Colorado voters will likely be asked in November to let the state keep about $24 million in tax revenue collected through Proposition EE in excess of the revenue forecast for the 2020 ballot measure that raised tobacco and nicotine taxes.
House Bill 1290 would refer a question to the November ballot requesting that the extra money be transferred to Colorado’s new universal preschool program and the legislature’s general fund, and that the same thing automatically happen in future years when there is similar excess.
If voters say “no,” the money would be refunded to tobacco and nicotine distributors and wholesalers, and the tax rate on those products would be reduced by 11.53%.
The $24 million in excess was collected during the 2021-22 fiscal year, which ended June 30, 2022. Proposition EE, which funds Gov. Jared Polis’ universal preschool initiative, a 2018 campaign promise, generated $208 million in tax revenue that year, according to House Bill 1280, about $22 million more than was estimated by nonpartisan analysts at the Capitol. (After accruing interest, the amount increased to about $24 million.)
The Taxpayer’s Bill of Rights requires that money collected in excess of a tax’s projected revenue be refunded unless voters approve letting the government entity that collects the tax keep the surplus. Republicans, who are fierce defenders of TABOR, are likely to fight the measure, but Democrats have large majorities in the House and Senate and are expected to easily pass the bill.
The measure’s legislative declaration argues that the preschool program, which begins next school year and offers a minimum of 15 hours a week of instruction to Colorado’s 4- and 5-year-olds, has drawn a lot of interest and could use the extra money. “Additional resources would allow the state to extend preschool services and additional hours to more children, setting Colorado’s children on a path to success in kindergarten and beyond,” the declaration says.
State Rep. Emily Sirota, a Denver Democrat and a lead sponsor of the bill, says voters have a clear choice when it comes to deciding whether to send tens of millions of dollars to the tobacco industry or let the government keep it to bolster preschool offerings.
“With the retention of these dollars we’d be able to better support Colorado families,” Sirota said.
The bill is scheduled to get its first hearing Monday in the House Finance Committee. If the measure passes, it would mark the first time since 2019 that voters would be asked on the statewide ballot to let the state keep TABOR excess through what’s known as “de-Brucing,” a term named after Douglas Bruce, a former state representative and the author of TABOR.
A similar situation played out after Coloradans legalized the sale and possession of recreational marijuana in 2012. In 2015, voters approved Proposition BB, which let the state keep recreational marijuana sales tax revenue collected above what was estimated and use the money predominantly for school construction.
“This is the same situation we found ourselves in when we legalized marijuana,” said Senate Majority Leader Dominick Moreno, a Commerce City Democrat and a prime sponsor of House Bill 1280.
The irony is that Proposition EE was pitched by its proponents as a way to drive down tobacco and nicotine use in Colorado. Instead, tax revenues have exceeded expectations, indicating that’s not happening.
Sen. Rhonda Fields, an Aurora Democrat, is also a lead sponsor of House Bill 1280. She worked on the 2020 measure that put Proposition EE on the ballot that year. During a 2022 committee hearing at the Capitol on a related matter, she said she regretted working on the bill and argued it was unfair to pay for preschool on the backs of smokers and other tobacco users.
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“Really, we’re taxing poor people, when you look at the trends of who’s smoking,” she said in the hearing. “The thinking behind this is if you tax it more, you will have people consume less. Well, that argument has not proved out to be the case.”
Fields told The Colorado Sun last week that she’s disappointed tobacco use doesn’t appear to have decreased. She said the solution to decreasing nicotine and tobacco use “is not based on taxes.”
Proposition EE was drafted through negotiations with tobacco giant Altria, the maker of Marlboro cigarettes, which benefited from provisions in the measure and in exchange agreed not to fight the initiative.
The measure requires that a pack of cigarettes be sold for no less than $7, which discount cigarette brands complain has driven market share to premium brands, like Marlboro.
Additionally, while taxes rose on most tobacco and nicotine products, they were temporarily reduced under the initiative for modified-risk tobacco products. Modified-risk tobacco products — or MRTPs — are determined by the Food and Drug Administration to have lower risks of certain health effects compared to smoking cigarettes. Only a limited number of products have achieved that designation, but a number of them are marketed by Altria.
Proposition EE increased the taxes on a pack of cigarettes in July 2021 to $1.94 from 84 cents. On July 1, 2024, the tax will increase to $2.24 a pack and then rise to $2.64 in July 2027.
Tobacco and nicotine products are taxed at 50% of their manufacturer’s list price under the measure. The tax increases through 2027, when it reaches 62%.
CORRECTION: This story was updated at 12:29 p.m. on Monday, April 17, 2023, to correct the number of the measure that would ask voters in November if the state can retain Proposition EE revenue in excess of what was projected. It is House Bill 1290.