The low grade was based on $7,200 of tax burden per taxpayer, almost entirely tied to the state’s underfunded pension plan, says a report released this week by Truth in Accounting.
Eighteen other states received “Ds” as well, and nine got “Fs”. Colorado ranked 27th among the 50 states.
A “D” grade signifies a tax burden of $5,000 to $20,000, according to the think tank’s annual Financial State of the States report.
The study’s methodology is based in part on an economic outlook ranking from the Legislative Exchange Council, according to the think tank’s state data lab project. That ranking weighs factors such as tax rates and burdens, tax policy changes and the state’s legal climate.
Colorado has improved its fiscal burden by 25% over the past year, according to the report.
“Colorado’s elected officials have made repeated financial decisions that have left the state with a debt burden of $14.5 billion,” the report said. Colorado’s financial problems stem mostly from “unfunded retirement obligations that have accumulated over the years.”
The study said state taxpayers are on the hook for $19.4 billion in pension funds and $1.3 billion in health costs for retirees.
Colorado’s debt burden also includes $5.1 billion for bonds and $8.3 billion in “other obligations” that the report does not identify.
At the end of fiscal year 2017-18, 40 states did not have enough money to pay all their bills, the report found. This meant that to “balance the budget — as is supposedly required by law in 49 states — elected officials have not included the true costs of the government in their budget calculations and have pushed costs onto future taxpayers,” it said.
Not so fast, says state Treasurer Dave Young and ratings from two of the nation’s top bond-rating houses.
“This report is incredibly simplistic and misleading, mixes current obligations with long-term obligations, and offers no transparency as to how they arrived at their conclusions,” Young said in a statement.
“Colorado’s economy is strong, unemployment is low, and we continue to be a low-tax, low-debt state, with a constitutionally mandated balanced budget each year.”
If Colorado’s finances were in such bad shape, bond houses would take a decidedly negative view and rate the state accordingly, Young’s office noted.
Last November, the most recent rating from Moody’s investors service showed Colorado with an Aa1 rating, which Moody’s said “reflects the state’s strong economic performance, higher-than-average income levels, and relatively low debt levels.”
Moody’s also noted that a recently enacted pension reform law — Senate Bill 18-200 — “will improve funding of the state’s pension plans and (the reforms) are a credit positive incorporated in the ratings.”
Bond rating house S&P also gave Colorado a strong credit rating based on a “broad and diverse economy that continues to exhibit better-than-average income, employment and population trends.”
S&P did note negatives such as the state’s “weak pension funded ratio” and a history of underfunding pension contributions.
And the rating house pointed at the Taxpayer’s Bill of Rights, the Gallagher Amendment and Amendment 23, noting that “constitutional provisions … limit state tax revenue, while also mandating a minimum level of school expenditures, which, in our view, limits revenue and spending flexibility.”