Budget panel told state is headed for cliff

By Jason Kosena
THE COLORADO STATESMAN

We ain’t seen nothing yet.

That was the message given to a legislative commission Wednesday by state budget experts who predict the General Assembly will have to cut from $900 million to $1 billion from the 2010-11 fiscal year budget.

How much is that? It’s about 25 percent of the General Fund, or the equivalent of the state budget for a fourth of Colorado’s public schools, or every penny that goes to higher education or the entire prison system.

Gov. Bill Ritter’s office confirmed that the dismal estimates were valid last week in a letter to department heads.

The predictions were delivered to the 16-person, bipartisan Long-Term Fiscal Stability Commission at a Wednesday meeting, the first of many that will continue throughout the summer. Hopes are that the commission will show the Legislature how to restore Colorado’s fiscal health.

But prospects are bleak.

One of the last presenters on Wednesday was Charlie Brown, former executive director of the Legislative Council staff, who now directs the Center for Colorado’s Economic Future at the University of Denver. Brown released a study this week that goes into painstaking — and painful — detail in explaining how constitutional amendments such as TABOR, Amendment 23 and other spending limits have tied the Legislature’s hands, making it impossible to budget effectively.

Brown portrayed a state heading for a massive fiscal crisis on cruise control.

“I think what gave rise to this report is a gut level fear that I have that the door is closing as you look down the road,” Brown said. “I see an increasing amount of money in the state’s budget being soaked up by K-12 education, Medicaid and prisons. And when you see these three departments growing at a rate that is two to three times faster than the General Fund, something has got to give.”

According to the DU study, titled “Colorado’s State Budget Tsunami,” Colorado is currently spending 76 percent of the General Fund on K-12 education, Medicaid and prisons.

With Amendment 23 increasing K-12 education spending each year, and the caseload increasing annually for both Medicaid and the correctional system, Brown said that in five years the programs would soak up 91 percent of the General Fund. In addition, if nothing changes, the increased spending for the programs eventually will require 100 percent of the General Fund — leaving nothing to fund any other state government program.

More alarming than Brown’s bleak portrayal of the state’s fiscal problems, however, was his inability to suggest any easy solutions to fix them.

Republicans and Democrats have always argued over the correct way to budget. Members of the GOP argue that state programs should be cut until solvency is reached.

Democrats, on the other hand, usually favor raising more revenue through higher taxes or fees to keep the budget balanced.

Those basic party principles haven’t changed much over the years, although a number of constitutional amendments in recent decades have muddied the waters.

But Brown indicated on Wednesday that neither approach can stop the state’s plunge into fiscal oblivion.

For example, cutting spending to make up the shortfall in the 2010-11 fiscal year would require truly draconian measures.

“You can’t necessarily cut your way out of this,” Brown said. “If you try to cut your way out, you will be dealing with a 51 percent cut to every program that is left (after K-12 education, Medicaid and prisons are funded). If you add into that the mandated programs (that are difficult) to cut from — like human services and judicial — you basically don’t have enough money left in the budget to fund that billion-dollar problem in 2010-11.”

So what about raising taxes — which would require a vote of the people?

Brown said that won’t work, either.

“Just by raising taxes, you’re looking at a 45 percent overall increase in the sales tax (and) a 22 percent increase in both the corporate and individual income tax in order to tax your way out of it,” Brown said. “We are talking about something that goes well beyond belt-tightening. We’re talking about something that is going to require a fundamental restructuring of the overall fiscal system.”

Which might turn out to be what the Long-Term Fiscal Stability Commission is really supposed to do.

Created under legislation passed by the General Assembly this year, the bipartisan commission has been charged with examining the long-term stability of the state. Its assignment includes finding possible solutions to fund higher education, transportation needs and access to health care.

Several members of Joint Budget Committee serve on the commission, including Reps. Don Marostica, R-Loveland, and Mark Ferrandino, D-Denver. It also includes such influential Coloradans as beer heir and former backer of the right-to-work amendment Jonathan Coors, Marty Nielson, the president of the Colorado Union of Taxpayers, and the Independence Institute’s Amy Oliver-Cooke, a conservative talk radio host who also serves as director of the Colorado Transparency Project.

In addition to studying the problem, the group eventually could be the basis for a wide-ranging bipartisan coalition to support a 2011 ballot initiative aimed at fixing the state’s conflicting budget statutes.

Ritter confirmed last month that he would push for a ballot fix and indicated that he hopes to develop a coalition of supporters similar to the group that backed Ref C in 2005. At the time, Ref C enjoyed the support of former Republican Gov. Bill Owens, Democrats, the business community, nonprofits and the labor community.

At least one member of the panel also believes backup will be needed.

“The committee is going to spend roughly 100 hours talking about the budget, and even if we come to a consensus (about what should be done to fix it) we only get 30-second sound bites to win over the other (5 million) people in Colorado,” Sen. John Morse, D-Colorado Springs, told The Colorado Statesman on Wednesday.

“But if the 16 of us can come to an agreement — something we can all get behind — that task of winning over the rest of the state gets easier. That is the power of this committee,” Morse said.

Marostica, who fought a battle against his own Republican Party this year to overturn the Arveschough-Bird spending limit, agreed with Morse that the committee can have an impact. Although he didn’t say a ballot initiative is the right solution, Marostica indicated that the committee should help Coloradans gain a true understanding of the budget nightmare on the horizon.

“As soon as I got down to the Statehouse three years ago I could see this coming,” JBC member Marostica told The Colorado Statesman.

But Marostica, never one to leave words unsaid, went a little further and indicated he believes the committee will make it harder for people in his own party to ignore the dismal reality of the state’s budget problems.

“We have some people sitting in here who have told the lie for a long time,” Marostica said. “And now they are going to have to face the music.”

One Republican who appeared hesitant to believe the predictions of gloom and doom that came from many who testified before the committee was Sen. Greg Brophy, R-Wray. Brophy said he believes it would be foolish to believe the state doesn’t have some serious fiscal problems that it must face in coming months, but indicated he hasn’t been persuaded that the wagon is heading for the cliff.

“If you look at Charlie Brown’s issue brief, you will see that during the good times, revenue comes in way faster than Legislative Council expects it to. And when things (go bad), it gets way worse (in terms of revenue projections) than Legislative Council expects it to,” Brophy said. “We do need to do some things fairly quickly here ... but a lot of this has to do with how well the economy here recovers.”

Brophy said he doesn’t believe any increase in revenue is needed now or in the future for the state to recover. Instead, Brophy said, the state needs to look carefully at what programs it funds, prioritize them, and then create a savings account during the next boom cycle to ensure adequate reserves are in place to offset the next downturn.

“I am not for increasing taxes,” Brophy said. “What I am for is growing the economy and reducing the regulatory authority on businesses. I think we need to grow our economy. Then revenue will come in, and then we need to be responsible about how we spend it.”

So far, it appears, consensus might be harder to come by than some on the committee hope.

Jason@coloradostatesman.com