We are going to have some tough choices to make next session, but we will make those decisions in order to invest in our kids and make sure they have a better future than we had.

Senate President Brandon Shaffer:

Aug. 18, 2009– We have been faced with real challenges in Colorado and there are no easy answers, but it’s important to recognize that the state’s budget is merely a reflection of what is happening in households all over Colorado.

I would like to thank the Governor his leadership and for engaging the legislature in this process in an inclusive manner.  While he had to make some difficult choices, we appreciate the thoughtful, responsible approach the Governor took in making these strategic cuts.

Through this process we will do the best we can to protect the most vulnerable and keep Colorado’s safety net in place—like as community based mental health and developmental disability services, programs for at-risk youth, and the Children’s Basic Health Plan.  We appreciate the protection of these important programs.   These cuts announced today show a compassionate fiscal restraint.

This is an unprecedented period in Colorado’s history, but I am confident that we will get through this, thanks to the strength and perseverance of everyone in this state.  Last week, I traveled across Northwest Colorado and spoke with people about what was important to them.   It is our responsibility as leaders of this great state to continue to make Colorado the best place in America to raise a child and to help lead Colorado to recovery. 

We will continue to do this even in the face of our current budget challenges-we will continue to invest in our education system, work toward affordable health care, and make sure our economy is stable and predictable. 

I have a vision for Colorado.  It is the vision of Colorado my grandparents had for me.  It is the Colorado I want for my children.

It is a state with healthy, thriving families, where children get every  advantage and have the education to contribute to the potential of our great state.

It is a Colorado with a strong, innovation-based business community, a vibrant culture and an unconstrained reach for greatness.

However, currently Colorado is constrained. 

It is constrained by a Gordian knot of well-intentioned but conflicting fiscal policies.  Policies that threaten its well-being; policies that choke our potential and indeed threaten the ability to protect the quality of life of our citizens.

We must abandon the notion out state budgeting process is resilient or sustainable.  It is brittle, and it is breaking.  It exposes our children, our elderly and our working families to the turbulent waters of a global economy.  It compromises the quality of our workforce, and undermines a healthy climate for business.

There are no simple solutions.  We cannot cut spending enough to solve the crisis.  Eliminating TABOR is not a fix.  Nor is the problem just Amendment 23.  It is not too little revenue or taxing too much.   While it is none of these exclusively, it is all of them collectively.

Our charge to you is to untie this is knot and release the full potential of this great state.  We look to this committee to forge an enduring fiscal blueprint, one suited to the high demands of a new century.  One that realizes our hope and vision for Colorado, leaving our children a rich legacy borne from wise decisions.

The freeze on travel resulted in the return of $38,600 to the state.  Savings on Interim Committees, lower operating costs and no special session provided the balance of the funds returned.

The cuts start here.  We must be first in line to demonstrate fiscal restraint.  I intends to make further reductions in legislative operating expense in next year’s budget.  I will ask the Legislative Management Team to review next year’s budget to seek a 10% reduction in the cost of running the legislature.

I support the Governor’s call to reduce the cost of government by ten percent.   As former naval officer I intend to bring military rigor to the budget process, and will work with Governor’s staff to cut every unnecessary expense from state government.

COLORADO FACES $249M BUDGET SHORTFALL FOR REMAINING FISCAL YEAR

DENVER—    Monday, Colorado’s Legislative Council released its economic forecast.  For budget year 2008-09, which ends June 30th, 2009, there is an estimated $249 million shortfall.  Thanks to the hard work of the Joint Budget Committee Colorado has a balanced budget and, despite these numbers, the General Assembly will not have to reconvene for a special session.  For fiscal year 2009-10 Colorado faces a $384 million shortfall according to Legislative Council.  Nearly all the decrease in the General Fund Revenue forecast was due to a decrease in income tax and sales tax revenue as a result of the economic downturn.

The numbers are bleak but these are not the numbers I agonize over. It’s the nearly 47,000 Coloradans who are out of work, the 17,000 children who lost access to health clinics, the middle-class college kid who can no longer pay the ever-increasing tuition bill – these are the numbers I’m focused on. While tough times don’t last, tough people do.  We’ll lead the state through this recession and move forward to a brighter future.

These are the remarks I made on the floor today:

“I move Senate Bill 09-281 on Third Reading and Final Passsage and request an ‘Aye’ vote.

Members, this is one of two Pinnacol Assurance bills moving through the system.

This bill does essentially four things:  (1) it restructures the governance of Pinnacol so its management rests with its board of directors, not its CEO; (2) it requires Pinnacol to issue a dividend equal to 5% of its surplus to policyholders with 50 or fewer employees; (3) it calls for a performance audit of Pinnacol; and (4) it convenes an interim committee to study Pinnacol’s operations.

It is important to note that Pinnacol is a Division of the State of Colorado. It pays no taxes, and its Board of Directors is appointed by the Governor and confirmed by the Senate.  If Pinnacol did pay taxes, based on conservative estimates, the state would receive approximately $40 million per year.

Pinnacol’s history dates back to 1915 when the first workers compensation laws were passed in Colorado.  At that time it was simply a state fund controlled by the “Industrial Commission” and was intended to offer workers compensation coverage to high risk industries.

It wasn’t until 2002 that the legislature changed the name of the state fund to Pinnacol Assurance and authorized the transfer of assets out of the state treasury into the control of Pinnacol’s board.  On the basis of the legislation passed in 2002, Pinnacol and, now the Attorney General, claim that Pinnacol is a private company and their assets do not belong to the state.

However, Colorado’s Constitution contains several prohibitions against special legislation designed to benefit private businesses.  Specifically:

Article V, Section 25:  ‘The general assembly shall not pass local or special laws … granting to any corporation, association or individual any special or exclusive privilege, immunity or franchise whatsoever;’ and

Article V, Section 34:  ‘No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state.’

The only way the transfers that occurred as a result of the 2002 legislation could be considered constitutional is if Pinnacol was then, and remains now, a division of the state.  Otherwise, those transfers were, and remain, unconstitutional.

Of course, the opinion issued by the Attorney General’s office didn’t address this argument.  Nor did it address the issue of Pinnacol’s lack of standing to initiate a lawsuit against the state.  One division of government cannot sue another.

Indeed, the Attorney General took it upon himself to intervene in a critical political discussion to inform us of his ‘opinion.’  However, he never actually sent the sponsors of the legislation a copy of his memo.

I learned of his memo from Tim Hoover, a reporter for the Denver Post, who contacted me late Friday afternoon to get my reactions to the AG’s opinion.  I told him I had not yet seen it, and asked if he might be willing to forward a copy to me.  He did, along with the string of emails by which Mr. Hoover received the memo.  It had been delivered earlier in the day by Mike Saccone, press staff for the Attorney General, with the notation ‘Enjoy.’

The Attorney General is playing high stakes games.  This is demonstrated by his legal analysis, which is long on politics, but short on the law.

Other than missing the two arguments already mentioned related to unconstitutional special legislation and lack of standing, the AG’s opinion concludes that policyholders have an express right to the surpluses of Pinnacol Assurance and the state does not have the ability to transfer Pinnacol’s massive surplus to higher education.

However, the opinion provides no analysis of the actual contract between Pinnacol Assurance and its policyholders.  I have distributed a copy of this contract to each of you.  There is nothing in it that creates an ownership interest between the policyholder and Pinnacol, nothing that guarantees a dividend, nothing that guarantees a return on investment.  Pinnacol operates as an insurance company, not an investment vehicle.

The bottom line remains the same.  We still have a huge hole in our budget and are in a position where we may need to cut $300 million from higher education.  That is simply unacceptable.

Pinnacol Assurance is a division of the state.  It pays no taxes.  It currently has a reserve account for known losses of over $600 million.  It has a second reserve account for potential losses that may be filed in the future.  In this account there is an additional $600 million – almost twice what private insurance companies carry.  On top of that, Pinnacol is sitting on a surplus of approximately $700 million. 

Based on these numbers, there is absolutely no justification for Pinnacol to increase premiums to policyholders or to claim that the actions of this legislation, or its companion, Senate Bill 09-273 will destabilize Pinnacol’s operations.

Pinnacol Assurance is a division of the state.  It pays no taxes and its massive surplus can be better spent on higher education in Colorado.”

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.

The cuts in the 2009-10 budget are deep and Senate Democrats are working to protect essential services. At the same time higher education is looking at almost $300 million in cuts, I introduced SB 281, which would spare these serious cuts by transferring a portion of a state entity’s $700 million surplus to the General Fund. SB 281 passed the Senate Appropriations Committee today and will be on second reading on the Senate floor Thursday.  

Cutting $300 million from higher education is entirely unacceptable to me. It would force layoffs at a time when we need to create as many jobs as possible; it would stunt economic growth at a time when we need it most; and it would nearly price out the middle class from attending our universities and colleges. When we must choose between allowing a state entity to sit on a $700 million surplus or closing colleges in Colorado, the choice is clear. We absolutely must preserve post-secondary education.

What SB 281 does:
–Sets up the transfer into the General Fund of almost $500 million in surplus from the state entity, Pinnacol Assurance, which provides workers’ compensation insurance to companies in Colorado.  (That surplus is 6 times over and above what the Division of Insurance says is needed to ensure the solvency of Pinnacol’s operations.)

–Provides new, rigorous oversight in two ways:
1. Provides the State Auditor with enhanced powers to review Pinnacol’s operations and creates an interim committee of the Legislature and charges it with a comprehensive review of the workers’ compensation market in Colorado, including Pinnacol’s executive salary and bonus packages, premium rates, and payments to workers injured on the job.
2. Requires Pinnacol Assurance to pay a dividend to small businesses equal to 5% of Pinnacol Assurance’s surplus.

What SB 281 does NOT do: 
–SB 281 doesn’t affect Colorado’s stable workers’ compensation market.
–SB 281 doesn’t affect Pinnacol’s ability to meet its current or future obligations to injured workers or the families of workers killed on the job.
–SB 281 doesn’t affect Employer’s premiums (In fact, premiums may go down if Pinnacol realizes that, since they have been accumulating a surplus, they can lower rates to a level commensurate with claims payments without losing money). 

The bottom line: Pinnacol is a state entity and the General Assembly can access its excess surplus.
–Pinnacol was created by an act of the legislature, to act as the state’s workers’ compensation insurance provider of last-resort. Pinnacol is a “political subdivision of the state” under 8-45-101 (1), C.R.S., and does not pay state or federal taxes.
–Pinnacol enjoys the privilege of governmental immunity.
–Unlike any private corporation, Pinnacol’s rates are set in state statute. 
–Its Board of Directors is appointed by the Governor and confirmed by the Senate. 

Joint Budget Committee members Senators Moe Keller (D-Wheat Ridge), Abel Tapia (D-Pueblo) and Al White (R-Hayden) are co-sponsors of the bill.