DU study: State budget woes never-ending

The Colorado Statesman

A legislative-commissioned study released last week by the University of Denver shows the state faces an enormous structural imbalance, and that even a recovery from the recession won’t be enough to resolve the state’s budget problems.

DU’s Center for Colorado’s Economic Future released the report on Feb. 25. Center Director Charlie Brown, formerly with the state’s Legislative Council, presented the report to a handful of mostly Democratic legislators in the Old Supreme Court Chambers. Only one or two Republicans viewed the Friday presentation.

“Our analysis is not a budget forecast,” according to Brown, but rather a “straightforward comparison of expenditures versus revenues over time.”

The center’s revenue forecast shows a healthy recovery beginning in 2012 and continuing for 3 years, before leveling off to a steadier rate of growth. The state also can expect to add 280,000 jobs during that three-year period, twice the number lost during 2009 and 2010.

The report said Colorado’s budget problems are both cyclical and structural. The cyclical refers to the “extraordinary revenue shortfalls” that have taken place in the last decade. But the structural imbalance is a result of the state’s fiscal policy, and without change it “will ensure that Colorado’s budget problems persist for many years to come.”

Even with a strong recovery, the report said, state revenues will not be sufficient to cover Colorado’s share of Medicaid, K-12 education and corrections funding.

The Center modeled General Fund revenues for the three largest budget areas: Medicaid, K-12 education and corrections. Expenditures in Medicaid are expected to triple by 2025; K-12 costs will double in that same time period.

The report said “more than all of the ‘new money’ the state gets from revenue growth” will be needed for K-12, Medicaid, and corrections, beginning in 2012-13 and continuing through 2024-25.

General Fund revenues are expected only to increase by 86 percent during the forecast period. That means that all other areas of state government that are funded by General Fund dollars, including higher education and human services, will need to be cut by 60 percent, the study said.

And inflation during the forecast period also means the value of those dollars will be reduced by some 46 percent.

Colorado cannot expect to grow its way out of its budget problems,” the report said.

The report also said Colorado’s revenue system is more volatile than any of the other states, and in fact more volatile than all of the other states combined. This is because the General Fund relies on individual income taxes, which makes revenue collections subject to the ups and downs of the economy. Volatility works in the government’s favor in boom times but can be devastating for the state budget during recessions, the report said.

Brown also pointed out that state tax collections will change as baby boomers retire and go onto fixed incomes. Expenditures by baby boomers tend to shift from taxable goods to things that aren’t taxed, he said, such as medical services and prescription drugs, and that will reduce sales taxes.

The DU study, which was commissioned through Senate Joint Resolution 10-002, reflects the first phase of the center’s work; Brown said he hoped to have the full study, with recommendations, completed by June 30. The study is projected to cost about $500,000, funded through gifts, grants and donations from nine private foundations, as well as substantial direct support from DU.

Sen. Minority Leader Mike Kopp, R-Littleton, said Friday the DU study “has it right where it stated that we can no longer ignore the budgetary problems we face or pass the work off for a later time. This is why Senate Republicans have introduced legislation to reduce the cost, size and complexity of government by establishing core functions and a clear set of priorities.”

Kopp’s efforts include Senate Bill 11-041, which would ask the Legislative Audit Committee to appoint a task force to hunt for waste, fraud and abuse, cost savings and other efficiency measures in state agencies. The bill passed the Senate Finance Committee on Feb. 3 and awaits action from the executive committee of the Legislative Council.