Colorado lawmakers have passed a budget and a school finance act that cuts school spending across the board and reduces or delays many grant programs that support education.
And fearing even worse cuts to come, lawmakers worked on legislation that is expected to bring in more money for education in future years but with major changes designed to gain the support of Gov. Jared Polis. Those changes mean the legislation will generate less revenue.
The budget and the school finance act are the only two pieces of legislation that the Colorado General Assembly must pass. Lawmakers cast their final votes on these critical bills Friday, three weeks into an abbreviated session that followed a two-month recess in response to the coronavirus pandemic.
Lawmakers gave approval to a tax code bill with significant changes that increase its chances of becoming law. The amended version maintains many of the business tax credits that the original would have eliminated. They also gave approval to send a nicotine tax to the ballot.
Lawmakers were brought to tears by budgetary cuts to make up $3.3 billion in lost revenue, but they declined to declare a fiscal emergency and enact temporary emergency taxes to bring in more revenue as many advocates had urged.
No department was untouched. The budget reduces state support to public colleges and universities by 58% and suspends payments meant to shore up the pension system in which most public school teachers participate. The final budget preserves a $163 million property tax exemption for seniors and disabled veterans and brings the state’s reserves below 3%.
Even as they adopted painful cuts, lawmakers took up legislation that could change the long-term fiscal picture for the state. Lawmakers overwhelmingly approved a bipartisan proposal asking voters to make a property tax change that could shore up local revenue. The Public School Finance Act also includes a change that could generate more from local taxes, though only Democrats backed that proposal.
Here’s a look at the financial picture for K-12 schools as the 2020 legislative session comes to a close.
Public School Finance Act
For 2020-21, Colorado schools face 5% across-the-board cuts to per-pupil funding and reduced grant-funded programs. The state is expected to double the annual amount it withholds from schools to pay for other budget priorities to almost $1.2 billion. That legal maneuver will divert about 14% of the education budget.
Republicans ran a series of unsuccessful budget amendments to put more money into education by cutting from other areas, proposals that were largely unpalatable to Democrats, who argued the budget spared education as much as it could while still providing important services. Those included coronavirus relief bills to provide rent and utility assistance.
The final version of the bill adds an extra $10 million to K-12 education by diverting revenue from oil and gas activity on public lands.
The school finance act is typically a bipartisan bill, but this year it passed almost entirely on party lines. The legislation includes a tax change that won’t bring in more revenue this year but could allow future legislatures to increase local property taxes without a vote of the people.
Republicans called it an end-run around the Taxpayer’s Bill of Rights, while Democrats called it a long overdue correction to a statutory error. It’s likely this provision will end up in court.
Average per-pupil spending will be a little more than $8,000, down from $8,489 this fiscal year.
Offsetting state cuts is $510 million in federal coronavirus relief money that Polis gave to K-12 schools. When this money is considered, average per-pupil spending across the state is expected to increase slightly. However, school districts are still waiting for guidance on how they can use this money, and officials are increasingly concerned it won’t come with the necessary flexibility to cover important services.
The school finance act anticipates that more students will be living in poverty next school year, adding more than $70 million to the base cost of education even as the state is spending less. Polis used federal coronavirus relief money to offset about half of that increased cost. He also dedicated several million to support a teacher training program that was in danger of ending.
The state Constitution requires increases in dedicated pots of money for students with disabilities and those learning English, even as spending is down elsewhere.
Tax code changes
Democrats, worried about the bleak financial picture the state will face in future years, looked for ways to raise money for K-12 education.
As part of that effort, Democrats introduced a last-minute Fair Tax Act bill that makes changes to Colorado tax code.
After strong opposition — namely from Polis — Democrats introduced an amendment to limit the extent of changes. The scaled back version passed the General Assembly on Monday, the last day of the legislative session, and has the backing of Polis, according to a governor’s spokesman.
The amended bill eliminates fewer tax deductions for large businesses and the wealthy that were granted within the coronavirus relief bill and when the federal Tax Cuts and Jobs Act of 2017 went into effect.
The original bill was expected to raise $1 billion over several years. Instead, the amended proposal would raise $84 million for education in its first year. In the following two years, it would raise $47 million and then $25 million.
State Sen. Dominick Moreno, a Commerce City Democrat and a co-sponsor of the bill, said amendments remove the aspects that most concerned the Colorado Chamber of Commerce, local chambers, and the greater business community.
Business owners argued they make decisions based on the tax credits, including how many people they can employ. The added burden might cripple many to the point of insolvency, they said.
“It is pared-down, but it will still provide much-needed relief for our K-12 education system,” Moreno said.
State Sen. Chris Hansen, a Denver Democrat and co-sponsor of the bill, said the money, along with other tax changes, would help protect schools against the worst. The forecast for future budget years is grim, he said.
The House still needs to sign off on the changed proposal.
As part of a second, last-minute effort, lawmakers introduced a measure that would ask voters to approve a nicotine tax that would provide funding for priorities that include rural schools and the expansion of Colorado’s public preschool program.
The nicotine tax would eventually pay for half-day preschool for every Colorado 4-year-old. It would also raise new money for public schools, including a rural school cash fund, as well as for tobacco education, health insurance for low-income residents, and cancer prevention. Rural schools are harder hit by across-the-board budget cuts, like those in the school finance act.
Voters need to decide whether to increase cigarette taxes by $1.10 a pack initially, with the amount rising to $1.80 per pack after seven years. It would also create a new tax on vaping products.
Voters rejected a cigarette tax increase in 2016.
Legislators gave bipartisan support to a proposal to ask voters to repeal the Gallagher Amendment.
Adopted in 1982, the Gallagher Amendment established a ratio between commercial and residential property taxes that was intended to protect homeowners from astronomical increases as their property value went up. Over time, the portion of residential property that is taxable declined significantly, creating problems for many rural taxing districts. School districts were spared because the state backfills whatever money isn’t generated locally.
This problem is expected to get much worse in 2021-22 because declines in commercial property values related to the downturn will push residential assessment rates even lower. This could cost school districts an estimated $490 million, with the state on the hook for roughly half of that.
Voters will see the repeal, which would freeze assessment rates where they are now, on their November ballots.