Prepared testimony on tax credit package

Package of bills to limit, suspend or repeal
several tax exemptions and tax credits

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Prepared Testimony to the Joint Meeting
of the House and Senate Finance Committees
Colorado General Assembly

Rich Jones
Director of Policy and Research
The Bell Policy Center

Thank you for the opportunity to speak to you today.

I am Rich Jones, and I am the director of policy and research with the Bell Policy Center. The Bell is a non-partisan, non-profit research and advocacy organization dedicated to making Colorado a state of opportunity for all. We have worked on state fiscal issues for nearly a decade because we know having an effective public-sector partner is essential to building the state of opportunity we envision. And we know that to be that effective partner, the public sector needs adequate resources to do the things we as citizens ask it to do.

First, we want to thank you for holding this hearing and for beginning the process of evaluating proposals to limit, suspend or repeal several tax exemptions and tax credits that have accumulated in Colorado law over the years. We also want to thank the Governor for proposing limiting, suspending or repealing some of these exemptions in his proposed budget for next year.

We broadly support the proposals to make changes in the tax credits and exemptions that are before the committee today.

This conversation is timely given the financial strain our public systems face in this economy. Times like these require a balanced approach to closing the gap between what we want our public systems to accomplish and the resources we give them to get the job done. But it is a conversation that is timely regardless of the economic situation, because such a balanced approach is important every year.

Others are testifying today about specific tax exemptions and programs. While we endorse the premise of encouraging businesses to locate and create jobs in Colorado, we also believe in fact-based decision making. It is important to determine the effects these tax credits and exemptions actually have on business growth and development.

I will testify on the broader package to limit, suspend, reduce or repeal tax credits and exemptions and the need to take a balanced approach to addressing our fiscal problems.

Each and every public purpose for which the state uses tax policy and tax revenues should be reviewed regularly by the legislature and evaluated on its own merits. The mechanism by which a previous legislature chose to pursue that public purpose should not shield the policy from regular scrutiny nor confer upon it a higher value or priority or level of protection.

If the public purpose still is a high enough priority and the mechanism has been effective in achieving that purpose, then the policy should continue. But if the purpose is no longer a priority or the mechanism has been shown to be ineffective, the policy should be changed or dropped. And it should make no difference whether the mechanism a previous legislature chose involved a budget appropriation or a tax exemption.

The Legislative Council projects the state will receive $6.7 billion in income, sales and use tax revenues in the current year. For the record, that's 3.2 percent of the state's estimated $207 billion economy.

Legislative Council data presented to the Long-Term Fiscal Stability Commission this summer also showed the state will forgo about $2.17 billion this year in income, sales and use tax revenues due to tax exemptions.

In other words, existing tax rates alone would generate about $8.9 billion in income, sales, and use tax revenues this year. But the state will not receive nearly a quarter of that revenue because of exemptions enacted by previous legislatures.

There is nothing fundamentally wrong with that fact. Tax exemptions have been and continue to be effective mechanisms for implementing public policy. There are many on the books in Colorado today that we believe to be sound and vital, and there are some that make the overall effect of taxation in Colorado less regressive.

But what is fundamentally wrong is that these exemptions are in effect year in and year out without any real process of review or reconsideration. Every year the Governor's budget office and the legislative Joint Budget Committee carefully scrutinize the policies and mechanisms by which the state spends the revenues it receives. And every year our elected officials wrestle with questions of which programs should take priority and what level of expenditure is appropriate given available resources.

None of that happens with tax exemptions. We enact them, then we forget about them. In essence, we spend almost a quarter of General Fund revenues every year without any review or debate about priorities or levels or effectiveness.

And we make these tax expenditures a first priority. With the exception of tax credits that are dependent on TABOR surpluses, every tax exemption is fully funded every year before any traditional program receives a penny in appropriations.

Given our current budget challenges we believe that all options should be considered, including Colorado's current tax credits and exemptions. Many of these may make sense in good times – and some may make sense today. But given the severity of the budget gap confronting us in the coming fiscal year, every option needs to be on the table.

We urge you to take a balanced approach in addressing our budget shortfall which includes limiting, suspending or repealing some of the existing tax credits and exemptions.

Thank you for the opportunity to share our thoughts with you, and thank you again for raising these important questions. We are happy to discuss our ideas in more depth, and we look forward to working with you on this.