State Legislative Update
sponsored by Jensen Public Affairs, Inc.
12/20/11
December revenue estimates for the State of Colorado are in and they are better than anticipated. The Governor is revising his budget to put $89 million back into public education as well as put some additional into reserves. There has also been additional conversation about working with counties to see what can be done to mitigate federal cuts to TANF, but there is a reluctance to put the state in a role of backfilling decreases in federal funds. The Governor's office indicates they are in conversation with the counties to see what can be done.
Summary
The General Fund revenue forecast for the current budget year (FY 2011-12) is $231.0 million, or 3.2 percent, higher than the September forecast. The weakening in the economy that influenced the projections in September has reversed and there is more momentum in the economy than was previously evident. Based on the higher forecast, the state will end the fiscal year with a reserve equal to 7.0 percent of appropriations, $212.2 million above the required 4.0 percent reserve level.
OSPB projects General Fund revenue growth of 1.1 percent next fiscal year. This forecast takes a cautious approach to General Fund revenue in FY 2012-13 due to the slowing in the global economy, and especially the heightened risk of deterioration of the European financial situation. Further, the high amount of volatility in the stock market this fall caused investors to sell off assets which will reduce tax revenue from capital gains in FY 2012-13. In addition, certain tax policy changes under current law and accrual accounting changes will slow revenue growth in FY 2012-13 compared with FY 2011-12. Without these accrual and tax policy changes,
FY 2012-13 revenue growth would be closer to the current fiscal year’s growth rate of 4.1 percent.
Based on this forecast, General Fund appropriations can grow 5.2 percent, or $366.5 million in FY 2012-13 under current law. This assumes that the excess reserve in FY 2011-12 is not spent and adds to the amount of money available for spending in FY 2012-13. Under the Governor’s November 1, 2011 budget request for FY 2012-13, the state will end the fiscal year with an excess reserve of $331.2 million. This also assumes the excess reserve in FY 2011-12 is not spent this fiscal year. Thus, the amount available for the General Fund budget will depend on policy decisions regarding the use of this year’s projected excess reserve.
OSPB projects that cash fund revenue subject to TABOR in FY 2011-12 will total $2.4 billion, a 4.3 percent increase over FY 2010-11. In FY 2012-13, OSPB forecasts cash fund revenue growth of $52.7 million, or 2.2 percent.
Since the publication of the September forecast, the economy has shown welcome improvement. Job growth at the state level has particularly shown signs of sustained momentum. The job market rebound has occurred across many industries and is reducing the state’s unemployment rate. Claims for unemployment insurance continue to drop. The goods producing industries of manufacturing and oil and gas, which are highly beneficial to the state’s economy, continue to grow. However, the overall economy is still only expanding modestly as it continues the difficult process of rebuilding from the credit and housing boom and bust. The state and national economies are highly connected to the rest of the world and dependent on credit. Thus, the European debt crisis and slowing in the global economy poses a downside risk to the forecast. Based on these factors, economic growth is expected to slow modestly in 2012. However, if European and global conditions improve, both economic and revenue growth would outperform this forecast.
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