Complicated education issue draws diverse views

A proposed constitutional amendment on the November ballot has a number of groups buzzing. Educators and parents seem to be in favor of the initiative while businesses are concerned about the tax ramifications.

According to its creators, Amendment 73 would stabilize property tax rates for school districts and provide funding for pre-Kindergarten and full-day Kindergarten across the state. It also would expand the definition of students at risk and increase funding for programs that serve children with special needs, gifted and talented students and English language learners.

Businesses, which say they support education, are not so sure a constitutional amendment is the way to increase funding for schools in the state. The No on 73 campaign urges voters to vote against the initiative because they believe it is a “$1.6 billion per year blank check for bureaucrats,” according to the opposition website.

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David May, president and CEO of the Fort Collins Area Chamber of Commerce, said that the chamber has always supported education and schools in general, but it opposes Amendment 73.

“It is a constitutional amendment first and foremost. That means it will permanently be building inflexibility into the state constitution. If we pass this, we are effectively saying education is the biggest state responsibility before anything else forever and ever,” he said.

The chamber also believes it unfairly impacts small business people whose business income is taxed at the personal rate, like limited liability corporations and S-Corporations.

“They are proposing a progressive income tax rate that would top out at 8.25 percent, so in effect, these companies that are doing well or have high income could see their income tax rate jump from 4.63 percent to 8.25 percent. That means that these small companies are paying a tax rate that is 40 percent higher than a major multibillion dollar corporation,” he said. “It inappropriately and inordinately puts the burden on small business people with this.”

Amendment 73 would impose a graduated income tax on people earning more than $150,000 in taxable income.

“That was a better way to raise money than through sales tax or other fees that would have a disproportionate effect on low and moderate income people. They pay a higher percentage of their income in taxes than do high income earners,” said Martha Olson, a co-proponent of Amendment 73.

The Fort Collins Area Chamber of Commerce said it is concerned that the $150,000 income level set out in Amendment 73 is not indexed to inflation.

“What that means is as the years go on, more and more people will be pulled into a higher tax rate,” said May. “It makes Colorado less competitive and attractive to innovators and entrepreneurs, the kinds of people who have been attracted to Colorado over a long period of time.”

Any funds collected through the income tax would have to be used for educational purposes. The amendment also would raise the C-Corporation tax rate from 4.63 percent to 6 percent.

Olson said she anticipates resistance to the amendment from corporations, but even if the amendment passes, Colorado corporations would still be paying less in income tax than they were before the federal income tax cut of last year.

Olson became interested in education financing after she moved to Colorado and realized that the state didn’t fund full-day kindergarten.

She also was shocked to learn that Colorado spends $2,800 less per student than the national average and it trails Mississippi and Alabama when it comes to school funding “which is pretty outrageous when our state has one of the top economies in the country.”

Part of the problem is the Taxpayers Bill of Rights or TABOR, enacted in 1992, which severely limits tax revenue growth in Colorado. If Colorado takes in more revenue than it is allowed under TABOR, the state must refund that money to taxpayers. The only way the state can raise additional revenue is through a vote of the people.

Education funding took another hit after the Great Recession in 2008 when the state legislature enacted the so-called negative factor, which impacts the constitutional formula funding for school financing, said Gordon Jones, chief financial officer of Thompson School District based in Loveland.

The formula calculates what each school district should get from the state budget based on a variety of components, including size, cost of living and the number of students on free or reduced lunch. For each of these areas the per pupil revenue adjusts up or down.

“During the Great Recession, there was a budget shortfall at the state, and they had to make reductions. Pre-kindergarten through 12 education is the largest slice of the state budget pie so that was where the reduction took place, the negative factor or the budget stabilization factor,” said Jones. “One of the key initiatives of Amendment 73, as I understand it, is to shore up the underfunding that has taken place due to the budget stabilization factor.”

He said that the Amendment would also increase the base per pupil funding to get closer to the national average.

Olson said that the negative factor reduced school funding by more than $7 billion, which led to larger class sizes and huge teacher shortages in some districts. Many school districts moved to four-day school schedules because of a lack of funding.

Jones said that many people are confused by school financing. They see that Northern Colorado and the Boulder Valley are growing exponentially and assume that means the additional revenue is going to the school districts, but there is no extra money. Districts get only a set amount of money each year, funded by local property taxes; a small portion of each licensing fee, like a car or boat license; and the state’s general fund. If a local area takes in more property taxes than it expected, the state portion of the district’s budget decreases. “The bucket never overflows,” said Jones.

Thompson School District, like many districts across the state, is asking voters for both a mill-levy override and a bond issue during the November election.

Opponents of Amendment 73, including the Fort Collins Area Chamber of Commerce, believe the initiative will take money away from other taxing entities like fire districts, libraries, cities and counties. Olson said that isn’t true.

“Currently, under [the Gallagher Amendment], the residential assessment rates keep getting lower as property values go up and that causes a big problem for school financing because in the past a lot of the school financial needs were met through the local share, school district property taxes,” she said.

The Gallagher Amendment, which passed in 1982, set forth a formula for how property taxes should be collected and how they would be assessed for both residential and non-residential property. It basically said that 55 percent of property taxes collected should come from non-residential property and 45 percent from residential property.

“As residential growth outpaced commercial growth in Colorado, to maintain that 55/45 split, it required a lowering of the residential assessment rate,” Jones said. It started at about 24 percent and is currently 7.2 percent, he said. “Amendment 73 addresses that a bit to stabilize that. First it would lower the non-residential rate from 29 percent to 24 percent and lock the residential rate at a 7 percent assessment rate instead of letting it decrease to maintain that 55/45 split.”