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Hidden bummer factors abound for education

The headline from the June state revenue forecasts is bad enough – Colorado state government faces a cumulative general fund revenue shortfall of $838 million through the middle of 2012, meaning no respite from budget cutting and fund shifting.

But, while higher education actually may be somewhat shielded from further cuts, the fine print of the forecasts contains some disheartening news for K-12 schools.

Legislative and executive branch economists gave their quarterly revenue forecasts to the Joint Budget Committee and other legislators during a standing-room-only packed with executive branch officials and lobbyists.

Revenues are $249 million short to fund the current 2008-09 budget, which closes June 30. However, mechanisms approved by the 2009 legislature will allow Gov. Bill Ritter to balance that budget without the need for additional legislative action. Total state spending from all sources is about $18 billion. The tax-supported general fund provides about $7.5 billion of that.

“We will be able to hold 2008-09 solvent … so we will not have to have a special session,” concluded Sen. Moe Keller, D-Wheat Ridge and chair of the Joint Budget Committee.

However, the $249 million gap will roll into the 2009-10 budget, which along with additional projected shortfalls will bring the total to $873 million through the 2010-11 fiscal year, declining slightly to $838 million by the end of fiscal 2011-12. (The 2009 legislature previously had to cut or replace $1.4 billion in the 2008-09 and 2009-10 budgets.)

While the forecast appears to mean the 2010 legislature will have to look hard for budget cuts and fund transfers, it may be difficult to get serious money out of higher education or K-12 spending.

State colleges and universities traditionally have been the budget-cutting victims in past downturns because higher ed has no dedicated or protected sources of revenue.

But the federal stimulus – the American Recovering and Reinvestment Act – requires states to keep higher ed state spending at 2005-06 levels to be eligible for federal aid. That’s just what the 2009 legislature and Ritter did – reducing state support to those old levels and then keeping overall college spending at 2008-09 amounts with $300 million in stimulus funds. (Tuition increases of 9 percent across the higher ed system also are part of the budgetr.) The plan is to effectively freeze college spending at current amounts through 2009-10 and 2010-11, when the stimulus ends.

Additional cuts in state support would require federal waiver to avoid loss of the stimulus money.

So, “higher education is not an option because it actually is protected by the federal government,” Keller said.

K-12 is protected by Amendment 23, although it now appears doubtful that the $110 million in school aid that’s being held in “escrow” until January will be released.

There also is expected to be increased debate over whether some parts of K-12 spending – primarily the so-called factors of cost of living, at-risk and school size – are covered by Amendment 23. Earlier this year, some lawmakers urged doing that, but the escrowed $110 million was the compromise that made it out of the 2009 session. Even that step was seen as an A23 violation by some/

Deeper in the economic forecasts is additional bad news for education. The Office of State Planning and Budgeting is projecting 0 inflation in 2009, which could dramatically affect calculation of the Amendment 23 formula for the 2010-11 budget year.

“We’re showing very low levels of inflation – flat – for 2009,” said Todd Saliman, OSPB director.

Inflation in 2008 was 3.9 percent for 2009-10 budget, meaning state support of K-12 spending increased 4.9 percent, including the 1 percent sweetener required by A23. Legislative Council is predicting .4 percent in 2009 and 1.6 percent in 2010. The OSPB is predicting 0 percent in 2009 and 1.5 percent in 2010.

If OSPB is right, that could mean a 2010-11 increase of state support for K-12 of only 1 percent plus enrollment growth and whatever backfilling the state has to provide because of drops in local property tax revenues.

According to the OSPB forecast, “the budgetary increase for K-12 education in FY 2010- 11 is predominately anticipated to be a function of changes in pupil count, changes in local share from revisions to property valuations, and the mandatory 1.0 percent increase required per Amendment 23. Because personal income growth from 2008 to 2009 is projected to equal 0.2 percent, the 5.0 percent General Fund maintenance of effort requirement for K-12 total program will be suspended for FY 2010-11.”

With so much pressure on the overall budget, many lawmakers will resist giving K-12 more than A23 requires.

Sen. Bob Bacon, D-Fort Collins and chair of the Senate Education Committee, attended Monday’s briefing, along with several other lawmakers who aren’t JBC members.

After the meeting, he predicted to EdNews that the debate over the factors will reopen and said, “K-12 is not positioned well,” given the predicted low inflation. He noted that things could be especially difficult for districts with declining enrollment – well over half of Colorado’s 178 districts. Even with the current state increase, many districts are cutting overall spending – and resisting teacher demands for raises – because overall costs are rising faster than state aid.

State personal income also is declining, which could reduce revenue flowing into both the State Education Fund and the amount of general fund money that has to be used to support the Amendment 23 formula.

The SEF receives one-third of 1 percent of income tax revenues. The Legislative Council report said that that the fund received $407.9 million in 2007-08, will get $339.9 million in 2008-09, down 16.7 percent, and $340 million in 2009-10.

Some legislators, most notably Sen. Chris Romer, D-Denver, argue that a Colorado Supreme Court decision earlier this year allows lawmakers to eliminate tax exemptions and raise revenue with voter approval. The budget pressures could make doing so attractive, but there will be countervailing political pressures in an election-year session.

House Speaker Terrance Carroll, D-Denver, said Monday, “For many lawmakers, this will be one more push to engage our constituents in a larger discussion about the role of government.”

The next revenue forecasts will be issued in late September, at about the same time the Ritter administration will begin making detailed suggestions for budget rollbacks to the JBC.

Ritter said Monday, “I will be meeting with the JBC, legislative leaders and my budget staff in the coming days to put together that balancing plan.”

The annual December forecasts tee up the budget debate for the legislative session, and then lawmakers generally wait for the March forecasts before finalizing the upcoming fiscal year’s budget.

One more higher ed note

The 2008 legislature created a Higher Education Federal Mineral Lease Revenue Fund designed to provide a revenue stream for backlogged college construction projects. The OSPB forecast estimates that those revenues will be sufficient to continue payments on existing projects but recommends that no new projects be started because of weak interest revenues in the fund.

Do your homework

For budget mavens, both reports provide a great deal of detail both about state finances and the current condition of the state and national economies. (The Legislative Council report also includes economic snapshots of various Colorado regions.) As is usually the case, legislative economists generally are more pessimistic this time than those in the executive branch. The major difference in this round of forecasts appears to be over estimates of unemployment.

Legislative Council forecast
Office of State Planning and Budgeting forecast

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