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7493CECB5A15AA95872584400076D1CD Hearing Summary


Date Jul 23, 2019      
Location HCR 0112

Overview of Evaluation Process and Methodology - Committee Discussion Only

03:37:58 PM  

Michelle Colin, senior legislative audit manager at OSA, introduced herself and OSA legislative audit manager Trey Standley. Ms. Colin proceeded to discuss OSA's mandate pursuant to legislation adopted in Senate Bill 16-203 (Attachment E).

03:40:56 PM  

Ms. Colin stated that OSA has identified 226 tax expenditures, of which 50 are more than 50 years old. Of these, 21 will eventually expire if no legislation is taken to extend them, and 205 are permanent. She explained that the number of tax expenditures fluctuates according to one's interpretation of statute. For example, a statute that enacts an expenditure for one type of transaction, but treats a subset of transactions differently, may be better conceptualized as two expenditures.

03:43:43 PM  

Ms. Colin outlined OSA's definition of a tax expenditure. She proceeded to discuss the OSA evaluation schedule, which requires that all expenditures be evaluated by September 2022, in the order of oldest-to-newest, with the caveat that similar expenditures may be grouped together for efficiency. If an expenditure is expiring, OSA is required to complete its evaluation prior to the legislative session in which the expiring expenditure would need to be renewed.

03:48:16 PM  

Ms. Colin explained that OSA has published evaluations of 15 expenditures from 2018 and 45 expenditures, to date, through July 2019. Evaluations of 10 additional expenditures will be published in September 2019, including five with upcoming repeal dates. Ms. Colin thanked the Joint Budget Committee and the legislature generally for appropriating additional resources to the OSA so that it can complete all of its evaluations within the established schedule.

03:51:45 PM  

Trey Standley, legislative audit manager with the Office of the State Auditor, began his presentation of OSA's evaluation methodology. Mr. Standley explained that the OSA began by meeting with members of the JBC who had sponsored the bill, as well as Legislative Council Staff, the Office of Legislative Legal Services, the Department of Revenue, Pew Charitable Trusts, and the Colorado Fiscal Institute. He explained how OSA went about identifying the purpose of each expenditure evaluated. In many cases, the expenditure did not include a stated purpose, requiring OSA to infer a purpose on its own. OSA was then required to develop performance measures to assist in determining whether the tax expenditure had succeeded in meeting its purpose.

03:56:47 PM  

Mr. Standley explained that OSA uses qualifiers when determining whether or not an expenditure is successful. In particular, it can be difficult to disaggregate the extent to which a particular outcome was spurred by the tax expenditure versus other economic factors. OSA has attempted to control for this by asking taxpayers the extent to which the tax expenditure was a factor in their decision-making, or by using other data or information to attempt to answer the "but for" question.

04:01:39 PM  

Mr. Standley explained the different factors that play a role in OSA's evaluation process. These include, for example, examination of the presence or absence of similar expenditures in other states. He proceeded to discuss data constraints. These include, for example, expenditures for which data are never collected on a Department of Revenue form, expenditures that cannot be isolated from other expenditures, inaccurate data entered on forms by claimant taxpayers, and data changes over time as additional information becomes available (e.g. amended or late income tax returns). Mr. Standley explained that DOR was unable to provide certain information without making changes to its GenTax software system, which would require additional computer programming at a cost to the department.

04:08:18 PM  
Mr. Standley explained that due to DOR data constraints, OSA occasionally had to rely on third party data instead. He explained that these data have their own limitations, which OSA attempted to transparently identify in its evaluations.

Mr. Standley explained when the OSA would identify policy considerations. To date, OSA has identified 29 policy considerations, including 5 designated "consider repeal," 8 designated "clarify statute," 12 designated "review effectiveness," and 4 designated "administrative issues." Three of these categories are on the agenda for the committee's July 24 meeting, and the last will be discussed at the committee's August 19 meeting.