DENVER - A Senate panel voted Tuesday to balance the budget with $500 million from a state-chartered insurance company, setting the stage for this week's drama over drastic cuts to Colorado colleges.
The Legislature's budget-writers are proposing a $300 million cut to higher education, but to soften the blow for next year, they want to fill the gap with money from Pinnacol Assurance, the state's largest worker's compensation insurance company.
The full Senate will debate the state budget Thursday, including two bills that assert state authority over Pinnacol and capture $500 million from the company's reserves.
"I know this is not an easy decision, but we don't seem to have any easy decisions left," said Sen. Al White, R-Hayden, sponsor of one of the bills. "Now we're down to difficult times, perhaps desperate times."
The other sponsor, Sen. Brandon Shaffer, D-Longmont, said state insurance regulators told him Pinnacol has $587 million more in reserves than regulators require.
The Senate Appropriations Committee voted 6-4 and 7-3 in favor of the bills - Senate Bills 281 and 273.
The recession has dealt a $1.4 billion blow to the state budget, spread over two years. The Joint Budget Committee's proposal is to minimize cuts by taking money out of special cash funds. But even after depleting many of those funds, the committee was $300 million short.
So it set up the choice between taking money from Pinnacol or cutting colleges by a staggering amount.
"No one wants to see (the college cuts). That doesn't mean Pinnacol is the answer to the problem," said Ken Ross, president and chief executive officer of Pinnacol.
Pinnacol exists in a gray area of state law. It was created by the state in 1915 and run as a state-owned company for decades. It has operated like a private company since 1988, but the governor appoints its board of directors, and it doesn't pay state or federal taxes.
The company needs its reserves, Ross said, and it's planning to use them for a $60 million dividend in May to the businesses that buy its policies.
In any case, Ross said, Pinnacol's surplus belongs to its policyholders, not the state government. Pinnacol is likely to sue if the Legislature tried to take the reserve, company officials said Tuesday.
However, Ross said he's open to using some of Pinnacol's $2 billion investment portfolio in a different way that could aid the state budget. He's talking to the governor's staff and the Joint Budget Committee about the idea.
Sen. Ted Harvey, R-Highlands Ranch, decried the "effort to socialize Colorado."
"This is not AIG. This is not a company that has run itself into the ground and is coming to us to be bailed out. This is a private company," Harvey said. "Where do we stop? What other private companies are we going to ask to bail us out?"
White argued that Pinnacol still is owned by the state, because the government never got anything for turning the company loose in 1988.
"The truth is, we've received nothing," White said. "We would not give the Capitol away for free. We would not give the state lottery away for free."
The Joint Budget Committee did consider selling the lottery, said Sen. Moe Keller, D-Wheat Ridge. They also considered selling off the CollegeInvest tuition financing agency, major water project loans and the state's share of the national tobacco lawsuit settlement. But the committee rejected all those ideas because they would take too long or because it didn't expect any buyers, Keller said.
For colleges, a $300 million cut would translate to a 135 percent tuition increase at Adams State College, said Bill Mansheim, the college's vice president.
"There's absolutely no way we could do that. This would just be devastating to the small, rural colleges," Mansheim said.
This week's debate will be the first time the Senate as a whole gets to weigh in on the budget. The House gets its turn next week. Lawmakers want to send the budget to the governor by April 22.