DENVER – New revenue forecasts for the 2017-18 fiscal year released Friday brought good news: Colorado’s economy is growing and its unemployment rate continues to drop.
And bad news: There is a projected gap of $696 million between expected revenue and Gov. John Hickenlooper’s budget.
Or as Sen. Kevin Lundberg, R-Berthoud, put it: “As I see this report, for the average citizen, it’s a very good report, 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.”
It was one of two forecasts presented Friday to the Joint Budget Committee, which is responsible for finalizing the budgets for state funded departments and programs such as CDOT, K-12 and Medicaid.
The reports differed regarding how much money the state would owe taxpayers as refunds under the Taxpayer’s Bill of Rights, how much the state owed to its reserve fund and how much revenue would increase over the past year, which was listed as $254.2 million in a report by the Colorado Legislative Council and $374.7 million in one presented by the Office of State Planning and Budgeting.
The JBC will decide which set of numbers to work with when making cuts and trying to find ways to fill the gap.
But since the disparity happens yearly, the committee has a pretty simple formula for deciding which report to use.
“Traditionally, the Joint Budget Committee has always chosen the more conservative forecast, so if that holds true this year it would be the OSPB and not Leg(islative) Council,” said Sen. Dominick Moreno, D-Commerce City and member of the JBC.
Why a gap?According to testimony from staffers, both departments who presented to the JBC Friday said the national economy is on the upswing, and in many areas Colorado is above the national average. For example, the unemployment rate was at 2.9 percent in Colorado in February and 4.7 percent nationally.
Despite the gains in the state’s economy, the rate at which revenue comes in is not keeping pace with the increasing statutory funding obligations such as Amendment 23, which requires K-12 funding to increase with inflation and is projected to be a $370 million increase next year, increased Medicaid costs, TABOR refunds and required general fund transfers for transportation funding and Capital construction, Moreno said.
There also is a need to make up a shortfall in the state’s reserve, which the Legislative Council and OSPB place at $169 and $260 million respectively.
Options for closing the gapThe JBC will spend the weekend and early parts of next week considering how to close the budget gap and where to make cuts before committee members begin drafting the Long Bill on Thursday.
But there aren’t easy answers.
Several options to make up for low revenue have been presented by Hickenlooper and none have been popular, said Rep. Millie Hamner, D-Dillion.
They include reducing or eliminating the Senior Homestead Exemption, which provides a tax break for Coloradans over 65 who have lived in the same home for at least 10 years, or reducing the amount of funding gathered through the Hospital Provider Fee to drop TABOR refunds, which would cut funding for hospitals, particularly in rural areas.
Another option is to increase the marijuana sales tax, Moreno said. “Currently they’re scheduled to go down to 8 percent in the next year; he (Hickenlooper) is proposing to instead increase them to 12 percent.”
If the JBC can’t find common ground on ways to increase revenue, then the gap must be closed by cutting some programs, said Sen. Kent Lambert, R-Colorado Springs. That could include reducing Medicaid spending and increasing the negative factor for K-12.
The conversation on increasing the negative factor, which is money that should be paid into K-12 under Amendment 23 that has been withheld, departed from the norm during the revenue forecast discussions.
“The conversation today wasn’t ‘are you going to increase the negative factor,’ the question now is ‘how much will the negative factor have to increase,’” Hamner said.
Lambert said there would likely be an increase in the negative factor, but not a decrease in the total school funding, which has been a priority for the JBC.
“Anyway you do calculate it, we will be putting more into K-12 education then we did last year,” Lambert said.
But there is a giant elephant in the room: what happens to state funding and mandates from the federal government?
Lambert said a lot of the planning by the JBC is contingent on the unknowns surrounding federal funding.
“This is sort of a dynamic, changing year,” he said.