Projected budget gap either bad or REALLY bad
By Chris Bragg
Is this year’s budget gap in Colorado a whopping $604 million or a manageable $77 million? That depends on which report you read.
In competing reports that came out Dec. 19, the non-partisan Colorado Legislative Council cited the big figure, the governor’s office the much smaller one.
Legislative Council Chief Economist Todd Herreid tried to explain to lawmakers at a hearing Monday Dec. 22 why he estimates that the shortfall will be almost six times higher than the governor’s office thinks it will be.
Calling the disparity between the reports “concerning,” Herreid told the Committee on Job Creation and Economic Growth that the Legislative Council had projected much lower revenues from 2008 capital gains taxes than the governor’s office projected. That accounts for $250 million to $300 million of the difference between the estimates, he said.
The authors of the two wildly different reports will work together over the coming weeks to determine which is correct. If Herreid’s more pessimistic projection is accurate, it could impose further limitations on what the committee — and the Legislature — can do this session to create new jobs.
Republicans certainly were prepped to believe the more pessimistic predictions. They’d warned of a coming recession as they’d tried to cut spending in last year’s budget.
“The dark clouds of recession have been looming for many months,” said incoming Senate Minority Leader Josh Penry, R-Fruita, in a statement. “The Legislature should steel itself for very difficult budget times, and ignore naïve forecasts of sunny days and blue skies.”
One piece of good news is that neither revenue forecast accounted for the likelihood of an economic stimulus from the incoming administration of President-elect Barack Obama.
And tapping into the state’s savings could further cushion the blow.
But there will be cuts or “pain,” as several legislators described it. Department heads already are required to cut their budgets by 2.5 percent. In addition, funding for state employees, higher education, capital construction and transportation projects could go on the chopping block.
And so could four proposed job-creation projects recently laid out by Gov. Bill Ritter. The proposals would offer tax breaks for companies creating 20 or more new positions, give $2.5 million for private banks to use to help unfreeze the credit market, designate $1 million for workforce training in “green” jobs and put $1.4 million into economic development incentives for clean energy companies.
Many Republicans, however, say the problem is not a lack of skilled workers, but rather a lack of jobs — and that the money would be better spent on a tax cut.
At the hearing Monday, Governor’s Office of Economic Development Director Don Elliman said he thought at least some of Ritter’s proposals would be “revenue neutral” — because any spending would be offset by added tax revenue created by the incentives — and that he feels they all should be implemented by the Legislature, despite the bleak economic forecast.
“I would hope that we’d be able to keep some or most of these,” he said.
That sentiment was echoed by Sen.-elect Rollie Heath, D-Boulder, who added that he would introduce a bill this session allocating $800,000 to promote clean energy jobs.
“I would think this is really the time to invest. If we’re not investing in jobs, then I don’t know what we’re going to invest in,” Heath said.
Elliman noted that, compared to most states, Colorado’s ability to stimulate the economy is limited. The state is constitutionally required to balance its budget, it is not allowed to issue bonds, and the TABOR amendment requires a public vote to increase taxes.
“We’re sort of in a fiscal Gordian knot. And that’s not going to change,” Elliman said.
To best use limited resources, he favors Ritter’s proposal to give a tax break to companies creating 20 or more jobs. He says he likes the idea because it would stimulate certain industries that wouldn’t create those jobs without the credit — in contrast with existing programs he considers less efficient, such as Enterprise Zones, which provide tax incentives based on the location of a business.
Sen. Gail Schwartz, D-Snowmass, who chairs the job creation committee, said because money is limited, the panel probably will have to focus on speeding up projects that already have money allocated to them and on tax incentives, rather than on creating new programs with new price tags.
In other words, no one knows how much the Colorado Legislature can do this session to dull the economic pain. Rep. Joe Rice, D-Littleton, said part of the long-term answer would be new taxes and new fees that could create jobs by funding transportation projects.
“There are many people’s lives that are going to be hurt — or in some cases, ruined — because of what we are not going to be able to fund anymore,” Rice said.