This week, Colorado’s General Assembly is setting the state’s budget for next year. It is more than just a set of numbers; it’s a moral statement reflecting our values.
The current recession has torpedoed revenues, leaving Colorado with a $1.4 billion shortfall. In an effort to craft a fiscally responsible, balanced budget, we have been forced to make hundreds of millions of dollars in deep and painful budget cuts.
For example, we’ve cut the senior homestead tax exemption, cut funding for preschool through 12th-grade education and delayed Medicaid payments. We’ve closed a prison and postponed the opening of another, frozen employee salaries, and abolished performance pay incentives.
We’ve cut or frozen the budgets of state agencies and departments. We’ve put systems of transparency and accountability in place to ensure that programs operate as efficiently as possible. And we’ve drained our reserves. But, after all of this, we are still $300 million short.
The fact that we have budget issues isn’t a surprise. With the downturn in the economy, we knew we would have shortfalls, so we asked our staff to review each division of government to see if there were any “stones left unturned.” We found one: Pinnacol Assurance.
Pinnacol is a state entity that sells workers’ compensation insurance and currently holds nearly $700 million over and above the reserves it has set aside to pay both current and future claims.
No government agency wants to reduce its assets, spending, or authority. Pinnacol’s managers are no different, and they oppose this transfer. However, as state legislators, we have a responsibility to look beyond Pinnacol’s narrow interests and consider the general good of the entire state.
Unfortunately, without the transfer of funds from Pinnacol, the legislature will be forced to cut $300 million more from one of the few areas it still can: the Department of Higher Education. This would mean shuttering community colleges and slashing support for our public universities. Our Joint Budget Committee is exploring other options, but alternatives are slim.
It has been suggested, for example, that the state implement furloughs to make up the budget deficit. A state employee furlough would save only about $1.3 million per day in general funds. That means the “furlough” would need to last 230 days next year to make up the estimated remaining shortfall of $300 million.
The problem is that the shortfall is so large that a number of state departments could be eliminated entirely, and we still wouldn’t save enough money to balance the budget.
As reported in The Denver Post last week, Pinnacol’s $700 million surplus is “about six times more than regulators require.” As a result, transferring Pinnacol’s surplus to the general fund will have zero effect on Colorado’s stable workers’ compensation market, on employers’ premiums, or on Pinnacol’s ability to meet its future obligations to injured workers.
While Pinnacol does have some measure of autonomy, a review of state law reveals that Pinnacol is defined as a “political subdivision of the state” and is clearly under state government control. It was created by an act of the legislature, and its structure in state law has been amended many times over the years.
Pinnacol pays no state taxes, and it enjoys the privilege of government immunity. Unlike any private corporation, Pinnacol’s rates are set by the state’s Division of Insurance. Its board of directors is appointed by the governor and confirmed by the Senate.
With the transfer of a portion of its unused surplus, Pinnacol will still be able to serve Colorado as the workers’ compensation insurer of last resort, and Colorado can meet its obligations to its young adults.
In the context of our budget, this is a moral discussion. We must do all we can to preserve higher education funding and position Colorado for a fast and strong recovery from our current economic crisis.