Budget tsunami warning

Report: Flaw in revenue system may lead to cuts, tax hikes, more

Gene Davis, DDN Staff Writer

Wednesday, July 8, 2009

Colorado’s “budget tsunami” is threatening to swamp state finances and cause more hikes in college tuition, deeper cuts in state government services or a ballot box request for higher taxes, according to a report released yesterday by the Center for Colorado’s Economic Future at the University of Denver.

The report titled “Colorado’s State Budget Tsunami” claims there is a structural flaw in the revenue system that supports much of Colorado’s state government. The report’s authors — Charles Brown, director of the Center for Colorado’s Economic Future at the University of Denver (CCEF), and former Denver Post editor Jeffrey A. Roberts —said the structural problems could reach a boiling point for the 2010-11 fiscal year when $1 billion in one-time money that was used to help prop up the 2009-10 general fund budget isn’t available.

“I’ve been an observer of the state budget for about 35 years … and I can say with great confidence that this is the worst financial problem that I think the state has faced, certainly in my time,” said Brown.

Brown said the budget problems come from state taxes and state tax revenue not growing at a sufficient pace to keep up with the growth in services — namely Medicaid, prison funding and K-12 education — that the state provides.

In 1999, around 54-percent of general funds were used for the three services. The services now take up around 76 percent of general fund revenue, and that number is expected to possibly rise to 90 percent over the next five years. The increase is partially due to the voter-approved Amendment 23 requiring per-student funding to be increased at a set rate each year and from an increase in Medicaid caseloads, the report says.

Meanwhile, a drop in state revenue has forced lawmakers to fill a $1.4 billion gap for the 2009-10 fiscal years.

“This would be sort of like in your personal budget as a family, if you’re in a position where you have several items within your personal budget … (that are) all growing at a faster rate than your income,” said Brown. “Now think of what would happen in the event that your income declines for a few years but those costs continue to increase; that’s basically what the Legislature is facing.’

For its part, Gov. Bill Ritter’s office on Monday sent a letter to state department heads providing additional budget-reducing guidance for both the 2009-10 and 2010-11 fiscal years. Ritter’s budget director Todd Saliman said in the letter that most the proposed cuts — which include a $200 million reduction in K-12 education in the 2010-11 fiscal year — should continue into the 2011-12 fiscal year to prevent the need for future cuts.

“I cannot emphasize enough how difficult our budget situation is,” said the letter from Saliman. “I know that these reductions are painful and difficult to develop.”

Study the issue

Brown said it’s time to conduct a comprehensive study of Colorado’s state and local revenue system. The last such study was conducted during the recession of 1957-58 and produced 27 recommendations for improving Colorado’s economic health, 22 of which were implemented from 1960-83.

Brown guessed that conducting such a study today could cost somewhere in the $2 million range, though he didn’t know an exact number. He said CCEF would be delighted to be involved in such a study, which would likely be funded with help from the state and private entities, and that the end result could provide a long-term useful resource for lawmakers.

However, while Ritter’s office acknowledged there is a structural flaw with Colorado’s budget process and that the more objective information on the topic the better, Ritter spokesman Evan Dreyer said the current budget difficulties make it harder for the state to fund such a report

“We’re dealing with a $945 million shortfall over the next two fiscal years — on top of the $1.4 billion shortfall we’ve already closed — so coming up with $2 million for a study, even a critical one like this, will be quite a challenge at best,” he said.

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