Revenue forecast better than anticipated

The state’s economic outlook hasn’t changed much, but it has improved enough to cut in half the revenue shortfall that was expected to lead to huge cuts in K–12 spending next year.

State economists told lawmakers Friday that Colorado’s economic recovery remains slow, but recent budget cuts made by the Legislature this year and an unexpected increase in capital gains and other tax revenue resulted in a major reduction in the expected $1 billion revenue shortfall. Instead, the state faces a $447 million shortfall.

But Natalie Mullis, chief economist for the Colorado Legislative Council, and Henry Sobanet, executive director of the Governor’s Office of State Planning and Budgeting, warned lawmakers not to get too excited. The economy still is showing slow growth, unemployment remains high, and natural disasters in Japan and turmoil in the Middle East are being felt by the state and world economies.

“A faster-than-expected rebound of income tax is expected to bring an additional $161.3 million into state coffers this fiscal year,” Sobanet said. “Because we believe much of this increase is from one-time sources from capital gains and higher profits, these funds may mitigate some budget cuts, but a lot of tough work remains to close our structural gap.”

How that will impact Gov. John Hickenlooper’s plan to cut K–12 spending by $332 million next year is unknown, and the new governor still is looking at making cuts there, Sobanet said.

In her forecast, Mullis said that while employment in the state remains high, the private sector has added jobs in the past year, personal income has risen for the past five quarters, and the state’s housing market is showing signs of stabilizing.

Still, she said, political upheaval in the Middle East and northern Africa continues to cause energy prices to climb. At the same time, how the devastating earthquake, tsunami and nuclear power plant problems will impact Japan’s economy could be deep.

She said those impacts will be felt in the state because Japan is the sixth largest importer of Colorado goods.

“We’re going to see some near-term disruptions in the economy because of what happened in Japan,” Mullis said. “The full impact on the economy and in the financial markets, as well, has yet to be seen.”

Meanwhile, Mullis said the Western Slope’s economy continues to be the weakest in the state. She said consumer spending and construction activity began to recover last year but remained relatively low, and an increase in drilling activity hasn’t stimulated job growth.

Reaction to the revenue forecast from state lawmakers was upbeat, but cautious.

House Speaker Frank McNulty, R-Highlands Ranch, and Senate Minority Leader Mike Kopp, R-Centennial, said the state clearly is coming out of the worst recession in decades, and cuts to the state’s budget still need to be made.

Rep. Mark Ferrandino, D-Denver, a member of the Legislature’s Joint Budget Committee, said groups thinking they can avoid budget cuts better think twice.

“We’re seeing signs that things are getting better, but I do want to note and caution a lot of people ... who might want to say we can reverse all these cuts that were proposed,” he said. “We have one problem with the recession. We also have a structural problem, and both of those are compounding where we are today. We’re still going to have to make some difficult decisions.”

The JBC will spend next week finalizing the budget for the 2011–12 fiscal year, which begins July 1. That budget is expected to be introduced Friday in the Senate.


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