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Panel gets good news among flood of data

The legislator-citizen panel that Wednesday began its study of Colorado’s tangled and anemic financial system got a piece of good news from a University of Colorado economist – the recession may be over.

Richard Wobbekind of CU’s Leeds School of Business said, “It wouldn’t surprise me if July 2009 will be marked as the end of the recession,” at least according to the statistical way such things are measured.

But he also was careful to note that such economic good news doesn’t mean the Long-Term Fiscal Stability Commission won’t have a lot of work to do studying and suggesting reforms for the state’s fiscal system.

“I think what you’re doing is extremely vital,” he told the panel, which includes six legislators and 10 citizen members.

Wobbekind was one of nearly a dozen people who spoke to the committee. Most of them were legislative staff members who gave the panel kind of a Budget and Finance 101 crash course to the members. The material include background on constitutional provisions like the Taxpayer’s Bill of Rights and Amendment 23, a walkthrough of the general fund budget and details on the state’s current revenue crunch.

Members of the panel also spoke at the beginning of the meeting, introducing themselves and voicing their expectations for the study. The members represent a wide ideological range, and there’s been speculation about whether that will make it hard for the group to agree on the report it has to file by Nov. 6.

But, the overall tone of the comments seemed to indicate everyone is approaching the process with reasonably open minds. Chair Sen. Rollie Heath, D-Boulder, said he was heartened by the comments.

Member Tim Hume, a rancher and banker, said, “This is a practical problem, and ideology doesn’t have a place in a practical solution. … “The reason we’re here is that there have been too many ideological solutions in the past.”

The last witness of the day was Charles Brown, director of the Center for Colorado’s Economic Future at the University of Denver.

He briefed the commission on a report the center issued Tuesday.

“There is simply not enough money to pay for the government we have created and the services many of us have come to expect,” the report said

“The largest departments of state government are growing more than twice as fast as tax dollars are coming in,” the researchers found.

The report spotlights three “tidal waves” threatening the state budget, K-12 spending, rising Medicaid costs and the need to replace one-time funding sources that the legislature used to balance (temporarily) the 2009-10 budget.

The study predicts that the 2010 legislature will have to find an additional $311 million to support K-12 in the 2010-11 budget year. That will be driven by a forecast 1 percent inflation increase, the 1 percent Amendment 23 “bonus” and the need to backfill an estimated 1.8 percent decline in assessed values statewide, which will reduce school district property tax revenues.

That amount could be reduced by cutting optional programs like preschool and tinkering with the school finance formula, “But these moves are not likely to raise enough money to lessen the problem to any meaningful extent,” the report said.

That $311 million will eat up 67 percent of forecast general fund revenue growth in 2010-11, according to the study.

The report calculated that the state general fund, the state’s main tax-supported spending account, grew at an average annual rate of 1.9 percent from 1998-99 to 2008-09. But during the same period, spending for K-12 education, prisons and health care (primarily Medicaid) grew an average of 5.4 percent a year.

Those three programs consumed 54 cents of every general fund dollar 10 years ago but now take 76. “That figure will jump to 91 cents in five years if the average growth rate continues. Eventually, at this rate, there would be no money for other programs,” the report said.

The study cites the familiar and conflicting constitutional provisions that govern state finances but also noted a structural problem – “evidence suggesting that Colorado’s revenue system often responds to economic conditions in an unbalanced way.” The report found that “in seven of the last nine years, individual income tax collections have been substantially ahead or behind changes in personal income in Colorado as well as changes in wage and salary income.”

The report concluded, “When a system responds in an exaggerated way to economic changes, whether by producing too much revenue relative to the economy or too little, problems can result.”

Noting the budget shifts and cuts and fee increases the 2009 legislature made, the report said, “The budgetary tsunami that washed over Colorado government last fall and winter was likely just the first wave. … Ultimately, it could mean more hikes in college tuition, deeper cuts in state government services or more fees to pay for them, or a ballot box request for higher taxes.”

As a first step, the study recommends a thorough, nonpartisan and expert review of public finance – including local government. The researchers noted that four such comprehensive studies have been done since 1930 – but the most recent one was done in 1959 – half a century ago.

The commission Thursday will hear testimony from representatives of various think tanks and interest groups.

Do your homework

Commission website, with copies of briefing papers and other materials.
Text of DU report

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