IB-B-2013 (April 2013)
Author: Joshua Sharf
Colorado’s Public Employee Retirement Association (PERA) is the State’s largest pension plan, with more than 483,000 members as of 2011. Government contributions exceeded $1 billion in FY2011.
IB-A-2013 (February 2013)
Author: Linda Gorman
Colorado state government has a spending problem. Although inflation-adjusted per capita personal income in Colorado is still below its 2003 level, state spending has risen every year since 1999. State tax revenue has risen, but it cannot keep up with the spending.
IP-3-2013 (February 2013)
Author: Sam Beck
This paper explores a compilation of Colorado rankings from the “2013 State and Business Tax Climate Index.”
IP-11-2012 (August 2012)
Author: Barry Poulson
State and local governments report the funding status of their pension plans in financial statements following standards set by the Government Accounting Standards Board (GASB). Historically, those standards allowed state and local governments to use an actuarial model and to discount liabilities based on the long-term yield on the assets held in the pension fund. The Colorado Public Employees’ Retirement Association (PERA) uses an 8 percent discount rate comparable to that used in most state and local pension plans. GASB also allowed state and local governments to use a smoothing technique to calculate the funding status of the plans. With this smoothing technique, losses incurred on assets in one year could be averaged over several years.
IB-2012-B (August 2012)
Author: Bob LeGare
PDF of full Issue Backgrounder
Scribd version of full Issue Backgrounder
The City of Aurora amended its sales tax regulations related to candy and soft drinks, as a response to concerns raised by Aurora grocery retailers. The 2012 ordinance amendment has the appearance of a tax increase but further analysis concludes the tax policy change is likely to be “revenue neutral,” And therefore does not require voter approval under TABOR.
IP-9-2012 (June 2012)
Author: Nate Neligh
Policy debates frequently turn on whether the government is spending at a reasonable level, and that is defined by the relative spending in other states. Relatively low rankings are presumed to indicate of under-spending by Colorado governments. The low rankings, however, are inconsistent with Colorado’s overall ranking for tax burden, which is close to the national median. We examine many claims relating to Colorado government spending overall, in K-12 education, in higher education, and in healthcare, and we conclude that most are misinterpreted or overstated. Colorado collects the national average in taxes,
so how could it be that support for government programs is so uniformly near the bottom?
by Dave Kopel and Fred Holden
Gaylord Entertainment is offered $81 million in Colorado taxpayer money for its proposed 1,500-room Denver International Airport hotel and other projects. By what authority can the state government take tax money out of your pocket and give it away to a private corporation? The answer is that corporate welfare schemes, such as so-called “public-private partnerships,” flagrantly violate the Colorado Constitution.
Article V, section 34, of the Constitution states: “No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state … .” Very easy to understand.
Part of the Gaylord welfare scheme, and similar subsidies to developers, is that the developer gets to collect and keep Colorado sales-tax revenue, and then spend the tax money on the development. This violates the next section of the state constitution:
“The general assembly shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property or effects, whether held in trust or otherwise, or to levy taxes or perform any municipal function whatever.”
When a developer collects sales-tax money, and then spends that money to build roads, sewers, and so on, the developer is plainly levying taxes to make “municipal improvement.” The Colorado Constitution says that is illegal. Governments — not private corporations — are supposed to levy taxes and perform municipal functions.
Another provision of the Colorado Constitution requires that the government treat people equally. The government cannot pass laws giving a particular corporation special privileges: “The general assembly shall not pass local or special laws in any of the following enumerated cases, that is to say; … granting to any corporation, association or individual any special or exclusive privilege, immunity or franchise whatever.” Article V, section 25.
Yet giving Gaylord the special power to tax, and the special power to spend tax money on certain projects, is certainly a special privilege that is denied to everyone else.
Simply giving taxpayer money to a corporation is also illegal: “Neither the state, nor any county, city, town, township, or school district shall make any donation or grant to, or in aid of … any corporation or company … .” Article XI, section 2.
Back in 1991, United Airlines asked Colorado and Denver taxpayers for hundreds of millions to build an aircraft maintenance facility in Colorado. State Attorney General Gale Norton explained to the legislature that the bill to provide corporate welfare to United “would not pass muster under the Colorado constitution.” Yet she predicted that the Colorado Supreme Court would probably rule in favor of the United welfare bill.
She was correct. For decades, the Colorado Supreme Court has ignored the plain text the Colorado Constitution, and allowed taxpayer money to be donated to corporations.
In the case of United, the welfare from state government coffers would be laundered through the Colorado Housing and Finance Authority. The CHFA is a corporation created by the legislature in 1973, for the ostensible purpose of providing money to homebuyers and to small businesses.
Fortunately for Colorado, United found an even bigger sucker in Indianapolis. Funded by lavish corporate welfare, the United maintenance facility in Indianapolis opened in 1994. United abandoned the facility in 2003. Corporate promises about how the taxpayers will get rich by giving their own money to big business rarely come true.
While the Colorado Supreme Court has refused to do its duty to enforce the many anti-corporate welfare clauses of the Colorado Constitution, citizens have their own remedy: They can vote for state and local candidates who will uphold the Colorado Constitution. Under our constitution, big businesses are supposed to pay their fair share of taxes.
This article originally appeared in the Denver Post, June 16, 2012.
IP-5-2012 (May 2012)
Author: Barry Poulson
The paper is based on testimony presented to the Senate Finance Committee regarding the soundness of the Public Employees Retirement Association fund. Dr. Poulson recommends steps to fix the actuarial problems, and modifying the retirement.
by Penn Pfiffner and Barry Poulson
This legislative session Colorado HB1250 was introduced to begin addressing an unfunded billion-dollar liability in the Public Employee Retirement Association’s (PERA) retiree health care benefit program. Its own sponsor then killed the bill after it came under a fire storm of hysteria-tinged and false criticisms, fueled by one-sided media coverage.
Colorado taxpayers lost an important opportunity for the Legislature to begin the fundamental reforms required to put PERA on a sustainable fiscal path. Instead PERA will continue to carry huge unfunded liabilities that in the absence of reform will eventually require a taxpayer bailout or PERA retirees being denied their promised benefits.
About a dozen years ago, PERA established a health care program for people who retire before age 65 and no longer are covered by their government employer for health insurance. Local governments, school districts and state government contribute annually. The program is a type of “defined benefit.” In other words, a promise with no cap to the cost.
The PERA health benefit also gives retirees a direct premium subsidy even after they turn 65 and begin using the taxpayer-supplied Medicare.
HB 1250 would have changed the program from an open-ended promise to pay retirees whatever it takes, to a $230 fixed subsidy — the amount they receive today. Additionally, eligibility for PERA’s retiree health insurance would have been restricted to those 65 years of age and under, and thus not eligible for Medicare or Medicaid.
Unfunded liabilities in PERA’s retiree health plan have doubled over the past five years to more than $1 billion, and are projected to continue to grow for the foreseeable future as health benefits paid to public sector retirees continue to increase more rapidly than employer (read taxpayer) contributions to the health plan.
An Independence Institute study last year found that PERA’s amortization period is in excess of 30 years. Its actual contribution rates are far below the required contribution rates that would meet standards set by the Government Accounting Standards Board (GASB).
What’s more, the funding crisis in PERA is actually worse than reported in their annual financial statements. PERA assumes an 8 percent return on assets and uses this rate of return to discount liabilities in the plan. GASB recently issued guidelines that recommend using a discount rate that is a blend of the municipal bond rate and the Treasury rate, a rate between 4 percent and 5 percent. Using this discount rate, a recent study by Robert Novy-Marx from the University of Chicago and Joshua Rauh from Northwestern University finds that on a per capita basis, PERA has one of the most underfunded pension and retiree health plans in the country, with unfunded liabilities equal to $33 billion in the pension plan and over $1 billion in the retiree health plan. The study projects that over the next two decades, state plans with large, unfunded PERA-sized liabilities are likely to go bankrupt.
A number of states have recognized the huge risk posed by their retiree pension and health plans and have begun to make changes that follow the lead of reforms that have already been enacted in the private sector. Most private employers have either eliminated retiree health benefits, or replaced them with a defined contribution plan in which the employer caps the subsidy to retiree health insurance at a fixed dollar amount, with employees picking up the remainder of the health insurance premium.
HB1250 was an attempt to address PERA’s impending fiscal nightmare with some sensible reforms. Unfortunately, the public sector retiree lobby is better organized and louder than the Colorado taxpayer lobby. Sure, HB1250 was not going to solve all of PERA’s problems in one fell swoop, but that is more a testament to how deeply flawed our public pension system is than anything else.
Fixing this mess is a massive undertaking that will require many reforms enacted through many steps. HB1250 would have been a great first step. Let’s hope, for the sake of both Colorado taxpayers and future PERA retirees, that some courageous legislators undertake this task, and soon.
The article originally appeared in the Colorado Springs Gazette, May 3, 2012.
IB-2011-D (October 2011)
Author: Penn Pfiffner
PDF of full Issue Backgrounder
Scribd version of full Issue Backgrounder
Colorado’s Proposition 103 will raise state taxes $532 million in the first year and about $2.9 billion in the first five years. It proposes to raise the income tax rate on individuals and families, as well as small businesses, and simultaneously to raise the state sales tax rate. Proposition 103 is the only state issue on this fall’s ballot.