A late-session priority for Gov. John Hickenlooper fell by the wayside Tuesday.

The Senate State, Veterans and Military Affairs Committee Tuesday put an end to a bill the governor had hoped would help provide financial space for the state under the TABOR revenue cap.

House Bill 15-1389 would have changed a hospital provider fee from a cash fund under TABOR to an enterprise. The hospital provider fee was enacted with legislation in 2009. The fee is charged to hospitals that participate in Medicaid and is based on patient revenues. The hospitals remit those fees to the state, which are used to obtain matching funds from Medicaid. The funds then pay for the costs hospitals incur in caring for uninsured patients. It also allowed the state to expand Medicaid eligibility and provide health care coverage to low-income Coloradans.

At the time the hospital provider fee was implemented, the bill’s sponsors said it would not affect TABOR — that proved to be untrue.

Last month, Hickenlooper asked legislators to consider a five-point plan to find ways to fund transportation and reduce the K-12 negative factor, currently at slightly under $1 billion.

Changing the hospital provider fee to an enterprise is the lynchpin in Hickenlooper’s plan.

To qualify as an enterprise, a designation under TABOR, the enterprise must be an independent, self-supporting government entity that receives income, fees and revenues directly tied to goods or services it provides. The entity can be owned by the government but must be financially distinct from it.

Hickenlooper blamed the hospital provider fee revenue in part for the state exceeding its TABOR revenue limit in 2015-16. The fee will bring in $532.3 million in 2014-15. In 2015-16, that grows to $688.5 million. The fee counts as cash revenue under TABOR.

Think of a bucket of water, with a spigot at the top. Cash revenues are at the bottom of the bucket, general funds on top of that. When TABOR-eligible cash revenues increase, the water level rises, and pushes general funds out through the spigot in the form of TABOR refunds.

Legislators at first hedged on whether they would bring up a bill on the provider fee this session. Speaker of the House Dickey Lee Hullinghorst, D-Boulder, told reporters last month she did not think legislators would have an appetite for the bill in this session.

As it turns out, she was right.

Hullinghorst sponsored HB 1389, which was introduced on April 29. It passed its first two committee hearings on party-line votes. On Monday, it cleared the House on a 33-31 vote, also along strict party-lines.

Tuesday, it was up to Sen. Pat Steadman, D-Denver, to marshal the bill through the Senate State, Veterans and Military Affairs Committee. The bill had strong support from a variety of business groups, including Colorado Concern and the Denver Metro Chamber of Commerce. Katherine Mulready, representing the Colorado Hospital Association, told the committee that hospitals favored the change as well. Hickenlooper’s budget director, Henry Sobanet, told the committee without passage of HB 1389, three out of four general fund dollars available in 2016-17 will have to go to K-12 education, to keep the negative factor from growing. The negative factor is a budgetary device, first employed in 2010, to allow the state to cut funding to K-12. The total cut was about $1 billion; it was reduced by $100 million last year and will be reduced by $25 million in the recently passed 2015-16 budget.

If HB 1389 were to pass, Steadman told the committee, it would free up $167 million for appropriations in 2016-17. That could go for transportation projects or to reduce the negative factor. Otherwise, in 2016-17, the budget will be bleak. “This isn’t how the state’s budget priorities should go,” he said.

Marti Nielsen, representing the Colorado Union of Taxpayers, was the only witness in opposition to HB 1389. It violates the spirit of TABOR, she told the committee.

Despite the strong support for HB 1389, the Senate’s “kill committee” did as was expected, and the bill died on a 3-2 vote.

After the vote, Steadman and Sobanet told The Colorado Statesman that there is still time to change the fee to an enterprise in the next legislative session, which would allow the state to reap those benefits. Steadman said the bill would have to be signed into law prior to the introduction of the state budget bill.

By next year, this will be more of an “on the ground” issue for legislators, Sobanet said Tuesday. Once the budget request for 2016-17 comes out in November, people will start to see the impact of the hospital provider fee on available dollars. “It will be more real than an intellectual issue.”

Sobanet said the 2016-17 budget will be developed based on current law. However, he said he would work with the governor throughout the fall and decide if they would do a “budget A” and “budget B” that would show the impact of changing the provider fee.

— Marianne@coloradostatesman.com