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February 18, 2022 HB 22-1203
Legislative Council Staff
Nonpartisan Services for Colorado’s Legislature
Fiscal Note
Drafting Number:
Prime Sponsors:
LLS 22-0743
Rep. Hanks
Date:
Bill Status:
Fiscal Analyst:
February 18, 2022
House Education
Jeff Stupak | 303-866-5834
Jeff.Stupak@state.co.us
Bill Topic: INCOME TAX CREDITS FOR NONPUBLIC EDUCATION
Summary of
Fiscal Impact:
☒ State Revenue
☒ State Expenditure
☐ State Transfer
☒ TABOR Refund
☒ Local Government
☐ Statutory Public Entity
This bill creates an income tax credit for the parents, guardians, or scholarship
benefactors of students who enroll in a private or home-based school. Beginning in
FY 2022-23, the bill reduces state revenue and expenditures for school finance, and
increases state expenditures for implementation beginning in FY 2023-24.
Appropriation
Summary:
For FY 2022-23, this bill reduces the appropriation to the Colorado Department of
Education for the state share of school finance by $63.3 million.
Fiscal Note
Status:
The fiscal note reflects the introduced bill.
Table 1
State Fiscal Impacts Under HB 22-1203
Budget Year
FY 2022-23
Out Year
FY 2023-24
Out Year
FY 2024-25
Revenue General Fund ($47.1 million) ($131.3 million) ($204.4 million)
Total Revenue ($47.1 million) ($131.3 million) ($204.4 million)
Expenditures School Finance
1
($63.3 million) ($114.8 million) ($163.4 million)
General Fund - $571,992 $581,598
Centrally Appropriated - $114,462 $152,404
Total Expenditures ($63.3 million) ($114.1 million) ($162.7 million)
Total FTE - 7.8 FTE 10.4 FTE
Transfers - - -
Other Budget Impacts
TABOR Refund ($47.1 million) ($131.3 million) Not estimated.
General Fund Reserve
1
- $85,799 $87,240
1
Expenditures for school finance may be from the General Fund or the State Education Fund. Expenditures from the
State Education Fund do not impact the General Fund Reserve. The General Fund reserve impact does not include
the impact of the reduction in school finance expenditures. . Page 2
February 18, 2022 HB 22-1203
Summary of Legislation
The bill creates a nonrefundable, transferrable income tax credit for taxpayers who enroll their
dependent child in a home-based or private primary or secondary school, or who offer a scholarship
to a child who enrolls in a private primary or secondary school. Qualifying taxpayers may receive
credits as shown in Table 2, beginning in tax year 2023 and prior to tax year 2028.
Table 2
Tax Credits Available Under HB 22-1203
Taxpayer Credit Amount
Full-Time Student Half-Time Student
Parents/guardians enrolling their
child in private school
1
Lesser of 50% of prior
year statewide average
per pupil funding or the
amount of tuition paid
Lesser of 25% of prior year
statewide average per pupil
funding or the amount of tuition
paid
Scholarship benefactors for
children in private school
1
Lesser of 50% of prior
year statewide average
per pupil funding or the
amount of the scholarship
Lesser of 25% of prior year
statewide average per pupil
funding or the amount of the
scholarship
Parents enrolling their child in a
home-based school
$1,500 $750
1
Either the parent/guardian or scholarship benefactor may be allowed a tax credit, but not both.
To qualify, the child must have attended a public school, or must have been too young to enroll in
kindergarten, during the 2021-2022 school year. Taxpayers may qualify for the credit each year until
their child graduates, leaves home-based or private school, or the tax credit expires. Either the
parent/guardian of a child or the child's scholarship provider may qualify for a tax credit, but not both.
In order to receive a credit, a taxpayer must obtain a tax credit certificate from the private school in
which the child is enrolled and submit the certificate to the Department of Revenue (DOR) with their
income tax return. Private schools are required to provide an electronic report for each tax credit they
issue, along with other pertinent taxpayer information, by December 15 of the tax year for which the
certificates were issued. A certification process is not required for children enrolling in a home-based
school.
To determine available tax credit amounts, the Colorado Department of Education is required to
provide the statewide average per pupil school finance funding amount to the DOR by January 15 of
each applicable tax year.
Assumptions
This fiscal note assumes that the parents/guardians or scholarship benefactors of 27,890 students will
receive a tax credit for tax year 2023. Of these students, 7,792 students will be induced to enroll in a
private school because of the tax credit in this bill and 1,732 students will be induced to attend a
home-based school who otherwise would have attended public school if not for the bill. These Page 3
February 18, 2022 HB 22-1203
induced transfers will result in savings for school finance, while the revenue impact will apply to all
qualifying taxpayers, regardless of whether the student for which the credit is claimed is induced to
transfer or would have transferred without the bill. Table 3 shows the estimated number of taxpayers
and credit amounts for tax years 2023 and 2024 under the bill.
The revenue estimates assume the following:
Because the tax credit is transferable, the full value of all credits allowed will be used to reduce
Colorado income tax by some taxpayer at some point in time. However, parents/guardians whose
credit amount is greater than their income tax liability may choose to carry the credit forward for
a three-year period, as allowed in the bill, rather than immediately transferring the credit upon
receipt. This fiscal note assumes that taxpayers will carry forward any unused credit amounts for
the three years allowable in the bill before transferring any remaining credit amounts to a third
party. If taxpayers transfer their unused credits before the end of the three year period, revenue
impacts will occur earlier.
The number of children induced to transfer from a public school to a private school because of
this tax credit will equal approximately 0.9 percent of public school enrollment each year, while
the number of children who transfer to a home-based school because of this credit will equal about
0.2 percent of public school enrollment each year. Under these assumptions, the number of
children migrating to private or home-based school compounds each year over a 12-year period.
These estimates are based on evidence from the Milwaukee Parental Choice Program, a school
voucher program in Milwaukee that has operated since 1990.
Parents and/or guardians who would not have otherwise enrolled their child in public school will
not temporarily do so for the purpose of qualifying for this credit. To the extent that parents do
so, the state revenue reduction will be greater than estimated and the reduction in school finance
expenditures, described in the State Expenditures section, will be partially offset.
State Revenue
This bill reduces General Fund revenue by $47.1 million in FY 2022-23 (a half-year impact), by
$131.3 million in FY 2023-24, by $204.4 million in FY 2024-25, and by larger amounts in subsequent
years until FY 2027-28 when the credit expires. Table 3 shows the estimated number of taxpayers and
credit amounts on a tax year basis for 2023 and 2024 under the bill.
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February 18, 2022 HB 22-1203
Table 3
Estimated Number of Applicants, Credit Amounts, and Revenue Impact Under HB 22-1203
Income Tax Year 2023
Applicants Current Law Induced by Bill Total
Transfers to Private School 8,954 7,792 16,746
Transfers to Home-Based 9,412 1,732 11,144
Total Children: 18,366 9,524 27,890
Tax Credits Credit Amount No. of Children Revenue Impact*
Transfers to Private School Up to $4,674 16,746 $78.3 million
Transfers to Home-Based School
Full-Time $1,500 9,954
$15.8 million
Part-Time $750 1,189
Total Tax Credits $94.1 million*
Income Tax Year 2024
Applicants Current Law Induced by Bill Total
Transfers to Private School
15,832 13,614 29,446
Transfers to Home-Based
15,002 3,026 18,028
Total Children:
30,834 16,640 47,474
Tax Credits Credit Amount No. of Children Revenue Impact*
Transfers to Private School Up to $4,833 29,446 $142.3 million
Transfers to Home-Based
Full-Time
$1,500 16,839
$26.1 million
Part-Time $750 1,189
Total Tax Credits $168.5 million*
* The revenue impact will not equal the product of the credit and the number of credits because it is assumed that not all parents
and guardians will have sufficient tax liability to claim the full credit in the first year.
State Expenditures
This bill decreases total state expenditures by $63.3 million in FY 2022-23, by $114.1 million in
FY 2023-24, and by $162.7 million in FY 2024-25. As shown in Table 4, the majority of the expenditure
impact is a reduction in school finance expenditures from the General Fund or State Education Fund,
while General Fund expenditures will increase in the Department of Revenue to implement the bill.
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February 18, 2022 HB 22-1203
Table 4
Expenditures Under HB 22-1203
FY 2022-23 FY 2023-24 FY 2024-25
School Finance ($63.3 million) ($114.8 million) ($163.4 million)
Department of Revenue
Personal Services - $405,357 $538,120
Operating Expenses - $11,475 $14,040
Capital Outlay Costs - $55,800 -
GenTax Programming - $27,000 -
Computer and User Acceptance Testing - $36,601 -
Document Management and Form Changes - $20,751 $14,846
Data Reporting - $15,008 $14,592
Centrally Appropriated Costs
1
- $114,462 $152,404
DOR Subtotal - $686,454 $734,002
Total Cost ($63.3 million) ($114.1 million) ($162.7 million)
Total FTE - 7.8 FTE 10.4 FTE
1
Centrally appropriated costs are not included in the bill's appropriation.
Public school finance. School finance expenditures will decrease by an estimated $63.3 million in
FY 2022-23, $114.8 million in FY 2023-24, $163.4 million in FY 2024-25, and larger amounts in
subsequent years. It is assumed that the total decrease in school finance expenditures will occur in
the state share of school finance, as revenue that comprises the local share is unaffected by this bill.
Reductions in school finance expenditures could result in cost savings in the General Fund, the State
Education Fund, or a combination of the two.
This bill will cause an estimated 9,524 students who would have otherwise enrolled in public school
to enroll instead in a private or home-based school during the fall of 2022. As a result, state
expenditures for public school finance are expected to decrease. Savings are attributable only to those
children who are expected to enroll in a private or home-based school as a direct result of the tax
incentive in this bill. These estimates assume that 35.3 percent of the state's public school enrollment
is located in districts with declining enrollment over time, which reduces the savings because of five-
year enrollment averaging.
The school finance impact reflects an increase in base per pupil funding by inflation each year. The
savings will be larger if base per pupil funding is increased at rates greater than inflation. If the budget
stabilization factor is adjusted such that total program increases at slower rates, the savings will be
smaller.
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February 18, 2022 HB 22-1203
Department of Revenue. The Department of Revenue (DOR) will require an additional 7.8 FTE tax
examiners in FY 2023-24 and 10.4 FTE tax examiners in FY 2024-25 to implement this bill. Personnel
are needed to match student certificates to the correct parent, guardian, benefactor, or transferee;
ensure that multiple taxpayers are not allowed a tax credit for a single student; and verify home-based
school student enrollment, as home-based schools are not required to issue credit certificates.
Workload will increase through FY 2028-29 as the number of qualifying taxpayers increases through
tax year 2027.
Computer programming and testing. For FY 2023-24 only, the bill will require changes to DOR’s
GenTax software system and additional testing. Changes are programmed by a contractor at a
cost of $225 per hour. Approximately 120 hours of computer programming will be required to
implement this bill, totaling $27,000. Additional computer and user acceptance testing are
required to ensure programming changes are tested and functioning properly, resulting in an
additional $36,601 in expenditures by the department.
Document management and form changes. The bill requires $20,751 in FY 2023-24 and $14,846
in FY 2024-25 for expenditures related to document management, data entry, and tax form
changes. These expenditures will take place in the Department of Personnel and Administration
using reappropriated funds from the DOR.
Data reporting. The Office of Research and Analysis within DOR will expend $15,008 in
FY 2023-24 and $14,592 in FY 2024-25 to collect and report data on the new tax credit.
Colorado Department of Education. The department is required to provide the statewide average
per pupil school finance funding amount to the DOR by January 15th of each tax year. This minimal
workload increase can be accomplished within existing appropriations.
Centrally appropriated costs. Pursuant to a Joint Budget Committee policy, certain costs associated
with this bill are addressed through the annual budget process and centrally appropriated in the Long
Bill or supplemental appropriations bills, rather than in this bill. These costs, which include employee
insurance and supplemental employee retirement payments, are shown in Table 4.
Other Budget Impacts
TABOR refunds. The bill is expected to decrease the amount of state revenue required to be refunded
to taxpayers by the amounts shown in the State Revenue section above. This estimate assumes the
December 2021 LCS revenue forecast. A forecast of state revenue subject to TABOR is not available
beyond FY 2023-24. Because TABOR refunds are paid from the General Fund, decreased General
Fund revenue will lower the TABOR refund obligation, but result in no net change to the amount of
General Fund otherwise available to spend or save.
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February 18, 2022 HB 22-1203
General Fund reserve. Under current law, an amount equal to 15 percent of General Fund
appropriations must be set aside in the General Fund statutory reserve beginning in FY 2022-23. Based
on this fiscal note, the bill is expected to increase the amount of General Fund held in reserve by
$85,799 in FY 2023-24 and by $87,240 in FY 2024-25, which will decrease the amount of General Fund
available for other purposes. These amounts do not include the reduced General Fund reserve, should
the school finance expenditure decrease come from the General Fund.
School District
School district funded pupil counts and state aid to districts will decrease as a result of reduced public
school enrollment, as discussed in the state expenditures section. Although the bill does not require
public schools to certify taxpayer eligibility for the credit, school districts may experience a small
workload increase to verify taxpayer eligibility in response to state, private school, or parent/guardian
inquiries.
Effective Date
The bill takes effect 90 days following adjournment of the General Assembly sine die, assuming no
referendum petition is filed.
State Appropriations
For FY 2022-23, this bill reduces the Department of Education appropriation required for the state
share of school finance by $63.3 million. This may be from the General Fund or State Education Fund.
State and Local Government Contacts
Education Law Personnel
Revenue School Districts
The revenue and expenditure impacts in this fiscal note represent changes from current law under the bill for each
fiscal year. For additional information about fiscal notes, please visit: leg.colorado.gov/fiscalnotes.