Forecasted slow economic growth does not solve the challenges facing families across the state
Colorado’s Legislative Council Staff (LCS) released its quarterly revenue projections and economic forecast on June 20. According to that report, both the current-year budget ending June 30 and the recently passed Fiscal Year 2011-12 budget are in balance. While there were no significant changes over the projections released in March, revenues are expected to increase slightly as the economy continues a slow but steady recovery.
That slow growth, however, does not solve the challenges facing schools, communities and families across the state as neither estimated general fund revenues nor anticipated general fund spending in Fiscal Year 2012-13 will recover to Fiscal Year 2007-08 levels. Colorado residents have grown used to being relieved because the revenue picture is not as bad as it could have been, but our economy, schools, health care providers, college students and their parents continue to bear the brunt of poor investments in the very services that provide the foundation for strong economic recovery. Now, more than ever, is the time to step up and to be good stewards of the economy by investing in Colorado’s education system, the one true path to strong economic growth.
General Fund revenues
After a decrease of more than $1 billion during the past two years, General Fund revenues are beginning to rebound slowly. LCS projects General Fund revenues will increase by 10.4 percent in Fiscal Year 2010-11, or $669.3 million, with more than $221.7 million collected as a result of revenue enhancements passed by the state Legislature.
While LCS decreased the forecast for General Fund revenue by $67.6 million, it nevertheless anticipates the state will close out the current year, Fiscal Year 2010-11, with $310 million more general fund revenue than was originally budgetedi. In accordance with Senate Bill 11-156, those additional funds will be transferred to the state education fund to help mitigate cuts to kindergarten through 12th-grade education. LCS projects the state will start the new fiscal year with a $156.6 million reserve (2.3 percent) as budgeted.
General Fund revenue for Fiscal Year 2011-12, the budget year beginning July 1, is expected to grow a modest 3.1 percent including all sources, allowing for $178.9 million more than is currently budgeted. LCS predicts increases in both individual and corporate income taxes as well as sales and use tax.
In the final year included in the forecast, Fiscal Year 2012-13, continued economic growth will mean an additional $684.6 million will be available for appropriation. That figure assumes the Legislature will carry forward the $178.9 million additional revenue projected in Fiscal Year 2011-12 and does not account for changes in law, caseload growth or inflation in projected appropriations. General fund revenues in Fiscal Year 2012-13, while higher than the current year, will not exceed revenues available prior to the recession in FY 2007-08.
Cash Fund revenues
Cash Fund revenues that are subject to the TABOR revenue limit are expected to increase by 14.1 percent in the current fiscal year to $2.4 billion. The bulk of that increase comes from the Hospital Provider Fee ($431.2 million, up from $302.9 million) and a 254.3 percent increase in the ever-volatile severance tax revenues ($170.9 million, up from $48.2 million).
For Fiscal Year 2011-12, LCS again projects strong growth in cash funds, 11 percent, to $2.6 billion. Again the increase is driven mostly by double-digit growth in the Hospital Provider Fee revenue and severance taxes.
The Colorado economy
Colorado’s economy continues to show signs of a steady recovery. Almost every sector, except home construction and the financial and information industries, saw job gains. Unemployment dropped from its peak of 9.3 percent in February 2011 to 8.7 percent in May 2011. LCS now predicts total employment will grow by 1.6 percent in 2012, and unemployment will fall to 7.3 percent by 2013.
Personal income also increased in 2010 by 2.3 percent, mostly driven by a slight increases in wages and salaries of 1 percent. Personal income is expected to grow by 4.1 percent in 2011 and 4.7 percent in 2012.
More income translated into more consumer spending in 2010. Retail sales grew by 6.6 percent in 2010 and are expected to continue to increase by 4.9 percent in 2011 and 5 percent in 2012. LCS Chief Economist Natalie Mullis reported it is clear the state’s economy is growing now at “a turtle’s pace rather than a snail’s pace, which is an improvement.”
Not out of the woods
LCS and the Governor’s Office of State Planning and Budgeting (OSPB) highlight similar risks to the state’s economy and the state budget. LCS predicts tight banking and credit conditions will hamper the recovery, as will the slack housing market. OSPB sees inflation and the slow growth in start-up businesses as additional drags on a robust recovery.
The forecasts also highlight similar risks to the state budget, including personal income growth large enough to trigger Senate Bill 09-228 general fund transfers. While neither forecast predicted personal income growth above 5 percent during the forecast period, both cautioned that growth in 2012 was likely to be just less than that amount and could easily exceed 5 percent if theeconomy continued to strengthen. If personal income growth exceeds 5 percent, then according to SB 09-228 the state must transfer limited general funds to capital construction and transportation, and also increase the statutory reserve from 4 percent to 4.5 percent. Those transfers were estimated at roughly $235 million.
Again, neither the LCS nor OSPB forecasts account for the normal budgetary pressures of rising costs or caseload growth in the projections for Fiscal Year 2012-13. Nor do they highlight the reductions in services that have been made over the past three years. If Colorado had continued to provide the same level of services for General Fund programs and accounted for caseload growth and inflation, the Fiscal Year 2011-12 budget would be roughly $1.8 billion more than actually budgeted. (Figure 1) Thus, while both forecasts note higher revenues available for appropriation in Fiscal Year 2012-13 and evidence suggests that the demand for basic assistance like Medicaid and unemployment insurance have leveled off from the peak of the recessionii, any additional General Fund dollars could easily be consumed by inflation and caseload growth alone.
