Forecast shows more cuts to vital services will be necessary in 2011, threatening state’s economy
The projections for state revenue released today by the Colorado Legislative Council staff underscore the long-term revenue crisis facing the state. The combination of a weak economy and lower taxes threaten to undermine the state’s economic future. Colorado does not have the resources to provide the level of services Coloradans expect.
Next year’s $1.1 billion revenue shortfall will again force the General Assembly to make service cuts that will result in job losses, higher college tuition, larger class sizes, and more limited and more expensive health care services.
Stagnant state revenues, not spending, are at the core of Colorado’s budget challenges. In the past decade, per-capita spending that comes from taxes and fees paid by Colorado residents declined even as the demand for services grew.
Adjusted for inflation, and excluding federal aid, out-of-state tuition and the Hospital Provider Fee — two fees not paid by Colorado residents — spending per capita has decreased 2.9 percent from the 2000-01 budget to this year. Figure 1 shows how spending per capita this year is projected to be far below the level of spending before the Great Recession began in December 2007.
Colorado faces a nearly $1.1 billion gap between revenue needed to continue providing services at current levels and revenue projected for the 2011-12 budget. Without revenue reform, much of the burden of closing that shortfall will fall on middle-class families already struggling to make ends meet.
The report released today by the Legislative Council estimates Colorado’s General Fund will collect $7.1 billion in 2010-11, an 8 percent increase from 10 years earlier. That growth rate has not kept pace with population, which increased 19 percent, or inflation, 22 percent, during the same period.
Moreover, demand for services supported by the General Fund has increased far more rapidly. Figure 2 shows Medicaid enrollment has risen 100 percent, college enrollment has risen 40 percent, enrollment in Child Health Plan Plus has risen 170 percent, and the number of children in public schools has risen 15 percent.
The decline in per capita spending has been caused not just by the recession but also by a decline in taxes Coloradans pay, as shown in Figure 3. In the 10-year period from 1998-99 to 2008-09, tax collections per $1,000 of personal income declined, according to an August report by Legislative Council staff. The individual income tax declined 12.5 percent. The sales tax declined 24 percent.
Expiring federal aid had mitigated cuts
Federal assistance through the American Recovery and Reinvestment Act, as well as the use of one-time cash fund balance transfers, helped the state mitigate cuts in education and health care through the first part of the recession. Without aid from the Recovery Act during the past two years, Colorado would have faced much deeper cuts to essential services, as shown in Figure 4.
However, federal aid through the Recovery Act expires at the end of the year, and cash fund balances are running low. Going forward, the legislature will be forced to rely more heavily on cutting schools and weakening other essential services.
Looking forward
As the economy struggles to recover, Coloradans will continue to rely on state services as a lifeline and on state infrastructure to support the economy. By taking a cuts-only approach, lawmakers will be forced to make further cuts in critical services that help Coloradans survive the recession and provide the way out of our current economic slump. Cutting essential services like education and health care will lead to job losses and hurt the economy. Colorado needs to take a more balanced approach that includes raising revenue.
Contact: Terry Scanlon
Fiscal policy analyst
303-573-5669, ext. 311
Mark Neuman-Lee
Outreach coordinator
303-573-5669, ext. 310
Released Dec. 20, 2010
