Forecasts show state revenue is up, just in time for Legislature’s Long Bill

Work by the entire General Assembly on the 2011 Long Appropriations Bill is going to be delayed, possibly by as much as a week, based on last-minute work being done on the budget package by the Joint Budget Committee.

The Senate was planning to start its work on the Long Bill next Monday, according to Senate leadership. But as of Wednesday afternoon, JBC still had about a half-dozen issues to resolve, including the stickiest: cuts to K-12 education, despite a revenue forecast last week that showed the state was in better shape than had earlier been anticipated. And that prompted the committee to put the wheels in motion to ask for a delay on its introduction. Rep. Mark Ferrandino, D-Denver, told The Colorado Statesman that the delay could be as long as a week, to allow the budget package to begin working its way through the Senate on a Monday, and that means the bills could be introduced on April 4.

The last major item holding up the budget process is the K-12 budget, according to Ferrandino, but there are also a few other items not yet discussed from Gov. John Hickenlooper’s 2011-12 budget request. Standing issues yet to be resolved include transfers from severance tax funds, and suspensions of vendor fee allowances and cigarette sales tax exemptions.

The governor’s 2011-12 budget proposal includes a number of one-time transfers, including more than $90 million from two severance tax funds. Another $65.1 million would come from suspending a sales tax vendor fee allowance, and $30 million from suspending a sales tax exemption on cigarette sales.

Hickenlooper did get what he wanted on the state’s statutory reserve: Ferrandino said it would be funded at the full 4 percent allowed under law. The initial budget proposal submitted by then-Gov. Bill Ritter last November suggested a 2 percent reserve, but Hickenlooper wanted the reserve back at its 4 percent level to begin addressing structural problems in the state budget.

The last issue, K-12 funding, is also still being negotiated between the JBC and the governor’s office, and it’s an issue being watched very closely by Senate Democrats.

Hickenlooper has proposed a $275 million reduction to the K-12 budget in 2011-12, and the state also will not cover another $117 million in lost property tax revenue that funds local school districts. In total, that’s $332 million less than was proposed by Ritter last November (Ritter had proposed a slight increase in K-12 funding, although well below what schools would get under Amendment 23).

And if K-12 takes the hit proposed by the governor in the Long Bill, Senate Democrats will be armed with amendments to reduce the size of those cuts when the Long Bill finally arrives.

Last month, Senate President Brandon Shaffer, D-Longmont, asked chairs of Senate committees to go back over the budgets of the departments they oversee, to find more cuts in the budget with the savings directed to K-12 education. Those ideas were due to Shaffer by March 7, and he’s been holding them close ever since, making sure all ideas were properly vetted before releasing them publicly.

One idea has already surfaced: a bill from Ferrandino and Sen. Pat Steadman, D-Denver, to bring back a tax amnesty program that would encourage those with delinquent taxes to pay up. The two legislators hope that program could bring in about $15 million.

Shaffer said Monday the ideas generated by the committee chairs would start materializing as amendments that will come up in the caucus meetings that take place in conjunction with the Long Bill process.

On March 19, economists with the Office of State Planning and Budgeting and the Legislative Council said the state economy is growing at a slightly higher rate than was estimated three months ago, based in part on an improving job market, a drop in unemployment insurance claims and increased business spending.

Kate Watkins of the Legislative Council said the economy is slowly getting on its feet, in the March 19 presentation to the Joint Budget Committee. There are still concerns about inflation, especially for food and energy, and reductions in government spending will put a damper on growth, she said.

The recent earthquake and tsunami in Japan also had lawmakers’ attentions. Watkins reported that Japan is the state’s sixth largest importer, with $318 million in sales. While demand for exports may weaken, she said, they’re likely to go up as the country rebuilds.

But the best news may have come from chief Economist Natalie Mullis, who said the General Fund forecast had been revised upward from December, to the tune of $161 million. Some of it is one-time funds, she said, from one payment of delinquent taxes from one individual of $40 million to $45 million.

The good news didn’t stop there. The 2010-11 budget is balanced, thanks to the budget package passed by the General Assembly and signed into law by Gov. John Hickenlooper; the last of the bills in that package were signed last week.

In fact, the budget-balancing package actually left the state with more money than originally expected, about $447 million over and above the statutory reserve. By law, those dollars will be transferred to the state education fund, which leaves the Legislature with some decisions to make, Mullis said.

And the work of shoring up the 2011-12 budget may not be quite as difficult, based on the updated forecast. The $1 billion shortfall for 2011-12, predicted in the December forecast, has been cut down to $601.7 million, and if the Legislature elects to use the State Education Fund transfer to alleviate the shortfall, it drops even further, to $152.5 million, according to the forecast.

“This is definitely positive information,” said JBC member Rep. Mark Ferrandino, D-Denver, but he cautioned those in the audience Friday that a lower shortfall does not mean the Legislature will not have to make cuts. “We still see significant cuts…we still have a long term structural deficit,” but the improved forecast does give the JBC some breathing room in the next few years.

The forecast from OSPB was closer than usual to that of the Legislative Council. Jason Schrock, who recently left Legislative Council to work for OSPB, said the two estimates assumed similar job growth and that the only meaningful difference is long-term, where OSPB assumed slower revenue growth. “You need to be cautious,” Schrock told the JBC. There are some positives going on, especially in manufacturing, he said, but the state needs to be concerned about the situation in Japan and about rising prices. Both events may cause “heightened uncertainty” for the economy that could hold back job growth and investment, according to Schrock.

Shaffer said Monday that much of the extra revenue comes from one-time money. “We don’t want to get too excited if it’s one-time money,” he told reporters Monday. “We want to make sure we’re moving forward in a prudent manner,” but added that constituents have asked Democrats to find ways to reduce the size of the K-12 cuts.


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