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Revenue picture still iffy

The 2012 legislative session probably will face budget cuts similar to those made by the 2011 session, based on revenue forecasts released Tuesday.

Economic recovery remains slow and uncertain, and conditions have deteriorated since the last set of forecasts was issued in June, legislative and executive branch economists told the Joint Budget Committee and a hearing room packed with lobbyists and state bureaucrats.

Some education budget watchers expect Gov. John Hickenlooper will propose a K-12 funding cut of $200 million to $300 million when he makes his 2012-13 budget proposal on Nov. 1. Hickenlooper proposed a $332 million K-12 cut for 2011-12, but the legislature managed to whittle that to about $160 million, using a variety of fiscal devices.

Henry Sobanet, director of the Office of State Planning and Budgeting, told the committee that his September forecast will guide the governor’s budget plan. Another set of forecasts will be issued in late December, on the eve of the legislature’s 2012 session.

Both Sobanet and Natalie Mullis, the legislature’s chief economist, noted increased economic weakness since they made their June predictions.

“The recovery has slowed,” said Mullis, adding, “The chances of recession are rising. … The ability of the economy to withstand outside shocks is waning.”

Sobanet’s June forecast was more pessimistic than Mullis’, and he said, “We really didn’t change our expectations” in the latest forecast.

Both forecasts predicted the state will have enough revenue in 2012-13 to cover current levels of spending – but that rising costs and caseloads, such as Medicaid patients, schoolchildren and college students, will mean more demands for state spending than available revenue.

The Legislative Council forecast estimates that the legislature will have $367.2 million more to spend for 2012-13 than it did for the current 2011-12 budget year. (The current general fund budget is about $7.2 billion.)

Mullis said the rule of thumb is that caseload and cost increases amount to about $300 million a year.

Past legislatures have cut some programs temporarily, like $100 million in property tax relief for seniors, to soften cuts in other areas. The suspension is supposed to expire for the next budget year, so lawmakers will have to decide if they want to cut elsewhere to cover that or suspend it again.

So to balance the 2012-13 budget, next year’s legislature will have to cut other programs to meet caseload and costs growth, decide to ignore some of those commitments – like school and college enrollment growth, reduce the size of the state reserve or continue money-saving tactics like suspension of the seniors’ tax break. Lawmakers likely will use a combination of all four tactics.

Because schools and higher education consume nearly half of the state general fund budget, there’s no way to avoid cutting them in the current situation.

“Balancing the budget will require the legislature to make many difficult choices,” said Sen. Mary Hodge, D-Brighton and chair of the JBC.

The state ended the 2010-11 fiscal year with more money that was required for the reserve, triggering a transfer of $226.9 million to the perennially strapped State Education Fund and of $67.5 million to the State Public School Fund. The two funds are used to support state aid to districts and for other education programs. The $67.5 million will be distributed to some school districts next year based on enrollment growth and declines in local tax revenue.

In recent years the state has dipped heavily into the SEF to reduce the amount of K-12 spending that had to be supported by the general fund, the state’s main account for a variety of departments and programs.

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