Economy robust, meaning cuts loom
TABOR constraints force tough choices
State economists told legislators Friday that upward momentum in Colorado’s economy means it is doing well, but it also means the state’s budget isn’t.
That’s because of constraints on how that budget is balanced because of constitutional amendments approved by voters over the past several decades, cuts will have to be made in some programs, they said.
Revenues are expected to be about $135 million more than the Taxpayer’s Bill of Rights allows the state to keep for the next fiscal year, which begins July 1, according to the governor’s Office of State Planning and Budgeting.
But because of that law and the Gallagher Amendment, which limits residential property taxes, the budget funding gap is expected to grow to nearly $700 million.
The main reasons why there is such a large gap is because of the need to refund some revenues because of TABOR, and a drop in the share that local school districts normally pay into their own schools.
That lower amount is due to the expected decline in the residential assessment rate under the Gallagher Amendment, said Henry Sobanet, head of the budget office.
Sobanet said that lower local share means the state, by law, has to make up the difference.
He said the gap comes from required spending increases in five different areas:
■ Increased enrollment and inflation in K-12: $370.3 million.
■ TABOR rebate: $135.1 million.
■ Statutory reserve fund repayment: $260.4 million.
■ Transportation and capital construction transfers: $163.7 million.
■ Increased Medicaid caseloads: $141.8 million.
Funding all of that, which various state and federal laws require, leaves a $696.6 million shortfall assuming state revenues increase by $374.7 million as predicted, Sobanet said.
While some lawmakers see the situation of having to trim needed programs to pay for a refund, others see it as a signal the state is spending too much.
“We have an interesting situation,” said Sen. Kevin Lundberg, R-Berthoud, and a member of the Joint Budget Committee that will use the forecast to draft next year’s state budget.
“We have a healthy, strong economy, and this is good for the people of Colorado ... but for the state of Colorado it’s a bit of a wake-up call that even in good times, we’re spending more than we’ve got revenues to work with,” he said.
“Senator Lundberg, I agree with everything up until that last point,” Sobanet countered. “We are not deficit spending. We are spending some of our reserves this year, and next year we propose a budget that restores it. Operating deficits aren’t allowed.”
Sobanet said it’s crucial to maintain that reserve to guard against the next economic downturn, and added that he doesn’t believe the state is saving enough.
He said there are several other growing spending issues, including the homestead exemption. That’s the property tax rebate given to Coloradans 65 and older who have been in their homes for 10 years or more.
That rebate is to cost the state about $152 million next year.
The economists said that the average TABOR refunds won’t amount to very much for most taxpayers, ranging from $23 for those who make $39,000 a year or less to $511 for those who make the most, $220,000 a year or more.
Beyond the state’s annual budget, the economy is doing well, and there are even clear signs that some sectors are starting to catch up, particularly oil and gas, the economists said.
That means that over the next couple of years, the economists expect an increase in severance tax revenues, money that goes to the state’s parks and wildlife and in direct payments to local governments.
Severance tax collections are expected to go from about $23 million this year to more than $143 million by 2018.
“Rebounding oil prices have stimulated new investment in the nation and in Colorado,” said Luis Pino, an economist with the Legislative Council. “Despite a persistently strong U.S. dollar through most of last year, U.S. exports showed improvements toward the end of the year.”
While that is expected to signal a positive note for the western region of the state, recent coal mine closures in Delta, Garfield and Rio Blanco counties have been a drag on the region’s recovery, economists said.