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Good but uncertain revenue news

Legislative and executive branch economists on Wednesday had good news about state revenues but warned that prospects for the economy remain uncertain.

The June forecasts are a key starting point for the annual state budget cycle, and the new set of estimates give hopeful indications – but no guarantees – for K-12 and higher education funding in the 2013-14 budget year.

State budget director Henry Sobanet told reporters after a legislative briefing that if the current forecasts hold, “I think it’s safe to say education funding will increase” in 2013-14.

Leanne Emm, school finance director for the Department of Education, attended the hearing. “The tea leaves are muddled,” Emm said when asked what the forecast says about school funding a year from now.

Economists from both the legislative and executive branches said that state revenues have come in higher than was predicted in the forecasts last December and March.

One side effect of the increased revenue is beefing up of the State Education Fund, a dedicated state account used both for basic school funding and some special spending.

Some $59 million will be transferred into the fund after the current budget year ends June 30. And the higher revenues also mean an additional $427.1 million probably will flow into the fund at the end of the 2012-13 budget year. (The fund balance is projected to be $180.9 million at the end of the current fiscal year.)

The transfers to the education fund were set by the 2011 legislature based on whether surplus revenues were available. Those deposits “will buffer us” if revenues decline later, Sobanet told lawmakers, lobbyists and executive branch officials gathered for the briefing in the Joint Budget Committee hearing room.

What Sobanet meant by “buffer” is that the State Education Fund sometimes is tapped to offset reductions in education spending from the general fund, the state’s main budget account.

And that’s what Emm was referring to when she said the prospects for education spending in 2012-13 are hard to predict, given that other budget problems could put pressure on the general fund.

The biggest potential problem is whether a downturn in the economy causes revenue declines in the next year.

Both Natalie Mullis, chief economist for the Legislature Council, and Sobanet cautioned that the world and national economies remain uncertain.

“The global economy is slowing, and Europe’s economy is partly in recession,” Mullis said. “Colorado’s economy does appear to be growing, but it is not immune to international forces.”

She said “financial contagion” caused by a European collapse could “throw the U.S. economy back into recession.”

Referring to a photo of a mountain scene on the cover of her report, Mullis said, “There are sunny skies and beautiful vistas ahead of us, but we have some big rocks to get over.”

Sobanet noted that some of the increased revenues are attributable to capital gains taxes paid for Colorado residents and that such revenue may not be as great in the upcoming budget year.Both sets of forecasts predict about $8.2 billion will be available in 2013-14. The state’s 2012-13 budget already is set, so the higher-than-expected revenues that came in at the end of the current year will be rolled into the pot of money the 2013 legislature will have available to spend for 2013-14.

Stronger-than-expected revenues allowed the 2012 legislature to add an additional $57 million to K-12 operating funding. The total of $5.3 billion for schools in 2012-13 is the same amount as for the 2011-12 school year that just ended. But many districts still had to make cuts in their individual budgets because combined state and local funding didn’t fully cover rising costs and inflation.

The 2012-13 budget was the first break from the school spending cuts of the last few years. It’s estimated that the recession caused cuts of more than $1 billion in school funding. The state’s higher education system took a cut of about $8 million for 2012-13.

The next revenue forecasts will be made in September and are used by the executive branch as it prepares its budget plan, due to the legislature by Nov. 1. The December forecasts set the stage for the legislative sessions, and the March forecasts guide the legislature’s decisions on the budget for the upcoming fiscal year.