TAXATION and FINANCE Thursday February 15, 2018

CCI Office 12:30 p.m.

(This meeting is recorded) Teleconference: 1.916.235.1420 Participant Code: 465624#

AGENDA

WELCOME Commissioner Mary Hodge, Chair Commissioner Richard Elsner, Vice Chair Gini Pingenot, CCI Bill Clayton, CCI INTRODUCTIONS COLORADO MOUNTAIN COLLEGE'S GALLAGHER BALLOT QUESTION Dee Wisor, Butler Snow LLP

WEST METRO FIRE REPRESENTING THE COLORADO STATE FIRE CHIEFS

Don Lombardi

COLORADO PRESERVATION

Jennifer Orrigo Charles, Executive Director

Rebecca Goodwin LEGISLATION

BPP

Bill # HB18-1036

Title Reduce Business Personal Property Taxes

H-Spon T. Leonard

S-Spon T. Neville

Summary There is currently an exemption from property tax for business personal property that would otherwise be listed on a single personal property schedule that is equal to $7,400 for the current property tax year cycle. The bill raises the exemption to $50,000 commencing in tax year 2018, and continues to adjust it for inflation for subsequent property tax cycles, so that businesses with personal property under $50,000, or the

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inflation adjusted amount, would not have to file the business personal property tax forms nor pay the corresponding tax. The bill also raises the value of business personal property that qualifies for an exemption for consumable property from $350, which is the value set by the property tax administrator, to $500.

Position Oppose PI’d

SEVERANCE TAX

Bill # HB18-1201

Title Severance Tax Voter-approved Revenue Change

H-Spon D. Thurlow

S-Spon D. Coram

Summary The bill would place a referred measure on the November 6, 2018 ballot, to seek voter approval for the state to retain and spend an amount equal to state severance tax revenue. The change only has effect in years when the state would otherwise be required to make a refund under section 20 of article X of the state constitution (TABOR) and is conditioned on the state not: • Repealing or reducing any of the existing severance tax exemptions or credits; or • Reducing the percentage of the severance tax revenue that is allocated to local governments. If the state does any of these actions, then the state's authority to retain and spend revenues based on the voters' approval of the referred ballot issue is rescinded at that time and going forward.

Position

SALES TAX & USE TAX

Bill # HB18-1022

Title DOR Department of Revenue Issue Sales Tax Request for Information

H-Spon T. Kraft-Tharp, L. Sias

S-Spon C. Jahn, C. Neville

Summary Sales and Use Tax Simplification Task Force. The bill requires the department of revenue to issue a request for information for an electronic sales and use tax simplification system that the state or any local government that levies a sales or use tax, including a home rule municipality and county, could choose to use that would provide administrative simplification to the state and local sales and use tax system

Position Support

Bill # HB18-1084

Title County Lodging Tax Revenue Allowable Uses

H-Spon M. Hamner, D. Thurlow

S-Spon D. Coram

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Summary Counties are currently authorized, with prior voter approval, to levy a county lodging tax for the purpose of advertising and marketing local tourism. The bill eliminates the requirement that the lodging tax be used for advertising and marketing local tourism. If a county already has a lodging tax that is limited to advertising and marketing local tourism, then the county would need prior voter approval to begin using the lodging tax revenues for any other purpose. The requirement that election costs be reimbursed from a county lodging tax tourism fund, which will no longer be the sole depository of the county tourism tax revenue, is discontinued.

Position Support – CCI Bill

PROPERTY TAX and ASSESSMENT

Bill # SB18-070

Title Church Property Tax Exemption

H-Spon S. Humphrey, T. Leonard

S-Spon T. Neville

Summary Under the state constitution, property that is used solely and exclusively for religious worship is exempt from property tax, unless otherwise provided by general law. By statute, the property must be owned and used solely and exclusively for religious purposes to qualify for the exemption. The bill eliminates the ownership requirement, which is not expressly included in the state constitution, so that a property leased to a church or other organization that uses it solely and exclusively for religious purposes is exempt from property tax.

Position Oppose

MISC

Bill # HB18-1190

Title Modify Job Creation Main Street Revitalization Act

H-Spon D. Esgar, H. McKean

S-Spon L. Garcia, J. Tate

Summary The bill makes the following modifications to the existing Colorado Job Creation and Main Street Revitalization Act: • Extends the last income tax year for which the tax credit is available from 2019 to 2029; • Under the existing tax credit, the amount of the tax credit, measured by a percentage of the actual qualified rehabilitation expenditures, is increased when the historic structure, whether commercial or residential, is located in a disaster area. The bill also increases the amount of the tax credit when the structure is located in a rural community. • For income tax years commencing on or after January 1, 2020 but prior to January 1, 2030, maintains the aggregate limit on the amount of a tax credit certificate issued for any one qualified commercial structure at $1 million as for the 2016 through 2019 tax years; • For qualified commercial structures, regardless of the amount of estimated qualified rehabilitation expenditures, the bill maintains the aggregate amount of all tax credits that may be reserved for each of the 2020 through 2029 calendar years in the same amount as for the 2017 through 2019 tax years, at $10 million, but specifies that the aggregate reservation amount must be equally split between large and small projects;

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Position

Bill # SB18-066

Title Extend Operation of State Lottery Division

H-Spon J. Arndt, C. Wist

S-Spon J. Sonnenberg, L. Garcia

Summary The bill repeals the scheduled termination on July 1, 2024, of the state lottery division (division) in the department of revenue, the effect of which is to permanently establish the division.

Position Support

Bill # SB18-139

Title Statewide Regulation of Products With Nicotine

H-Spon J. Singer

S-Spon J. Cooke

Summary The bill establishes a licensure requirement for retailers who sell cigarettes, tobacco products, or nicotine products (products). Beginning January 1, 2019, it is illegal for any person doing business in the state to sell or offer for sale products without first obtaining a license as a retailer from the division of liquor enforcement in the department of revenue (division). Section 6 prohibits an entity from receiving a grant for tobacco education, prevention, and cessation if any money would be used to: • Advocate for a local government to impose a license requirement, fee, or tax on a retailer or impose a tax on tobacco products in any manner; or • Support a statewide ballot measure that would impose a local license requirement, fee, or tax on a retailer or impose any type of tax on cigarettes or tobacco products. Under current law, an amount equal to 27% of gross cigarette sales are distributed to cities and counties in the state, but to be eligible for this distribution a city and county must not impose a fee, license, or tax on any person as a condition for engaging in the business of selling cigarettes or impose a tax on cigarettes. Section 8 expands the condition for receiving state money to include the same prohibitions for other tobacco products and nicotine products and it establishes another condition that a local government must not ban any person from selling cigarettes, other tobacco products, or nicotine products for any period of time.

Position

Bill # SB18-007

Title Affordable Housing Tax Credit

H-Spon J. Becker, C. Duran

S-Spon L. Guzman, J. Tate

Summary The bill changes the name of the existing low-income housing tax credit to the affordable housing tax credit. It also extends the period during which the Colorado housing and finance authority may allocate affordable housing tax credits from December 31, 2019, to December 31, 2024.

Position Support

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OTHER BUSINESS ADJOURN ****News to Note**** CCI/CDOR Quarterly Sales Tax Meeting Mark your calendar! The next CCI/CDOR quarterly sales tax meeting is Friday, March 23rd from 2:30-4:00pm at CCI. For more information or if you wish to be added to the county/state sales tax email distribution list, please contact Gini Pingenot (gpingenot@ccionline.org) Supreme Court Will Hear Case on Internet Sales Tax Collection In November 2017, a Government Accountability Office report estimated that states and local governments could “gain from about $8 billion to about $13 billion in 2017 if states were given authority to require sales tax collection from all remote sellers.” Two months later, in January, the Supreme Court agreed to decide South Dakota v. Wayfair. In this case South Dakota is asking the Supreme Court to rule that states and local governments may require retailers with no in-state physical presence to collect sales tax. The decision is huge news for states and local governments. NACo County News describes how we got here and why it is likely South Dakota will win.

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HB 1190 COLORADO JOB CREATION & MAIN STREET REVITALIZATION ACT 2018 Reauthorization Effort

Representative Esgar and Representative McKean

Senator Tate and Senator Garcia

BACKGROUND

The Commercial Historic Preservation Tax Credit was established in 2014 following the passage of HB14-1311. The

credit was initially set at $10 million annually, with $5 million for small projects and $5 million for larger projects. The credit aimed at spurring investment in communities throughout the state, and the specific carve out for small projects

helps ensure that rural communities are well represented. It is jointly administered by History Colorado and the Office of

Economic Development and International Trade.

SUCCESSES SINCE INCEPTION

Although the tax credit has only been in place for two and a half years, the impacts from the program are visible

throughout rural and urban Colorado. Since the program went into effect, tax credit recipients have used the credit to kick

start 48 commercial projects across the state. Tax credit projects span the state from Trinidad to Telluride, Greeley to

Walsenburg, and across the Front Range. Cities utilizing the program range in population from Victor (403) to Denver

(682,000).

Economic impact from the $17.4 million in credits reserved by applicants to date includes:

$131 million in rehabilitation costs

759 new full-time jobs with $34 million payroll added

$10.3 million in total sales tax (in addition to the sales taxes generated by the economic activity of these

revitalized buildings)

$178 million increase in property values post rehab

$17 million income generated for property owners

$33.3 million spent by owners on additional capital improvements after initial rehab

WHY REAUTHORIZE?

The program is already on track to leverage the full amount approved by the legislature’s initial establishment

of the program. As the program has gained traction, interest from rural communities has continued to blossom.

We know of potential projects under consideration in the communities of La Junta, Brush, Leadville, and Yuma.

The program has proven to be valuable in spurring economic development in communities big and small.

Continuation and expansion of this program will help additional rural and blighted communities across

Colorado utilize this credit as a tool for rehabilitation to preserve the past and drive future economic potential.

The 2018 reauthorization and expansion effort includes:

Continue the credit at $10 million annually, with $5 million for small projects and $5 million for larger

projects.

Additional incentives (35% credit) for projects in rural areas.

Adjustments to current qualifiers for the program to remove obstacles for small projects in rural areas

such as adjusting the lease requirement for rural projects and replacing a complicated formula to

determine ‘qualified rehabilitation expenditures’ with a flat amount.

Separating the residential and commercial tax credit in statute to provide clarity to taxpayers about the

specific rules for each program.

Technical program changes to increase efficiency and reduce the cost of program administration.

SUPPORTING ORGANIZATIONS

Colorado Preservation Inc., City of Cripple Creek, American Institute of Architects Colorado Chapter

Scott Chase, schase@politicalworks.net, (303) 324-1121 | Christine Staberg, cstaberg@capstonegroupllc.com, (303) 868-8979 |

Jeannie Vanderburg, jvanderburg@capstonegroupllc.com, (303) 249-8150

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Colorado Mountain College Ballot Initiative on Mitigating the Impacts of the Gallagher Amendment

Frequently Asked Questions Last updated: January 24, 2018 (post-election reflections)

What is the Gallagher amendment?

• A 35-year-old constitutional amendment that attempts to maintain a 55%/45% balance between nonresidential (ex.: commercial) and residential property taxes.

• Gallagher accomplishes required rebalancing by lowering statewide residential assessment rates while nonresidential assessment rates remain fixed (at 29%).

• The assessment rate is applied by the State to arrive at assessed valuation, or property tax base.

• Local mill levy rates are applied by local governments, such as Colorado Mountain College, to the property tax base to generate tax revenues.

• Residential assessment rates have dropped by nearly two-thirds since Gallagher was introduced (Source: Colorado Department of Local Affairs):

Year Rate 1983 21% (first year of Gallagher amend.) 1987 18% 1995 10.36% 2003 7.96% 2017 7.2% 2019 6.2% (projected by Legislative Council)

Who else is affected by the Gallagher amendment?

• All taxing districts that rely on property taxes — such as sanitation, water, fire and other districts — are affected by the Gallagher adjustment.

What was the ballot initiative put forth by the Colorado Mountain College Board of Trustees in November 2017? (Note: The measure received 47% overall approval by voters in CMC’s six-county taxing district and more than 50% in both Pitkin and Routt counties, with only two months and limited resources to educate voters.) The ballot issue text read as follows: SHALL COLORADO MOUNTAIN COLLEGE DISTRICT’S TAXES BE INCREASED BY AN AMOUNT NOT TO EXCEED $50,000 IN DISTRICT-WIDE TAXES LEVIED IN 2017 AND COLLECTED IN 2018, AND BY SUCH ADDITIONAL AMOUNTS AS MAY BE COLLECTED ANNUALLY THEREAFTER, BY INCREASING THE DISTRICT'S MILL LEVY TO RECOVER TAX REVENUE REDUCTIONS CAUSED BY DECREASES IN THE STATE-WIDE RESIDENTIAL ASSESSMENT RATIO (ARTICLE X, SECTION 3 OF THE COLORADO CONSTITUTION, COMMONLY KNOWN AS THE "GALLAGHER AMENDMENT") OCCURRING AFTER JANUARY 1, 2017, SO LONG AS THE DISTRICT'S BOARD OF TRUSTEES DETERMINES FOR ANY FISCAL YEAR THAT RECOVERY OF TAX REVENUE REDUCTIONS IS NECESSARY FOR THE MAINTENANCE OF COLLEGE SERVICES, AND SHALL THE REVENUES GENERATED BY ANY SUCH MILL LEVY INCREASE BE COLLECTED, RETAINED AND SPENT NOTWITHSTANDING ANY LIMITS PROVIDED BY LAW? Would the college have raised $50,000 in taxes in 2017 had the ballot issue passed?

• The Colorado constitution requires that the ballot issue include a tax revenue amount for the current year. The CMC Board of Trustees did not expect to raise the mill levy in 2017 for such a small revenue amount to be assessed across the entire CMC district.

• In 2017, the Gallagher amendment resulted in $2.77 million in revenues foregone. The college was able to absorb this reduction by reducing internal costs.

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Did the college expect to raise taxes in future years (had 4B passed)? • The ballot issue would have authorized mill levy increases by the college in the future

only if it lost additional revenue due to more decreases in the property tax base because of the Gallagher amendment.

• The ballot language neither created nor obligated a tax increase. It simply authorized the CMC Board of Trustees to respond to future conditions caused by a statewide adjustment in property assessment rates.

• As was the case in 2017, in any future circumstance, the CMC Board of Trustees would have considered whether the college had ample capacity to continue to deliver services at existing revenue levels accounting for all other revenue sources and additional cost reductions, before deciding to adjust its mill levy.

• If the trustees were to have increased CMC’s mill levy, the amount of the increase could not have exceeded the amount needed to recover Gallagher tax reductions for that year. In other words, the proposed authorization had a fixed revenue “ceiling” of the prior year’s assessment rates.

What would have been the impact of a college mill levy increase on the average residential property owner had 4B passed?

• For residential property owners, taxes paid to the college would have been no greater than they would have been without the effects of Gallagher.

Value of Residential Property:

Assessment Rates:

$100,000 7.96% 7.20% 6.20%

Mill

Lev

y N

eede

d to

R

each

FY1

7 R

even

ues 3.997 $32 $29 $25

4.246 $34 $31 $26

4.624 $37 $33 $29

Had 4B passed, what would have been the impact on the average commercial or other nonresidential property owner?

• Because the property tax assessment rate for commercial or other nonresidential property owners remains fixed, a college mill levy rate increase will increase taxes paid to the college by commercial or other nonresidential property owners.

• These additional taxes would have been accounted for by the college’s board of trustees before it considered increasing the mill levy.

Value of Land, Commercial Property, etc.:

Assessment Rates:

$100,000 29% 29% 29%

Mill

Lev

y N

eede

d to

R

each

FY1

7 R

even

ues

3.997 $116 $116 $116

4.246 $123 $123 $123

4.624 $134 $134 $134

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Had the college already experienced the effect of the Gallagher amendment? • A 2017, the college absorbed a 9.5 percent reduction in the residential assessment rate

through budget cuts for the 2017-18 year, but that reduction was permanent, and similar cuts are expected in the future.

If this initiative had passed, what would have been the impact on the college? • The college would have been able to continue meeting the educational and workforce

training needs of the communities and students it has served for the past 50 years, without having to dramatically increase tuition or significantly reduce successful programs, services or campus sites.

Because the initiative failed, what will be the impact on the college? • The Colorado Legislative Council projects that a Gallagher adjustment will occur again in

2019 and possibly every two years thereafter while the Front Range’s population continues to grow.

• CMC was created by way of a local mill levy, but growth in other metropolitan areas is lowering the district’s capacity to maintain the services expected in the communities that built the college.

• If the assessment rate is lowered to 6.2 percent in 2019, as the Colorado Legislative Council projects, and rural property values stagnate in the future, the result would be an additional $3.66 million reduction in residential property tax revenues. Combined with the 2017 reduction, this would equate to nearly 10 percent of the college’s operating budget.

o This is the approximate budget necessary to operate the college’s Vail Valley campus in Edwards or the Summit campuses (Breckenridge and Dillon combined).

o This is also roughly equal to half of the college’s net annual tuition revenue.

Why is CMC looking at this so seriously? • Because the legislature can only recalibrate residential assessment levels downward and

cannot change Colorado’s constitution, local taxing entities are largely on their own in seeking solutions.

• CMC has only three ways to counteract the effect of the Gallagher amendment: cut services, increase tuition (dramatically) or issue a ballot measure.

Has any other local tax district attempted a similar measure?

• Though some small special tax districts have “Gallagherized,” most are small with a limited numbers of electors or they are districts incorporated at the outset to shelter them from Gallagher.

• To our knowledge, CMC’s measure 4B was the most significant attempt to redress the adverse impacts of Gallagher.

• Also, given that few local taxing authorities have the capacity to establish legally defensible, TABOR-compliant initiatives, it was our hope that this effort might assist other communities in determining options available to them.

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CMC De-Bruced over a decade ago. How does that figure into this? • CMC, like nearly all other school districts in the state and the majority of counties,

municipalities and special districts, De-Bruced. • De-Brucing means that the college is exempt from tax collection and spending limits

imposed by TABOR. • De-Brucing has no impact on property assessments, however. Therefore, it is helpful for

unencumbering revenues received by the college, but is insufficient to address revenue volatility caused by the Gallagher amendment.

For additional background and information: • Explanatory video from the Colorado Legislative Council:

http://leg.colorado.gov/publications/residential-assessment-rate-and-gallagher-amendment • Q&A from the Colorado Department of Education’s website:

https://www.cde.state.co.us/sites/default/files/documents/cdelib/librarydevelopment/publiclibraries/librarydistrictinformation/download/pdf/gallagheramendmentquestions.pdf

Media coverage about CMC’s 4B measure including editorial endorsements and statewide coverage: Links to select editorial endorsements:

• Vail Daily: Vote Yes on Colorado Mountain College’s Property Tax Issue • Glenwood Springs Post Independent: Protect Our Economy; Back CMC’s Tax Fix

Links to support from elected officials:

• Rep. Millie Hamner: https://www.summitdaily.com/opinion/summit-daily-lettersstate-rep-millie-hamner-supports-cmc-ballot-item/

• Rep. Bob Rankin: https://www.postindependent.com/news/local/under-the-domecolumn-the-special-session-that-wasnt/

• Rep. Dan Thurlow: https://www.postindependent.com/news/local/guest-opiniongallagher-puts-undue-burden-on-local-governments/

• Honorable Russ George, Former Speaker of the House: • https://www.postindependent.com/opinion/letter-support-for-cmc/

Links to guest columns from CMC President Carrie Besnette Hauser:

• Gallagher’s unintended effect on rural Colorado • David versus Gallagher

Links to statewide media coverage of rural Colorado funding challenges:

• “Rural Colorado government services could retreat further because of forecasts pointing to more property tax cuts in 2019” – Denver Post, Dec. 21, 2017

• “As the Front Range grows, rural Colorado gets less: How rising home values in Denver are crippling small fire departments” – Denver Post, Nov. 26, 2017

• “Colorado’s hot property values are triggering tax cuts — and one local college is scrambling to offset the loss” – Denver Post, Sept. 11, 2017

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Testimony notes for Colorado’s Joint Budget Committee, January 3, 2018 Dr. Carrie Besnette Hauser, President & CEO, Colorado Mountain College CMC highlights from 2016-17

• Overall, Colorado Mountain College served 16,819 unduplicated students (credit and noncredit).

• Seventeen percent of the students at CMC are Hispanic/Latino; several CMC sites enjoy enrollments of 25% or more Hispanic/Latino (Edwards, Rifle, Glenwood Springs, Carbondale), which would qualify these campuses as “Hispanic Serving Institutions.”

o Hispanic/Latino enrollment has grown by 38% since 2011-12. o Degree completion among Hispanic/Latino students exceeds the overall

collegewide rate.

• Concurrent enrollment registrations reached 1,418, which is a 47% increase from 2011-12. This number is comparable to more than 50% of the juniors and seniors in all high schools in CMC’s 12,000-square-mile service area.

• Across all 11 campuses, 1,221 students graduated in 2016-17, an increase of 21% since 2011-12 (1,009).

• Tuition rates for bachelor’s-level programs were frozen in 2017-18, the third year CMC has not raised bachelor’s-level tuition.

• Tuition rates for associate-level programs increased by various increments in 2017-18, but remain among the lowest in the entire state of Colorado.

• Tuition rates in 2017-18 are as follows:

Associate Level Baccalaureate Level o In-district: $65 per credit hour $99/cr o In-state: $147/cr $212/cr o Service area: $143/cr $205/cr o Non-resident: $440/cr $440/cr

Gallagher amendment The biggest challenge facing Colorado Mountain College and all other locally funded services in rural communities in 2017 was the resetting of local residential assessment rates due to the Gallagher amendment. In 2017, the General Assembly lowered the property assessment rate to 7.2% (from 7.96%), nearly a 10% reduction. At CMC, this change resulted in $2.77 million in revenues foregone and is structurally permanent. (Note: When the Gallagher amendment was added to the Colorado constitution, the residential assessment rate was 21%; it has since declined more than 75% and cannot be corrected upward regardless of economic conditions.)

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In fall 2017, the Colorado Mountain College Board of Trustees referred a question to the ballot in its multi-county taxing district (Summit, Eagle, Garfield, Lake, Pitkin and Routt/Steamboat Springs). The measure was titled “4B.” With limited time and resources to educate voters, the measure failed 47% to 53%, but passed in two counties. Had the measure passed, CMC would have been the largest tax district in the state to have ever successfully “Gallagherized.” Every major newspaper in CMC’s service area endorsed measure 4B. Moreover, the measure received public support from numerous current and previous elected officials, including Rep. Millie Hamner (D, Dillon), Rep. Bob Rankin (R, Carbondale), Rep. Diane Mitsch Bush (D, Steamboat Springs), Rep. Dan Thurlow (R, Grand Junction) and Rep. Russ George (R, Rifle).

Links to select editorial endorsements:

• Vail Daily: Vote Yes on Colorado Mountain College’s Property Tax Issue • Glenwood Springs Post Independent: Protect Our Economy; Back CMC’s Tax Fix

Links to support from elected officials:

• Rep. Millie Hamner: https://www.summitdaily.com/opinion/summit-daily-lettersstate-rep-millie-hamner-supports-cmc-ballot-item/

• Rep. Bob Rankin: https://www.postindependent.com/news/local/under-the-domecolumn-the-special-session-that-wasnt/

• Rep. Dan Thurlow: https://www.postindependent.com/news/local/guest-opiniongallagher-puts-undue-burden-on-local-governments/

• Honorable Russ George, Former Speaker of the House: • https://www.postindependent.com/opinion/letter-support-for-cmc/

Links to guest columns from CMC President Carrie Besnette Hauser:

• Gallagher’s unintended effect on rural Colorado • David versus Gallagher

Links to statewide media coverage of rural Colorado funding challenges:

• “Rural Colorado government services could retreat further because of forecasts pointing to more property tax cuts in 2019” – Denver Post, Dec. 21, 2017

• “As the Front Range grows, rural Colorado gets less: How rising home values in Denver are crippling small fire departments” – Denver Post, Nov. 26, 2017

• “Colorado’s hot property values are triggering tax cuts — and one local college is scrambling to offset the loss” – Denver Post, Sept. 11, 2017

Importantly, the impact of the Gallagher amendment remains very real to rural communities in Colorado. Small mountain towns, in particular, cannot keep pace with the volume of new population, job and housing growth experienced on the Front Range.

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