Revenue forecasts show state is not done cutting for 2010-11

By Marianne Goodland

Colorado’s June revenue forecasts, released on Monday, showed the state is going to have to make more cuts in the 2010-11 budget, on top of the more than $1 billion already slashed from the state budget during the most recent legislative session. The next round of cuts will be much smaller, to the tune of $75 million. Gov. Bill Ritter is responsible for submitting a plan to lawmakers to come up with those cuts, and he said Monday he would do that later this summer.

But if Congress doesn’t act soon on a jobs bill currently stalled in the Senate, $75 million will be just a small drop in the bucket.

To balance the 2010-11 budget, lawmakers decided to include about $245 million in enhanced Federal Medicaid Assistance Percentages (FMAP) dollars, money that they hoped would be in the bank by the end of 2010. The enhanced FMAP funding began under the American Recovery and Reinvestment Act last year to address increased Medicaid caseloads and high unemployment due to the recession. According to the Colorado Fiscal Policy Institute, Colorado would get at least $750 million over three years: $239.7 million in 2008-09; $317.7 million in 2009-10; and $185.9 million through December 31, 2010. If an extension is passed by Congress, another $245 million would be available. The legislative decision to include the hoped-for FMAP extension was based on strong support in the U.S. Senate, where 63 senators voted to support it.

At least 30 states have incorporated enhanced FMAP payments into their state budgets for 2010-11, and the National Governors Association lists 47 governors as supporting the extension of the FMAP payments to June 30, 2011. In a June 22 letter to Congressional leaders asking that they support the extension, the NGA said that 2010-11 will be the worst year in the recession for state budgets before “modest revenue growth” is expected to begin in 2012, and that states face aggregate budget shortfalls of $127 billion. “Delaying action until the end of the calendar year will force states to act now to reduce pending budget gaps by enacting further cuts in their workforce and core services, both of which will serve as a drag on the economic recovery,” the letter said.

The enhanced FMAP funding passed the House months ago in two different bills but is now stalled in negotiations between the House and Senate. According to the National Conference of State Legislatures, discussions are ongoing in the Senate regarding a scaled-down FMAP package, which has the support of several swing-vote senators. Last week, Sen. Max Baucus, D-Mont., and Sen. Charles Grassley, R-Iowa, said they would present a separate measure on the FMAP extension, but it was dismissed by Speaker of the House Nancy Pelosi, D-Calif., as inadequate without the rest of the jobs package.

Ritter said Monday he would be watching the FMAP situation throughout the summer and is hopeful that an extension will pass. But if Congress does not pass the extension, probably by its August recess that begins August 7, Ritter said he would have to make more cuts.

The revenue forecasts released Monday by the Legislative Council and the Office of State Planning and Budgeting differ slightly, but both say the state’s budget for 2009-10 and 2010-11 fell short of revenue projections. According to the OSPB forecast, the 2009-10 budget was out of balance by $74.5 million. The Legislative Council forecast had a different take, stating that the state budget was balanced but had only $80.9 million in general funds in the statutory reserve, about 1.2 percent, but below the 2 percent statutory reserve required in state law. That was after action by the Ritter administration last week to delay into the next fiscal year payments to Medicaid providers, to bring in about $38 million for 2009-10; and to tap into a CollegeInvest scholarship fund that was being phased out, about $29.8 million.

No further action is necessary by Ritter or lawmakers to balance the 2009-10 budget. According to Lisa Esgar, OSPB deputy director, the statutory reserve will be used to balance the budget at fiscal year’s end.

That leaves 2010-11 to deal with, but lawmakers are facing much bigger concerns about the 2011-12 budget.

Monday, the newly-configured Joint Budget Committee, now chaired by Rep. Mark Ferrandino, D-Denver, met with economists from the Legislative Council and OSPB to review the forecasts.

“We’re more optimistic than the last time,” said Chief Economist Natalie Mullis of Legislative Council. “We have money in the bank at the end of the year and next year,” she told lawmakers. But that was tempered by comments from Kate Watkins, also of Legislative Council, who said high consumer debt and high unemployment are slowing Colorado’s climb out of the recession.

Those factors will continue into next year, she told the JBC, and while the economy will continue to grow, slowly, it will be marked by “fits and starts” rather than steady growth.

The forecasts were down for June, according to Mullis, because estimated payments for individual income tax were lower than expected. In addition, she said, people and businesses have been unable to pay their tax bills or are caught up in the resolution process with the Department of Revenue. Instead of a cushion of $335 million the state will end up with a reserve of just $80.9 million at year’s end. Mullis said that should be sufficient to cover any end-of-fiscal year obligations. “It’s possible that [80.9 million] is too close to call but I think we’re okay,” she said.

Fiscal year 2010-11 will start with less money than expected, Mullis said; enough to cover the 2010-11 budget passed by lawmakers but not enough to maintain the 4 percent statutory reserve required under legislation passed earlier this year. As a result, she explained, state law requires Ritter to come up with a plan to bring the reserve back to at least 2 percent; Legislative Council estimates the cuts at $37 million; OSPB’s estimate is $75 million.

Both revenue forecasts assume the state will get that enhanced FMAP funding, but if that doesn’t happen the budget will be short $245 million.

The outlook for 2011-12 is worse. On July 1, 2011, the state will no longer have funds from the ARRA that it relied on to balance the 2010-11 budget, about $617 million. And with mandatory spending increases that shortfall will likely be closer to $1 billion, according to economists.

Even though he will not be governor when the 2011-12 budget goes into effect, Ritter is responsible for submitting a 2011-12 budget to the JBC on November 1. But for the immediate future, Ritter is focusing on the shortfall in the 2010-11 budget. “We’ve cut spending and closed shortfalls of almost $3.5 billion and more to come,” he said Monday. He said he expects to submit the plan to cut $75 million in August, and “nothing is off the table.” Ritter said he hoped to spare K-12 any more cuts to cover the $75 million but if the FMAP extension doesn’t come through that could change. Ritter also said he did not plan to suspend or eliminate more tax credits or exemptions as was done by the Legislature earlier this year.

“We will ensure we do what is necessary to keep the budget balanced and remain aggressive about economic development and economic recovery,” he said.

Ferrandino, in a statement issued later in the day, said the state is in a position to recover. “But we will keep cutting government back, just as families around the state are cutting back,” he said. Ferrandino also criticized Republicans for wanting to give corporations special tax breaks and restore funding of pet programs, which he said Democrats had resisted in an effort to prevent larger cuts.

“It’s not as bad as it could have been,” said Sen. Mary Hodge, D-Brighton, sitting in her first JBC hearing as a member of the committee.

But Republicans were not so optimistic, and charged that the state’s economy is worse than the forecasts would indicate. Rep. Cheri Gerou, R-Evergreen, expressed concerns about continuing bank failures, and unwillingness by banks to extend credit to small businesses. She said she is aware that two downtown Denver high-rise commercial properties are about to be turned over to their banks (she did not identify those buildings). Gerou, a first-time JBC member, said she had hoped to see a better economy and budget, said the state is “not out of the woods. Most people don’t feel optimistic” about the economy, she told The Colorado Statesman. “Every citizen in Colorado has had to cut in the last 12-18 months; the government has to do the same.”

In the Senate GOP response, Senate Minority Leader Mike Kopp, R-Littleton, said the state is faring worse than the rest of the nation in recovering from the recession, and attributed it to “Democrats’ anti-business policies” such as repealing tax credits and exemptions, and new oil and gas regulations approved last year. Sen. Greg Brophy, R-Wray, said Ritter and Democrats have been “taxing, feeing, fining, and penalizing Coloradans every way they can to increase state revenues.” While citizens have had to tighten their belts and businesses are laying-off workers, “government seems to be spending more money, hiring more workers, and raising taxes to pay all these new bills.”