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General Service Foundation

Proposed 2011-12 state budget contains deep cuts to services along with unwarranted tax giveaways

Public services across Colorado would be scaled back sharply under a plan to balance the state budget that legislative leaders proposed April 5. Some service reductions were inevitable, given restrictions on state lawmakers’ ability to raise revenue. But the plan cuts deeper than necessary because it also includes a number of measures that will reduce revenue that would otherwise be available to support services. The reductions will hurt vulnerable Coloradans as the resources available for child protection, health care, education and other services decline.

With a total budget of $19.25 billion, the state will spend less in 2011-12 than it has each of the previous three years. The 2011-12 spending plan proposed by the Joint Budget Committee would be $658 million lower than the current budget.

The budget is loaded with devastating cuts that have received little or no attention. Those cuts have been aggravated by the JBC’s decision to include revenue reducing measures in the budget-balancing plan that accompanies the Long Bill, Senate Bill 11-209.

The summaries below demonstrate how the actual appropriations have changed in recent years. Except where noted, the data does not take into account the growth in the state’s population or the increase in demand for services. When those factors are included, the funding per-capita or per client would be even more dramatically lower.

Finally, the Long Bill and the package of budget-balancing bills also include a number of measures that either cut taxes or in some way reduce revenue, which increased the degree of spending cuts that had to be made to meet the constitutional requirement of balancing the state budget.

Child protection, health care and colleges are among the targets
Child safety. Even through the Division of Child Welfare has come under intense scrutiny in recent years as questions have been raised about the safety of children who come into contact with social workers, the JBC plan would cut spending for the agency, which is charged with protecting abused and neglected children. The JBC plan would reduce spending by:

  • 0.8 percent, or $3.2 million, below the agency’s request for 2011-12.
  • 0.5 percent, or $2.1 million below 2010-11 appropriation.
  • 3.5 percent, or $14.5 million, below the 2008-09 budget. General Fund spending would be down 12.7 percent, or $27.7 million, below the 2008-09 budget

Child care. The Division of Child Care helps low-income families cover the cost of providing quality child care for young children while parents are at work or looking for work. Many counties have waiting lists. Without the financial assistance, workers in low-wage jobs can spend most of their earnings on child care alone. The JBC plan would reduce spending on the agency by:

  • 2.1 percent below the 2010-11 appropriation.
  • 1.5 percent below the agency’s request.
  • 12.8 percent, or $12.9 million, below the 2009-09 spending.

Medicaid. Proposed cuts to the health insurance program for low-income families are bit trickier to measure. The number of Coloradans who will receive health care through Medicaid in 2011-12 is expected to increase 9.8 percent, or nearly 55,000 people, from this year. At the same time, spending on providing care for Medicaid patients, which is expected to exceed 613,000 Coloradans, is expected to increase just 4.4 percent. Although the total line item for the Medical Services Premium will increase from the previous year, it will not keep up with growth in the number of patients. To make up the difference, the JBC budget includes the following cuts:

  • Provider rates would be reduced 0.75 percent in 2011-12. That means that in the past four years provider rates would have been cut a total of 6.25 percent.
  • Reductions to 18 different health care benefits, totaling $34.2 million.

Kindergarten through 12th-grade education. Cuts to funding for public schools have attracted much of the public attention. K-12 education will take a big hit again next school year. The total program funding will be $250 million below this year. The JBC plan would reduce:

  • Per-pupil funding by 5.5 percent to the lowest level since 2006-07.
  • Total program funding – the combination of state and local funds – 4.6 percent from $5.4 billion to $5.2 billion.

Mental health services. In the JBC plan, mental health institutions would be reduced:

  • 3.3 percent, or $3 million, below 2010-11 appropriation.
  • 12.1 percent, or $11.9 million below the 2008-09 budget.

Even as the state reduces the capacity for mental health institutions to handle patients, the JBC plan would place a greater strain on the ability of community programs to provide mental health care. In the JBC plan, Mental Health Community Programs would be reduced:

  • 1.1 percent, or $0.6 million, below the 2010-11 appropriation.
  • 2.9 percent, or $1.5 million, below the 2008-09 budget.

Higher education. The College Opportunity Fund is the primary mechanism the state uses to provide state support to public colleges and universities. In the JBC plan, spending for the College Opportunity Fund would be reduced by:

  • 3.6 percent, or $17.7 million, below the governor’s request.
  • 20.6 percent, or $122.1 million, below the 2010-11 appropriation.
  • 11.8 percent, or $63.1 million, below the 2008-09 budget.

In-state tuition rates have increased rapidly during the past few years as the state has cut General Fund support for colleges and universities, shifting a greater burden of the cost of higher education to students and their parents. In the JBC plan, spending from revenue generated from in-state tuition would be:

  • 0.4 percent higher than the governor requested.
  • 9.7 percent higher than the 2010-11 appropriation.
  • 43 percent higher than the 2008-09 budget.

But tuition is not the only way the state has passed on costs to college students and their families. Academic fees have also increase dramatically. In the JBC plan, spending from revenue generated from academic fees would be:

  • 6.8 percent, or $6.8 million, higher than the 2010-11 appropriation.
  • 93.7 percent, or $51.4 million, higher than the 2008-09 budget.

Prisons. The possible closure of Fort Lyons Correctional Facility gained a lot of attention after the governor proposed it. The JBC budget would delay, by six months, the closure of that facility to March 1, 2012. Overall, spending in the Department of Corrections would be reduced by:

  • 0.8 percent, or $6.1 million, below the governor’s request.
  • 2.7 percent, or $20.1 million, below the 2010-11 appropriation.
  • 1 percent, $7.2 million, below the 2008-09 budget.

Along with deep cuts, the plan reduces revenue
The Long Bill and the accompanying package of budget-balancing bills include four critical revenue-reducing measures.

Vendor fee (Senate Bill 11-223). The ―vendor fee‖ is compensation provided to retailers in the form of a reimbursement, for calculating and collecting sales tax on purchases, activities required under state sales tax laws. Colorado has one of the most generous vendor fees in the country because it is not subject to any ceiling. In 2008, Colorado lost more than $68.5 million in revenue as a result of the vendor fee. Thirteen percent of that lost revenue went to Walmart. The vendor fee was suspended for Fiscal Year 2009-10 and Fiscal Year 2010-11 to help balance the budget. Former Gov. Bill Ritter recommended continuing the suspension for Fiscal Year 2011-12, but Republicans fought to reinstate the fee to ―provide relief to business.‖ The JBC Long Bill includes a reinstatement of the vendor fee at 2.2 percent with an increase to the former rate of 3.3 percent after three years.

Reinstatement of the Agriculture Sales Tax Exemption (House Bill 11-1005). In 2007, the agriculture industry enjoyed 6.9 percent of all tax breaks in the state, estimated at nearly $110 million. To help balance the budget in 2010, the Colorado Legislature temporarily suspended the sales and use tax exemption for agricultural products and compounds, such as bull semen and pesticides. The Fiscal Year 2011-12 Long Bill reinstates the exemption. The temporary suspension of the exemption from tax brought an estimated $4.9 million into the General Fund to help balance the budget since its enactment and, despite the temporary suspension of one of their several tax breaks, the agricultural industry flourished in 2010 reaching record profits. The reinstatement of the credit will cost the state an estimated $3.7 million.

Reinstatement of the Software Sales Tax Exemption (House Bill 11-1192). The General Assembly repealed the sales and use tax exemption on downloaded and installed software in 2010 as part of budget-balancing efforts. Since the repeal, the elimination of the tax break has generated an estimated $28.3 million to offset cuts to public investments. The Fiscal Year 2011-12 Long Bill reinstates the software exemption. That decision would cost the state roughly $24 million in lost revenue and additional cuts.

General Fund reserves up to 4 percent (Senate Bill 11-209). The Colorado General Fund has statutorily mandated reserves. Unless an exception is made by the Legislature, the reserve is set at 4 percent. In the past two years, the General Assembly has mandated a 2 percent General Fund reserve as a result of a difficult budget climate. The Fiscal Year 2011-12 Long Bill has not made such an exception and is again requiring General Fund reserves at 4 percent. While maintaining a larger reserve is ideal for impending budget shortfalls, having a larger reserve also means less money is available for current programs and requires larger budget cuts.

One step to generate revenue, by restricting children’s health insurance The JBC’s budget-balancing package includes a measure designed to generate more revenue. While legislators seem willing to give businesses a break through the vendor fee, they are helping pay for it by raising the cost of health care for some middle-class families.

Senate Bill 11-213 would help balance the budget by adding a monthly premium for families participating in the Child Health Plan Plus (CHP+) program. Families with incomes between 205 percent and 250 percent of the Federal Poverty Level would pay monthly fees that would equal between $240 and $600 a year. In 2011-12, it will generate $100,000 for the state. The year after it is expected to generate $1.5 million. Savings for the state comes not only from the fees, but also from the savings in providing health care to children in working families because state officials estimate that this fee will drive 20 percent of the families in that income bracket out of the CHP+ program, leaving those children uninsured.

An intense process before proposed budget becomes law The process for the Long Bill gaining approval and heading to Gov. John Hickenlooper’s desk could be finished by the end of next week. The major steps in the process are:

  • Full Senate casts a preliminary vote on Long Bill on April 8 and a final vote April 11.
  • The Senate-approved version of the Long Bill is scheduled to be introduced in the House of Representatives as early as April 12 and then move through a similar process — caucuses, appropriations committee and the full House.
  • Any differences between the House and Senate versions go to conference committee, which is typically the six-members of the JBC.
  • The conference committee version of the Long Bill returns to both houses for a vote.
  • After approval by both houses, the Long Bill goes to Hickenlooper for his ignature. The governor has a line-item veto power, which means he can strike any line item in the budget, but he cannot add any line items, increase any line items or decrease any line items.
  • The General Assembly is scheduled to adjourn May 11.

Contact: Terry Scanlon
Fiscal policy analyst
303-573-5669, ext. 311

Ali Mickelson
Tax policy analyst
303-573-5669, ext. 304

Released April 7, 2011

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