at least double the amount required to be paid as specified in the rules as of January 1, 2017; except that
For both pharmacy and hospital outpatient services, the amount required to be paid by the recipient may not exceed any specified maximum dollar amount allowed by federal law or regulations as of January 1, 2017.
Section 21 of the bill requires HCPF, within 120 days of the enactment of the federal ‘Advancing Care for Exceptional Kids Act’ (ACE Kids Act) and subject to available appropriations, to seek any federal approval necessary to fund, in cooperation with hospitals that meet the specified requirements, the implementation of an enhanced pediatric health home for children with complex medical conditions. HCPF must comply with ACE Kids Act requirements for its participation.
Section 25 of the bill terminates an existing temporary income tax credit for business personal property taxes paid that is available only for income tax years commencing before January 1, 2020, one year early so that it is available only for income tax years commencing before January 1, 2019. Section 26 replaces the terminated temporary credit with a more generous permanent income tax credit for business personal property taxes paid on up to $18,000 of the total actual value of a taxpayer’s business personal property.
Section 1 of the bill makes a legislative declaration that all provisions of Senate Bill 17-267 relate to and serve and are necessarily and properly connected to the General Assembly’s purpose of ensuring and perpetuating the sustainability of rural Colorado.
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:
“’Compromise’ or ‘casserole’? Rural sustainability bill does a lot, here’s an in-depth look,” by Dan Njegomir, ColoradoPolitics.com, May 31st.
“Hick signs big bill—with time to spare for a jump shot—at a rural Colorado school,” by Dan Njegomir, ColoradoPolitics.com, May 30th.
“Here’s what Colorado lawmakers’ grand bargain on hospitals, roads, pot taxes and more would do,” by Erica Meltzer, www.denverite.com, May 10.
“Legislature Sends Omnibus ‘Rural Sustainability’ to Governor,” CACI Colorado Capitol Report, May 10th.
“Colorado lawmakers celebrate major accomplishments to end legislative session,” by John Frank and Brian Eason, The Denver Post, May 10th.
“Legislative session ends with less than expected for Colorado highways, but inroads for charter schools,” by Joey Bunch, ColoradoPolitics.com, May 10th.
Federal Policy News
CACI's Federal Policy Council will be at EPIC Brewery THIS Tuesday, 6/6!
11:30am – 1:30pm
3001 Walnut St, Denver 80205
Street Parking available
**Join us early at 11:30am to socialize – early birds can snag the first tour. MUST HAVE FLAT, CLOSE-TOED SHOES to tour.
**Agenda starts at Noon with Andres Zaldana from the Colorado Brewers Guild, as well as the co-founder of EPIC Brewing, Dave Cole, to talk about federal regulation affecting brewers, as well as how Epic chose Denver
Please kindly RSVP to LCurtsinger@cochamber.com, (303) 866-9641 or through the CACI Events page.
Thanks to our Sponsor: