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Study: Colorado budget woes offset by recession, but fiscal quagmire still remains

Funding for Colorado’s public schools should be safe — for now.

But the state — which is counterintuitively benefiting from the “Great Recession” — still has the Herculean longterm task of closing an estimated $3 billion gap between a 2030 projected budget and the revenue it is expected to collect, according to a fiscal study released today by the Colorado Futures Center.

The study, released this morning, is a follow-up to a 2010 legislative commissioned report that originally found recovery from the recession wouldn’t help Colorado’s budget woes.

While that general longterm prediction remains the same, the update shows a sluggish economy has actually postponed what the report calls an inevitable billion dollar gap between revenue and spending.

Low inflation coupled with fewer than expected students enrolling in Colorado schools — both byproducts of the recession — has allowed the state to exercise more control over how much it spends on public education, the single largest item in its budget.

Colorado is also benefitting from recession measures exercised by the Federal Reserve including unprecedented levels of monetary stimulus and a commitment to keeping interest rates low, the study found.

The state, and by extension education funding, should continue to benefit from the ripples of recession until about 2017, said the center’s lead economist, Phyllis Resnick.

But that’s when everything is expected to change.

By 2017, Resnick said, enough Coloradans will have aged into Medicare and be on fixed incomes, and the state will have collected enough revenue from a hospital tax to trigger refunds to residents because of the constitutional Tax Payer Bill of Rights. The center predicts that will set off a fiscal flood that will rise exponentially to create a sinkhole of $1.52 billion by 2024 and nearly $3 billion by 2030.

Moreover, the forecast calls for the state, after 2017, to begin spending five percent of the general fund on three items: transportation, capital construction and the state’s reserves, because of a law passed in 2009.

Resnick and the center’s director, Charlie Brown, believe the refunds will be the single greatest cause of the gap.

If the state could find a way to de-TABOR the hospital tax, which has been covering the cost of an expanded Medicaid program since 2009, and extend sales taxes to services like haircuts and dog grooming, they believe the fiscal forecast will vastly improve.

Other longterm solutions recommended at the press conference included increasing the amount of local tax dollars that finance K-12 programs, restructure Colorado’s property tax laws and finding more federal dollars to match state spending.

Cutting funds to programs is also an option, and will most likely be necessary anyway, the authors conceded.

But, “at some point in time, you cut so deeply, so far across the board, you make programs ineffective,” Brown said in an earlier interview with EdNews.

Brown went so far as to say if the state legislature were to cut its way through the decades to balance the budget — which is constitutionally mandated — it might as well shut programs down outright.

If the legislature chooses to go that route, he hopes the phasing out of programs will be done strategically.

Education funding is constitutionally protected in Colorado. However, the legislature has created itself some maneuvering room by creating what is known as the “negative factor.”

Since 2009, the state had re-interpreted what factors, such as the size of a school district and number of “at-risk” students enrolled there, to determine how much schools and districts receive. According to one estimate, per pupil funding is nearly $1,000 below where it should be based on 2000’s Amendment 23.

Resnick and Brown believe the state can cut up to 20 percent of the state’s share of school funding without violating the Constitution. But that amount will be a drop in the bucket by 2030.

Gov. John Hickenlooper, a Democrat, threw the first pitch on negotiations for the 2013-2014 budget with the state’s General Assembly Nov. 1. His budget calls for a $258.4 million increase for K-12 education. If the legislature agrees, the state wide average for per pupil funding would rise to $6,875. The average funding per pupil at the time of the 2008 recession was $6,874.

The forecast produced by the center does not account for any possible future recessions and assumes the economy essentially maintains the status quo.

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