Improved economic growth boosts state revenue forecasts; Governor restores financial aid for higher education
State economists came bearing gifts today, in the form of revenue estimates greater than projected in September. The governor's economists in the Office of State Planning and Budgeting raised their estimates by $231 million for this fiscal year and by $100 million next year.
Based on the revised estimate, Gov. John Hickenlooper is recommending restoring budget cuts he proposed for the coming fiscal year, including a $30 million cut to financial aid for higher education. The Bell Policy Center objected to this cut and is very pleased to see that the governor plans to use the additional revenue to restore it. Doing so helps to ensure that more low-income students will have access to financial aid.
The governor also recommends restoring $89 million in proposed cuts to K-12 education, adding $110 million to the State Education Fund, setting aside $8 million more for needy seniors receiving the Colorado Property Tax/Rent/Heat rebate and increasing local severance tax grants by $8 million, to $18 million.
"The cuts to K-12 education in next year's budget were the last and hardest to make," Hickenlooper said. "That's why we want those cuts to be the first restored. The state's neediest seniors should also benefit from the higher revenue forecast as we make more money available to help them pay property taxes."
The increased revenue is being driven by better-than-projected economic growth. "We're seeing economic activity that was not evident during the summer," Henry Sobanet, director of the governor's Office of State Planning and Budget (OSPB) told the members of the Joint Budget Committee (JBC).
Legislative economists also see revenues coming in stronger than they projected in September. They estimate the state will receive $80 million more this fiscal year and $15 million more next year. Based on these estimates, they project the legislature will have $470.4 million more revenue in fiscal year 2012-13 than the total amount budgeted for fiscal year 2011-12, a 6.6 percent increase.
"The $470.4 million does not account for inflation or caseload growth," Natalie Mullis, chief economist for the Legislative Council Staff told the JBC. If you set aside $300 million, which is a rough estimate of the amount needed to cover the increased inflation and caseload costs, the legislature will have about $170 million more to spend than it did this fiscal year, according to Mullis.
Both sets of economists see Colorado's economy continuing to expand, albeit slowly. While Colorado is expected to add jobs during 2012, the rate of job growth will be slower than normal, and the state's unemployment rate is expected to remain above 8 percent during the coming year.
Both groups also cited the European debt crisis and its potential effect on the U.S. and global financial markets as the greatest risk to their forecasts. They assume that the European nations will resolve their problems without triggering a major financial meltdown. If they don't, all bets are off and the forecasts will likely have to be revised dramatically downward.
The Legislative Council Staff also projects that if the federal payroll tax cut and extended unemployment insurance benefits expire on December 31, growth in Colorado's personal income will be cut by 1.4 percentage points in 2012, going from 4.3 percent to 2.9 percent.