Colorado Concern is ably represented at the State Capitol by Erin Silver of Nexus Policy Group and Pete Kirchhof of Kirchhof Group, Inc. For 120 days they are directly engaged with our state's elected leaders on your behalf. Below is an in-depth recap of the 69th Session of the Colorado General Assembly from our team. This "2014 Final Legislative Report" covers the following major topics:
Economic Development & Taxation
P-20 Education
Property & Casualty Insurance
Health Care
Worker's Compensation
Telecommunications Reform
Marijuana
Construction Defects/Attainable Housing
2014 Elections
2014 FINAL LEGISLATIVE REPORT
The 2014 Legislative Session ended quietly sine die on May 7. The 120 days of this session were remarkably tranquil by comparison with the 2013 session. There were several reasons for the contrast: First, it would have been difficult to repeat the tidal wave of progressive proposals that the newly elected Democratic majorities in the House and Senate advanced in 2013; second, the recall of two Democratic Senators and the resignation of a third left control of the Senate on a knife edge; third, a widespread caution looking toward the 2014 election encouraged restraint. Nevertheless, 621 bills were introduced during the 2014 session.
The 2014 session was most contentious in two areas: public school finance and transportation regulation. The state enjoyed budget surpluses for the first time in six years and that, coupled with the defeat of the $1 billion tax increase for education by the voters in 2013 and the sharp reductions in K-12 appropriations during the last recession, left pent-up demand for more money for schools and a vigorous debate about how to allocate the new money.
The transportation debate was more difficult to explain. Uber X and Lyft are transportation network companies (TNCs) that employ mobile applications software to match drivers and riders. This new technology has taken the country by storm, but the regulatory environment doesn't exist to manage the industry and protect the public. Colorado became the test state for regulation by the TNCs, which led to a long and vigorous debate before compromise was reached in the waning days of the session.
ECONOMIC DEVELOPMENT AND TAXATION
HB 1014 was the centerpiece of the Governor's economic development agenda in 2014. The bill expands the Job Growth Incentive Tax Credit (JGITC), first passed in 2009. The JGITC is an income tax credit for creation of new jobs at a new or expanded facility qualified by the Economic Development Commission. Widely accepted as a success, the JGITC was expanded in HB 1014 by an easing of the wage limits on new jobs created, an extension of the number of years for which credit may be claimed, and a loosening of a standard for qualification.
The second economic development priority, HB 1011, was aimed at assisting in promoting the seven targeted advanced industries, including aerospace, energy, electronics, information technology, advanced manufacturing, infrastructure engineering and bioscience. The advanced industries are beneficiaries of a variety of grants for proof of concept, early-stage capital and infrastructure that were authorized in legislation last year. HB 1011 provides a continuing funding stream for the advanced industries program for three years.
Introduced in the last two weeks of the session, HB 1389 by Representatives Pabon and DelGrosso and Senator Scheffel was intended to lure data centers to Colorado by exempting purchases of equipment used in them from the state sales and use tax. The benefit to the state is the effect of large amounts of personal property tax from the high tech equipment used in data centers, which are lightly staffed and don't bring costs to the state. The bill failed in the Senate on the penultimate day of the 2014 session.
A continuing source of controversy in recent years has been tax increment financing (TIF), the use of future tax revenues from a development to service the debt on bonds sold to finance the development. TIFs are widely used by municipalities for retail development under urban renewal laws. Counties, schools and special districts have complained that municipalities have pledged their future property tax revenues under TIFs without adequately consulting with them or recognizing the impact of the development on their infrastructure and the loss of tax revenues. The state has complained about the required backfill through school finance of lost school district property taxes. The state doesn't believe it should be responsible for paying for municipal redevelopment. HB 1375 was carried by Representative DelGrosso and Senators Tochtrop and King to address those concerns. The Speaker and House Majority Leader supported the Minority Leader in his efforts. Municipalities and the business community generally opposed the bill. The bill requires county representation on the board of any urban renewal authority doing a TIF project and an equalization of city sales tax revenue with county property tax revenue. The city sales tax issue was the main reason for opposition. The question, with the bill passing both chambers, is will the Governor support it with the cities opposing and the counties supporting?
The business community has long argued that the personal property tax is a major impediment to capital investment by businesses in Colorado and thus a drag on the state's economy. Every year the General Assembly looks at ways to mitigate the effects of the personal property tax on Colorado business. This year HB 1279 by Representatives Young and Primavera and Senators Heath and Scheffel was proposed to allow the state to provide an income tax credit to taxpayers for personal property taxes paid to local governments. The income tax credit is available to taxpayers with $15,000 or less of personal property and is measured by the combined federal and state income tax rates paid by the taxpayer.
P-20 EDUCATION
The education debate was long, bitter and confusing. It began amid recriminations over the defeat of Amendment 66 at the ballot last November, a shocking rebuke to the K-12 community by voters that turned the K-12 community upside down. Republicans, longtime supporters of accountability and school reform, largely deserted those causes and embraced autonomy for school districts in 2014. It was difficult to identify a single reason for the change of focus: in part it reflected a growing fear of the Common Core initiative and federalizing of education; in part it was a rejection of Democratic allies who were too closely associated with the $1 billion tax increase that Republicans uniformly opposed by voters in November 2013. HB 1292, the Student Success Act, and HB 1298, the School Finance Act, were the major battlefield of the education debate. As introduced, with bipartisan sponsorship, the bills allocated money to a variety of targeted programs, including English language instruction, early childhood education, financial transparency, K-3 literacy and increased capital funding for charter schools. The majority of school districts and the teachers' unions fought for increased base funding without earmarks, and the battle waxed and waned through numerous committees and across both houses. Republicans allied themselves with their traditional foes, the unions on the topic of financial transparency, and remained stalwart supporters of charter schools, along with their Democratic colleagues.
Ultimately, HB 1292 and HB 1298 passed in a form not far from their introduced versions with most of the increased appropriations going to base funding, by decreasing the "negative factor" by $110 million, and nearly quadrupling funding for English Language Learners, 5,000 new ECARE slots for the Colorado preschool program and full-day kindergarten, double the amount for the READ Act pupils, and a historic increase in charter school capital construction funding.
Higher Education generally has been neglected by the General Assembly in recent years; apart from reducing its funding, the legislature has mostly ignored the colleges and the universities. This year, the General Assembly announced a change of prioritization by introducing higher education funding in SB 1, which increases General Fund Appropriations for Higher Education by $100 million - roughly 15 percent - while reducing the cap on tuition increases to 6 percent. Late in the session, HB 1319 was introduced by the Speaker of the House to radically change the way institutions are funded. After amendments, the bill, considerably tamer, moved forward with a process to change the funding methodology meant to change institution performance. The new metrics reflect student graduation rates, degree of remediation required, selectivity of admissions and number of campuses, among others.
PROPERTY AND CASUALTY INSURANCE
The main event of the 2014 session was the extended argument over the regulatory burden to be imposed on transportation network companies under Colorado law. SB 125 by Senators Harvey and Jahn and Representatives Pabon and Szabo was introduced early in the session at the behest of the TNCs. It provided for minimal regulation of TNCs by contrast with the heavy regulation to which their competitors, the taxi companies - have traditionally been subjected. The focus of the legislative debate on the bill quickly shifted from relative burdens of TNCs and their taxicab company competitors to insurance, specifically, how much and what kind of insurance coverage should TNC drivers be obliged to carry. The property and casualty insurers have always had very different models and limits for individual and commercial auto insurance. The basic commercial policy has $1 million limits. Colorado has low personal insurance limits of $25,000 per individual and $50,000 per incident. The low personal limits are a compromise meant to induce drivers to carry insurance. The TNCs insisted that they were unlike cab companies and that personal insurance should cover their drivers. The insurers demurred. After extensive debate and compromise, SB 125 provided that effective 90 days after the Governor's signature, the TNCs must provide their drivers with commercial insurance with $1 million limits while a driver is driving to pick up or actually carrying a passenger. Effective January 15, 2015, liability limits of $50,000 per person and $100,000 per incident will apply anytime the driver's TNC connection mobile application software is on.
Construction defects reform was sought by homebuilders and business interests all session and finally introduced in the waning days of the session. Business interests, affordable housing advocates and metro mayors are worried that Colorado's construction defects remedies are so harsh that developers won't build multifamily owner-occupied housing, which is considered critical to the success of economic development on light rail lines. SB 220 by Senator Ulibarri was an attempt to address these concerns by setting higher hurdles for construction defects lawsuits by homeowners associations. Democratic leadership disagrees with the proponents' analysis of the problem and didn't want to have a debate that threatened to divide some of their core constituencies. Ultimately, the bill died in its first committee as did two other bills, one calling for a study of the construction defects and affordable housing problems and the other creating a state grant program to offset insurance premiums.
The floods in Colorado last summer, as well as concern about the dumping of vehicles from hurricane Sandy in 2012, precipitated the introduction of two bills in 2014. HB 1100 by Representatives Swalm and Pabon was a consensus proposal endorsed by insurers and others to protect against title washing in Colorado. It requires a branding on the title of any vehicle that has flood damage, and an odometer that has been tampered with, or that is irreparable. HB 1299 by Representative Tyler was promoted by the auto repair lobby and expands the class of vehicles that must be branded salvage to include those that are damaged and six years of age or older.
HB 1344 will allow insurance companies to provide insureds with their insurance policy-related documents in electronic format with the permission of the insured. The bill also allows the insured to withdraw the permission at any time.
HEALTH CARE
The 2014 session was relatively quiet in the health care arena, a byproduct of the troubles with the implementation of the federal Affordable Care Act. Although Colorado's health insurance exchange performed much more smoothly than the federal or other state exchanges, there was reluctance to make changes that could render implementation more difficult.
One change that was made was in HB 1053 by Representative McCann, which was introduced and passed early in the session to give the Division of Insurance authority to conform the offering of pediatric dental benefits in the Colorado health insurance exchange to the same rules that apply outside the exchange. Under federal regulations, pediatric dental was a mandatory purchase outside the exchange but arguably only a mandatory offer in the exchange.
One bill that failed was SB 16 by Senator Aguilar, which would have regulated free-standing emergency departments in Colorado (FSEDs). FSEDs occupy a provider space between urgent care centers and hospital emergency rooms. They are staffed by ER physicians and have some of the equipment found in a hospital ER, but don't have the infrastructure and the staff support of a hospital. Critics were concerned for two reasons: that patients will be misled into thinking the FSEDs have all the resources of a hospital, or that the FSEDs will charge patients exorbitant facility fees they may charge because they provide emergency care. That has been the experience with FSEDs in Texas, where they are a thriving business model.
HB 1108 occasioned one of the Governor's rare vetoes. It was a bill hotly opposed by business and health insurers that would have restricted health plans' ability to restrict their insureds' access to chiropractors and physical therapists. Effectively, it was a new mandate on insurers. The bill passed the General Assembly narrowly before the Governor's veto given in response to numerous requests.
HB 1213 by Representative Kraft -Tharp and Senator Crowder was the latest bill brought by the retail pharmacists to regulate their relationships with pharmacy benefit managers (PBMs). PBMs manage the pharmacy benefits for health plans, state and the federal governments and others. They provide value by keeping prescription costs as low as possible. This produces tension in their relationships with pharmacists, especially independent pharmacists. HB 1213 was a negotiated compromise between the PBMs and the pharmacists governing MAC pricing arrangements. MAC (maximum allowable cost) is the formula used by PBMs to set the reimbursements for pharmacists for filling prescriptions for generic drugs. HB 1213 requires PBMs to state the basis for their MAC lists, to adjust their MAC pricing lists every seven days, and to provide an appeals process for pharmacists' complaints about reimbursements.
Late in the session, after extensive negotiation among stakeholders, SB 187 was introduced by Senators Aguilar and Roberts and Representatives Stephens and Schafer. The bill creates a 12-member commission on cost control in health care to examine ways of reducing the costs of provision of health care services in Colorado. The 12 members of the commission include health economists, consumers, doctors, insurance brokers and representatives of health insurers. The study directs use of existing data from various sources, examination of the effects of recent statutory changes and the regulatory environment. The commission is directed to issue at least two reports to the General Assembly in 2015 and 2016 before sunset in 2017.
WORKER'S COMPENSATION
Colorado's worker's compensation system was once one of the worst in the country for employers: costly and inefficient. In 1991, the General Assembly passed and the Governor signed SB 218, a major reform that has stood for more than two decades. One of the elements of that reform was limited choice of treating physician for injured workers. For 16 years, there was essentially no choice; workers were assigned a treating physician. In 2007, the legislature expanded the choice to two doctors. This year, organized labor negotiated a further expansion of worker choice with the business community. Negotiations were long and, at times, difficult. Labor wanted the maximum choice possible while the business community wanted to be certain that costs would not grow too much to upset the stability of the existing system. The needs of rural businesses with fewer doctors available had to be taken into account. Ultimately, HB 1383 by Representative Williams was passed, increasing physician choice in urban areas from two to four treating physicians and making special rules for rural areas where fewer doctors are available. Labor agreed to take the issue off the table for the foreseeable future in return for the agreement.
TELECOMMUNICATIONS REFORM
The telecommunications industry traditionally has been highly regulated in every state. The telephone companies were state-regulated monopolies. The cable television companies operated under municipal franchises, also monopolistically. As these two industries and newer technologies such as wireless and satellite providers began to compete, it became necessary to change their regulation. The last major round of telecommunication regulation in Colorado occurred almost 20 years ago. For the last several years a working group of industry representatives and legislators has been developing a package of reforms to update regulation of the industry. This year the legislature finally opened itself to passage of this package of bills.
HB 1327 and 1328 are aimed at encouraging the expansion of broadband access in rural Colorado. Among other things, HB 1327 will provide sales and use tax rebates to providers who invest in service in underserved rural areas of the state. HB 1328 creates a board to make broadband development service grants to providers serving rural Colorado. HB 1329 prohibits Public Utilities Commission regulation of a variety of services, including most long distance, most advanced services and Internet-enabled telecommunications services, including voice over internet protocol. The last service has been the subject of several bills over the last few years. HB 1331 deregulates a variety of currently regulated services, including long distance, white pages and most basic residential service.
MARIJUANA
When the voters of Colorado saw fit to decriminalize the possession and use of marijuana in 2012, they left it to the General Assembly to address a host of policy questions required to be answered to regulate a product still illegal under federal law. The last two legislative sessions have produced numerous bills to regulate the marijuana industry. HB 1361 by Representatives McNulty and Singer and Senators Guzman and King will regulate the potency of marijuana products. HB 1366 by Representatives Singer and McNulty and Senators Johnston and King will regulate the packaging of edible marijuana products. Finally, HB 1398 by Representative Singer and Senators Steadman and Balmer will permit the creation of financial services cooperatives for the marijuana industry to fill the need for those services provided other businesses by banks. Creation of the coops will depend upon approval by the Federal Reserve. Currently, banks are unwilling to serve the marijuana industry because of concerns about breaking federal law. HB 1398 will fill that gap enabling the marijuana industry to move beyond using cash.
CONSTRUCTION DEFECTS/ATTAINABLE HOUSING
Over the past year, an unprecedented partnership of business, elected officials and housing advocates came together to address the critical shortage of affordable multifamily, for-sale housing (condos and townhomes). While the multifamily, for-rent market is booming, the affordable for-sale market has reached record lows. Local and national builders are refusing to build this product because of the extreme risk of litigation.
The coalition became known as the Homeowner Opportunity Alliance and was led by the Metro Mayors Caucus, which strongly believed that affordable housing was the foundation of building their communities (transit-oriented development, starter housing and retirement options). Right to remedy would be the preferred solution, but the coalition determined that was not likely to succeed in the current political environment. The partnership identified several legislative policy changes that could improve the situation: maintaining arbitration in homeowner declarations, third-party disclosure of the impacts of potential litigation and majority (51 percent) homeowner approval of initiating litigation.
The coalition secured bi-partisan sponsors in Sen. Jesse Ulibarri (D) Adams and Sen. Scheffel (R) Douglas, as well as Rep. Jonathon Singer (D) Boulder and Rep. Brian DelGrosso (R) Larimer. At the beginning of the discussions, many believed that legislator education, along with facts and data, would convince a majority of legislators to support these modest changes. The coalition was able to secure support from many legislators in both chambers and on both sides of the aisle, but that quickly became meaningless as hardball, election-year politics trumped reasonable policy.
As expected, the Colorado Trial Lawyers Association (CTLA) and, specifically, one trial lawyer, Scott Sullen, were adamantly opposed to any change in current law. They were joined by the Community Association Alliance (CAI), which believed that transparency and homeowner approval of litigation would actually hurt their members' ability to address construction issues. Both Senate President Morgan Carroll (D) Aurora and Speaker Mark Ferrandino (D) Denver actively worked against the proposal by using their control over process and influence over legislators to make it impossible for the coalition's proposal to get a fair vote before the full legislature.
Ultimately, leadership used its power to delay and distract the coalition's efforts. Introduction of the coalition's bill SB 220 was not allowed until the last week of the session; it was assigned to two committees and not scheduled for hearing until it was logistically impossible for it to pass. Two other bills (SB 216 affordable housing insurance premium rebates and 219 study of affordable housing by the Division of Housing) were introduced and, if passed, would have undermined the coalition's ability to address the real issue of balancing consumer protection with development of for-sale, affordable multifamily housing. SB 216 was killed on the Senate floor; SB 219 died in Senate Appropriations, and SB 220 was killed on the last day of the session in the Senate Judiciary Committee.
The coalition will meet to evaluate its efforts over the past year and assess its future plans and opportunities. While the Speaker is term limited and leaving the Legislature, the House will likely remain in Democratic control. The Senate President has two more years to serve unless the 2014 election changes majority control of the Senate.
2014 ELECTIONS
Because of Colorado's Constitutional term limits provisions, every election cycle produces substantial turnover in the membership of the General Assembly. Senators and State Representatives are limited to eight years of service in each chamber. This year the class of 2006 is term limited. For that reason, coupled with voluntary retirements, at least six Senate seats out of 35 and 15 House seats out of 65 will turn over in November. At this point it is impossible to handicap the election. Although a national trend in favor of Republicans has been apparent for some time that does not necessarily translate into Republican success this November in Colorado, especially in the targeted swing districts that will determine majority control of both houses. Colorado Democrats weathered a national Republican tidal wave in 2010 and are well positioned to protect their legislative majorities in 2014.
I know you join me in thanking Pete and Erin for their efforts on Colorado Concern's behalf.
Should you have questions or concerns, please do not hesitate to contact me at [email protected].