Published February 2009 Vol. 13 Issue 1
by Hank Lacey
The nation’s economy is sinking deeper into the worst recession in decades. More and more Coloradans are suffering stagnant wages, loss of health insurance, unemployment and even the loss of their home.
Driven by deteriorating economic conditions, the Office of Legislative Council says Colorado is facing a budget shortfall of more than $600 million this year and about $300 million for the 2009 fiscal year, which starts July 1. The consequences are likely to be big cuts to many government services that people all over the state, but especially in the Denver urban area, take for granted.
The state has been down this road before. Between 2001 and 2003 Colorado faced budget shortfalls that eventually reached about $850 million in FY 2003 and about $900 million in FY 2004. The General Assembly balanced the budget, as the state constitution compels it to do, by imposing across-the-board cuts to state agencies and by using a variety of accounting measures to move expenditures into future years.
This time a solution might not be found so easily. Gov. Bill Ritter said as much during his annual State of the State speech on January 8.
“Unlike the previous recession, our options are more limited this time," Ritter said during his address to the General Assembly. "Therefore, everything will be on the table."
The reality, though, is that not everything on which the state spends money can be cut.
First, the bulk of the public dollars allocated to K-12 education can’t be touched by legislators. That’s a result of Amendment 23, a constitutional change approved by the voters in 2000 that requires state funding for public schools to rise by the rate of inflation plus one percent through 2010, and then by the rate of inflation every year after that.
Second, it’s difficult for the General Assembly to cut spending on Medicaid, which is crucial to low-income people who are not likely to carry private health insurance, because the dollars the state spends on Medicaid are matched by the federal government. That means any cuts will be met by an equivalent reduction in the money Washington sends Colorado’s way.
Third, the legislature cannot simply raise taxes. Under the Taxpayers Bill of Rights, the 1992 brainchild of Colorado Springs conservative activist and recent legislator Doug Bruce, the state would have to secure voter approval before raising tax rates. Moreover, a five-year “time-out” from TABOR’s cap on the total amount of tax revenue that may be kept by the state government will expire in 2010.
Wade Buchanan, the president of the Bell Policy Center, says the legislature must be particularly careful before trying to recoup all of the nearly $1 billion that must be found this fiscal year and next by spending cuts alone.
“It’s not clear that the only response is to cut that much money from this year’s budget,” Buchanan said. “That’s a huge shock to the system that would have, among other things, a pretty significant recessionary impact.”
Despite the constraints in finding more money, Gov. Bill Ritter’s budget adviser was optimistic that the state could balance its budget, as its constitution requires, when he appeared before the Joint Budget Committee on January 16.
Todd Saliman, director of the Office of State Planning and Budgeting, told legislators that Ritter believes the state can close more than half of this year’s shortfall by tapping into the state’s emergency reserve and by transferring or diverting money from a variety of cash funds into Colorado’s general fund, which finances most government expenditures.
Saliman said the rest of the expected deficit, which he estimated at $632 million, should come from spending cuts.
The governor’s recommendations for cuts, if accepted by the legislature, include two significant blows to lower income families. They would eliminate all funding for the full-day kindergarten program approved by the General Assembly last year, which would have allowed at least 20,000 more kids to obtain that early childhood educational boost.
The reductions would also take back all of the increase in the Children’s Health Program (CHP) approved during Ritter’s tenure as governor. CHP provides low cost health insurance for impoverished children and pregnant women.
One reason that spending cuts are likely is that the state’s statutory reserve has only about $300 million in it. Colorado has never created a “rainy day” fund that would help the state through an economic downturn and the reserve created by TABOR is basically unavailable.
“What TABOR did was to set aside 3% of the budget into a reserve fund, but there are very strict restraints on how that money can be spent,” Barry Poulson, a policy analyst with the libertarian, and pro-TABOR, Independence Institute, said. “Essentially, if the legislature spends it they have to replenish it within the same fiscal year. It really doesn’t function the way a true rainy day fund functions.”
Nor is the demanding threshold necessary to tap the TABOR reserve the only barrier to creating a larger state savings account.
Wade Buchanan says the General Assembly simply hasn’t had the flexibility to set aside more money.
“In good economic times, when you would want to put some money aside for a rainy day, TABOR has made us give back to taxpayers those funds a state might otherwise use for a rainy day fund,” he said. “The second reason is that we’ve been in a recession or recovering from a recession.
Unfortunately, of the general fund expenditures, which are the only ones the legislature can reduce, about $3.2 billion goes to K-12 education, about $1.5 billion to healthcare (i.e., Medicaid), about $1 billion to fund prisons and the judicial system, about $800 million to colleges and universities, and about $680 million to human services.
Ritter has suggested that funding for colleges and universities should be reduced by $30 million this year, which would be one of the largest single cuts to this year’s state budget.
Buchanan agrees that higher education is likely to be a big target, but he thinks it is a counterproductive strategy because it will make it more difficult for low-skill workers to gain the knowledge needed to strengthen the state’s economy.
Aside from the colleges and full day kindergartens, another fertile area for spending cuts may be programs aimed at improving academic performance of at-risk kids. Those aspects of K-12 education are not covered by Amendment 23.
Saliman told the Joint Budget Committee on January 16 that Ritter believes spending cuts should include $4.9 million from charter school construction, $1.8 million from reimbursements to school districts for costs associated with military dependent enrollment, $1 million from grants to help pay for alternative teacher recruitment and retention programs and $973,000 from grants to help pay for summer school programs.
In any case, Rep. Andy Kerr says, the budget crisis is definitely going to hit the less fortunate of Colorado.
“The budget shortfall is going to have a large impact on those people who are most vulnerable, the low-income people, and the elderly on a fixed income,” he said.
Buchanan says he hopes the outcome will be a stronger commitment to providing for the less fortunate.
“It’s a real teaching moment we have,” he said. “I hope, in the rush of cutting the budget, we don’t lose sight of why we have government in the first place and what we need it to do for us.”•