Colorado Capitol Report

In this Capitol Report:

• The Colorado Chamber of Commerce Endorses the State’s Next Leaders
• Elections Matter: Legislative and Governor’s Races Plus Potential Critical Ballot Measures Face Business Community

The Colorado Chamber of Commerce Endorses the State’s Next Leaders

A primary role of the Colorado Chamber of Commerce is to protect and improve the state’s business climate and help elect pro-business legislators to the Colorado General Assembly.

Every two years, the Chamber’s lobbying team and its Political Action Committee, interview new legislative candidates and vote to endorse those candidates. This cycle, forty-five (45) candidates participated in that interview process, and responded to various policy questions ranging from energy, health care, employment, agriculture and other areas.  Over 60 companies and its representatives participated in the four-day process who represent a wide array of Colorado industries.

In preparation for the interviews, the lobbying team prepares a highly detailed report on each legislative race that includes voter performance, party registration, candidates’ profile and up-to-date funds raised.  A candidate questionnaire was also provided for each interview.  The endorsement process includes recommendations of legislative incumbents who are evaluated on voting records for the prior two legislative sessions.

“The candidate interview process is exhaustive and provides an opportunity for our members to acquaint themselves with those seeking election to the legislature.  It is an effective way to determine which candidates are truly pro-business and will support the interests of the employers that fuel Colorado’s economy.” Loren Furman, Colorado Chamber of Commerce Senior Vice President of State & Federal Relations.

“While interest groups of all sorts are hopping behind candidates leading up to the Nov. 6 election, the CACI endorsements often are among the most interesting because they tend to span the political spectrum more than those of other groups.”  Ed Sealover, Denver Business Journal

The following candidates and incumbent legislators have received an official endorsement:

For more information about the Chamber’s candidate-endorsement process, please contact Loren Furman, Senior Vice President, State and Federal Relations, at 303.866.9642.

Elections Matter: Legislative and Governor’s Races Plus Potential Critical Ballot Measures Face Business Community

If there was ever a year in recent memory in which critical state elections will matter hugely to the statewide business community that the Colorado Chamber of Commerce (CACI) represents, it’s 2018.

Consider the following:

• For the first time in eight years, a new governor will be elected.
• Total control of the legislature by the Democrats is a very real possibility if Senate Republicans lose one seat while Democrats retain control of the House.
• A multitude of referred amendments from the legislature and ballot initiatives to amend the Colorado Constitution could drastically affect the Colorado business climate in either good or bad ways.

Two initiatives concerning transportation infrastructure funding, a third involving a tax increase for education and a fourth dealing with restriction of energy production top the list of the potential ballot measures that could profoundly affect Colorado businesses.

In addition, there are three more submitted initiatives that could qualify for the ballot:

• #108, Just Compensation for Reduction in Fair Market Value by Government Law or Regulation
• #126 Payday Loans
• #173 Campaign Contributions

The legislature has referred six proposed constitutional amendments to the ballot.  One would change how Colorado conducts congressional redistricting (Amendment Y) and one would change legislative redistricting (Amendment Z).

The deadline for submitting initiative petitions to the Colorado Secretary of State’s Office was Monday.  The Office has until September 5^th to check signatures and qualify initiatives for the November ballot.

To qualify for the ballot, the Office must determine that an initiative petition has at least 98,492 valid signatures of registered Colorado voters.  According to the Office, “Colorado law requires that ballot-measure backers turn in 98,492 valid voter signatures — 5 percent of the total of votes cast for all candidates in the last Secretary of State general election, which was in 2014.”

The signatures also can be challenged by opponents of an initiative.

The normal policy of the Board of Directors of the Colorado Chamber is to wait until an initiative has qualified for the ballot before discussing whether to support, oppose or remain neutral on the measure.

New Rules for Constitutional Ballot Initiatives

This is the first election under which new rules govern citizen initiatives to amend the Colorado Constitution.

A successful ballot amendment, Amendment 71, called “Raise the Bar” in 2016 sought to make it more difficult for advocates to submit ballot measures.

The amendment requires that signatures must be obtained from at least two percent of the registered voters in each of the 35 state senate districts.  (This requirement was ruled unconstitutional earlier this year by a Federal court judge, but the 10^th Circuit Court of Appeals decided to allow it to remain in effect while the lawsuit remains alive.)

Ballot measures that would amend the Constitution also need a 55 percent voter approval, up from a majority vote.

Four Important Ballot Measures

Following are the four most important submitted ballot measures for the business community; the Colorado Secretary of State’s Office announced yesterday that the first one, Initiative 93, has qualified for the ballot.

Initiative 93: Increasing Taxes for P-12 Education

Initiative 93 would progressively increase the state income-tax rate for individuals and business filing on individuals earning more than $150,000 annually to provide more than $2.3 billion for Pre-School (P)-12 education.  It also would increase the corporate income tax rate on foreign and domestic corporations by 30 percent.  (The news media yesterday reported that the measure will be called Amendment 73.)

Initiative 93, called Great Schools, Thriving Communities, is backed by, among others, the Colorado Education Association (CEA), a Chicago-based organization called Stand for Children and the Colorado Fiscal Institute, a liberal think tank.

As of August 1^st, the initiative’s campaign committee, “Great Schools Thriving Communities” (Secretary of State Office ID # 2018503370) had raised about $318,000.

Initiative 93’s tax increase would hit damage Colorado’s business climate because it is aimed directly at businesses and high-income individuals.

First, it would increase the corporate income-tax rate from the current 4.63% by an additional 1.37% for C-corporations, both domestic and foreign.  That’s a 30% increase in the corporate income tax rate.

Second, it would increase the current 4.63 percent personal income-tax rate (see below) by a four-step graduated increase for businesses filing via an individual’s social security number from an increase of 0.37% up to 3.62% maximum.

In 2013, Colorado voters by a 64 percent to 35 percent margin resoundingly defeated Amendment 66, which would have increased taxes by almost $1 billion on individuals (including non-corporate businesses), estates and trusts to fund P-12 education.

As pointed out by the Colorado Chamber in the September 6, 2013, issue of The Colorado Capitol Report, the tax hike would have hit 94 percent of businesses in the state because they filed through the individual tax return.  (The only businesses exempted from the Amendment 66 tax increase were corporations.)

In the August 9, 2013, issue of The Colorado Capitol Report, the Colorado Chamber examined which businesses file under the individual tax return:

. . . a business owner who operates as “sole proprietorship” or two or more business owners who operate as “general partnership,” “limited partnership,” “limited liability company (LLCs)” and “S Corporations” file their tax returns as individuals.

In addition, “limited liability partnerships” and “limited liability limited partnerships” will be taxed as partnerships unless they elect to be taxed as corporations.  For more information on these types of businesses, read The Colorado Business Resource Guide.”

Finally, at that time, the Tax Foundation released an analysis of Amendment 66, which included the following finding:

• The tax increase will directly hit the 95 percent of all Colorado businesses that pay taxes through the individual income tax code. These firms employ 57 percent of all Coloradans . . .

The Legislative Council’s preliminary analysis of Initiative 93 states:

Summary of Measure

The measure makes changes to the Colorado Constitution and state law related to funding for public education.

Quality Public Education Fund.  The measure creates the Quality Public Education Fund (fund) in the Colorado Constitution.  Money in the fund is to be used to support and enhance the quality of preschool through twelfth grade (P-12) public education beginning in FY 2019-20.  The fund will contain revenue from a proposed income tax increase, discussed below.  Money in the fund is exempt from the TABOR revenue limit and must be used to supplement General Fund appropriations for P-12 public education as of the measure’s effective date, adjusted each year for inflation up to 5 percent.

Education spending requirements.  Beginning in FY 2019-20 and until a new public school finance law that meets certain criteria is enacted by the General Assembly, money in the fund must be used to:

• increase the statewide base per pupil funding for P-12 public education to $7,300;
• increase state funding for the following programs by at least the following specified amounts over FY 2018-19 levels:
• special education by $120 million;
• gifted and talented programs by $10 million;
• English language proficiency programs by $20 million; and
• preschool funding by $10 million;

The above increases are to be adjusted for inflation each year beginning in FY 2020-21.

In addition, the measure expands the number of kindergarten and at-risk students that receive funding through the state’s P-12 funding formula.  Specifically, the measure requires that:

• at-risk funding include students qualifying for reduced price lunch; and
• full day kindergarten funding be increased from 0.58 percent to 1.0 per full time equivalent student.

Income tax.  The measure creates an exception to the current law requirement that any new income tax law change require taxable net income to be taxed at a single rate.  Specifically, the measure allows multiple tax rates to apply to individuals, trusts, estates, and corporations if the tax increase is approved by voters for the funding of P-12 public education.  The measure then increases state personal income tax rates on federal taxable income by the following graduated rates, beginning in tax year 2019:

• 0.37 percent for income between $150,000 and $200,000;
• 1.37 percent for income between $200,000 and $300,000;
• 2.37 percent for income between $300,000 and $500,000; and
• 3.62 percent for income above $500,000.

The measure also increases the state corporate income tax rate for domestic C corporations and foreign C corporations doing business in Colorado by 1.37 percent beginning in tax year 2019.  All revenue from this individual and corporate income tax increase is deposited in the Quality Public Education Fund and may be retained and spent without further voter approval.

Initiative 97: 2,500-Foot Setback for Oil-and-Gas Production

Initiative 97 is drawing perhaps the most heat-and-light of all the ballot proposals because it directly pits environmental organizations and community organizations against the oil-and-gas industry in the latest battle of a years-long war over energy production, specifically the proximity of the production to residential areas, schools and environmentally sensitive lands.

The measure would increase by five times to 2,500-feet the distance between oil-and-gas wells and residential homes, schools, hospitals and “vulnerable areas.”

The proposal is being advanced by an organization called Colorado Rising.  An issue committee, Colorado Rising for Health and Safety, had raised more than $527,000 by August 6^th.  (The Secretary of State’s committee registration for the Committee is #20185033525.)

Meanwhile, an umbrella, pro-energy business organization, Vital for Colorado, which is a CACI member, lists the business organizations that have come out in opposition to the initiative:

• Denver Metro Commercial Association of REALTORS
• Colorado Homebuilders Association
• Colorado Bankers Association
• Colorado Association of Mechanical and Plumbing Contractors
• Mechanical Contractors Association of Colorado
• Mechanical Service Contractors Association of Colorado
• National Certified Pipe Welding Bureau, Colorado Chapter
• Colorado Farm Bureau
• Northwest Douglas County Economic Development Corp.
• Housing & Building Association of Colorado Springs
• Colorado Cattlemen’s Association
• American Council of Engineering Companies (ACEC) of Colorado
• South Metro Denver Chamber of Commerce
• Metro North Chamber of Commerce
• Highlands Ranch Chamber of Commerce
• Grand Junction Chamber of Commerce
• Colorado Business Roundtable
• Colorado Apartment Association
• Pikes Peak Association of REALTORS
• Vital for Colorado
• Colorado Alliance of Mineral and Royalty Owners

The lead organization opposing the initiative is Protect Colorado.  An issue committee–Protecting Colorado’s Environment, Economy and Energy Independence–has been formed to fight such ballot measures as Initiative 97.  As of August 1^st, it had raised about $13.1 million from energy companies.  (Its Secretary of State identification number is 20145026709.)

A report issued in July by the Colorado Oil and Gas Conservation Commission stated that the initiative would prevent 85 percent of non-Federal land in the state from being explored for oil-and gas production.  More than half of the land in the state would be off-limits to new energy development.  COGCC is charged by the legislature with balancing oil-and-gas production with protecting the environment, wildlife and public safety-and-health.

Here’s the COGCC report summary:

• An estimated 54% of Colorado’s total land surface would be unavailable for new oil and gas development by adopting the buffer zone setbacks and federal land exemption proposed by initiative #97.  Of the non-federal land in Colorado, 85% would be inaccessible using these same criteria.
• 78% of Weld County surface land (85% of non-federal land) would be off-limits to new oil and gas development.  In Colorado’s top five oil and gas producing counties combined, 61% of the surface acreage (94% of non-federal land) would be unavailable.
• “Vulnerable areas” buffers, which initiative #97 defines to include a range of surface hydrologic features, would have a significantly larger impact than “occupied structure” buffers on making surface lands inaccessible to new oil and gas activity.

In addition, a new report by the REMI Partnership found that Initiative 97 would cost the state 100,000 jobs by 2030 and harm the state’s economy.  The Partnership includes the Common Sense Policy Roundtable, Colorado Concern, Colorado Bankers Association, Denver South Economic Development Partnership, and Colorado Association of REALTORS.

Here’s the Legislative Council’s “Fiscal Impact Statement” description of the proposal:

Summary of Measure

If approved by voters, the measure requires that new oil and natural gas development not on federal land be located at least 2,500 feet from an occupied structure or vulnerable area.  A state or local government may require a setback greater than 2,500 feet.  If two or more local governments with overlapping jurisdictions establish different setback requirements, the larger setback is applied.

Oil and gas development is defined as the exploration for, and the drilling, production, and processing of gas and liquid hydrocarbons.  This includes gas flowlines, and the treatment of waste associated with oil and gas development.  Renewed production of an oil or gas well that had previously been plugged or abandoned is considered new development.

Occupied structures means any building intended for human occupancy, including homes, hospitals, and schools.

Vulnerable areas include playgrounds, permanent sports fields, amphitheaters, public parks, public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams, and creeks.  The state or a local government may designate additional vulnerable areas, which must then be considered for any setback site calculation.

Background

Setback requirements for oil and natural gas facilities.  The required distance from an oil and natural gas facility and a home or other structure is commonly known as a setback requirement.  Current state regulations, approved in 2013, prohibit oil and natural gas wells and production facilities from being located closer than:

• 500 feet from a home or other occupied building; and
• 1,000 feet from high-occupancy buildings such as schools, health care institutions, correctional facilities, and child care centers, as well as neighborhoods with at least 22 buildings.

Currently, the 500-foot setback prohibits oil and gas development on about 18 acres surrounding a given point, and the 1,000-foot setback prohibits development on about 72 acres. This measure increases the setback to a minimum of 2,500 feet, or about 450 surrounding acres.

State and local revenue from oil and natural gas.  Companies that extract mineral resources, including oil and natural gas, coal, and metallic minerals, pay severance taxes to the state.  Oil and natural gas producers also pay income taxes, sales taxes, use taxes, and local property taxes.

The Title Setting Board, however, amended the Initial Fiscal Impact Statement by the Legislative Council.  Here’s the Board’s amendment:

Abstract of Initiative 97: SETBACK REQUIREMENT FOR OIL AND GAS DEVELOPMENT

This initial fiscal estimate, prepared by the nonpartisan Director of Research of the Legislative Council as of January, 2018, identifies the following impacts:

            The abstract includes estimates of the fiscal impact of the initiative. If this initiative is to be placed on the ballot, Legislative Council Staff will prepare new estimates as part of a fiscal impact statement, which includes an abstract of that information. All fiscal impact statements are available at www.ColoradoBlueBook.com and the abstract will be included in the ballot information booklet that is prepared for the initiative.

            State and Local Government Revenue and Expenditures.  The measure is highly likely to decrease the amount of severance tax, royalty payments, and lease revenue that state and local government collects in the future, and the amount of state and local expenditures of that revenue.

            Economic Impacts.  This measure constrains well location throughout the state except on federal lands and is likely to reduce future oil and gas development in the state.  The current 500 foot setback prohibits oil and gas development on about 18 acres surrounding a given point. The measure increases the setback to a minimum of 2,500 feet or about 450 surrounding acres. To the extent that the measure reduces development, there will be less oil and gas employment, less demand for associated services, reduced rent and royalty income to mineral owners, and reduced profits for operators.  Increasing the setback distance may preserve property values for homeowners most affected by the setback and, to the extent less development improves health outcomes for affected residents, may increase productivity and reduce medical costs.

Dueling Transportation Funding Measures

Colorado voters this November may face two transportation-funding ballot proposals that will offer starkly different strategies for addressing the state’s $9 billion shortfall for paying for roads and bridges over the next decade.

Motorists and civic, political and business leaders alike are concerned that lack of investment in transportation infrastructure and growing congestion will sharply constrain Colorado’s economic future.

Each proposal contains certain political assumptions that may or may not appeal to an individual voter, depending on his or her political philosophy.

One generally reflects the viewpoint of Republicans and the other the viewpoint of Democrats, a difference largely manifested in the recently completed legislative session with the passage of SB-1, the marginally bipartisan bill that represented the legislature’s best shot at tackling the problem.

Initiative 153: Increasing the Sales Tax to Fund Transportation

Initiative 153 would increase the state sales tax for 20 years by 0.62 percent to 3.52 percent, and the revenue would be used to repay up to $6 billion in bonds to be used state roads, local transportation needs and multi-model transportation projects.

Led by the Colorado Contractors Association and the Metro Denver Chamber of Commerce, a coalition has advanced Initiative 153.  The measure is backed by such regional organizations as Club 20 (Western Slope) and Pro 15, formerly Progressive 15 (northeastern Colorado), as well as the Metro Mayors Caucus

Here’s how the Legislative Council’s Initial Fiscal Impact Statement describes the measure:

Summary of Measure

This measure increases the state sales and use tax rate from 2.9 percent to 3.52 percent between January 1, 2019 and January 1, 2039.  In addition, the measure allows the Colorado Department of Transportation to issue bonds totaling up to $6.0 billion.  The total repayment cost may not exceed $9.4 billion over 20 years.  The revenue generated from the tax increase is dedicated for the following purposes:

• 45 percent for bond repayment and state transportation funding;
• 15 percent for multimodal transportation; and
• 40 percent for municipal and county transportation projects.

The measure also creates a citizen oversight commission that must annually report how the bond proceeds have been used.

Initiative 167: Authorize Bonds for Transportation Projects

Initiative 167 has been put forth by Jon Caldara, the colorful-and-quotable head of the conservative think tank, The Independence Institute, which would require that the legislature pay from current revenue the debt service on $3.5 billion in transportation bond sales.

The Institute is often labeled “free market” or “libertarian” by the mainstream news media.

Called “Fix Our Damn Roads,” Initiative 167 would require the legislature to first make debt-service payments before allocating General Fund revenue to such other programs as P-12 and higher education, corrections and social services, including Medicaid, which the Democratic-controlled legislature expanded in January 2014 under the Federal Affordable Care Act.

The proceeds from the sale of the bonds would be spent only on road-and-bridge expansion, maintenance, construction and repair for 66 specific projects–called Tier 1–located in each of the state’s 15 transportation planning regions.

Under Initiative 167, no money would go to local governments or for multi-modal purposes.  No money would be spent on mass transit.

In brief, State spending on other governmental services over twenty years would be reduced by $5.2 billion through fiscal year 2038-2039 because the money would be directed to paying off the bonds.

Democrats are concerned that, during the next recession, the legislature would be forced to make deep cuts in education, corrections and social-service programs because the $350 million would first have to be paid each year to service the bond debt.  A state that defaults on bond payments faces the drastic prospect that its credit rating could be drastically downgraded, which would raise borrowing costs.

The Legislative Council’s Initial Fiscal Impact Statement summarizes the proposal:

Summary of Measure

The measure requires the executive director of the Colorado Department of Transportation (CDOT) to issue Transportation Revenue Anticipation Notes (TRANs) no later than July 1, 2019, in a maximum amount of $3.5 billion with a maximum repayment cost of $5.2 billion over 20 years.

Voter-approved proceeds from TRANs are TABOR-exempt and must be used exclusively for road and bridge expansion, construction, maintenance, and repair on the 66 projects identified in the measure, which include projects in each of the state’s 15 transportation planning regions. Transit projects are excluded from the list.

The measure requires the principal and interest on the borrowed money to be paid without raising taxes or fees.  The state must reserve the right to repay the TRANs ahead of schedule without penalty.

More Information and News Media Coverage

For more information on the ballot issues, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.

For news media coverage and additional information, read:

“Education tax hike will be on Colorado’s November ballot, Secretary of State says,” by Ed Sealover, The Denver Business Journal, August 9^th.

“Initiative to pay for preschool, full-day kindergarten qualifies for Colorado ballot,” by Ann Staver, The Denver Post, August 9^th.

“School-tax amendment makes Colorado’s November ballot,” by Marianne Goodland, Colorado Politics, August 9^th.

“Two ways to fund highway fixes among seven initiatives that could be heading to voters,” by Ed Sealover, The Denver Business Journal, August 7^th.

“Colorado’s deadline to turn in ballot measure petitions is today.  Here’s what questions you might get to decide in November,” by Corey Hutchins, The Colorado Independent, August 6^th.

“Anti-fracking ballot campaign turns in 170,000 petition signatures, eyes Colorado ballot,” by Greg Avery, The Denver Business Journal, August 6^th.

“Effort to make Colorado governments pay for hurting property values turns in petitions in bid for ballot,” by Greg Avery, The Denver Business Journal, August 6^th.

“Colorado ballots could be cluttered with initiatives that cause problems for businesses,” by Ed Sealover, The Denver Business Journal, August 2^nd.

“Education Tax Increase Proposal Takes Dead Aim at Higher-Income Taxpayers, Corporations and Non-Corporate Businesses,” Colorado Capitol Report, July 27^th.

“Ballot Wars: Competing Transportation Funding Measures May Be on November Ballot,” Colorado Capitol Report, June  1^st.