Legislative economists project lower revenues, $240 million shortfall
Economists with the Legislative Council project that General Fund revenues in the current fiscal year will come in $240 million below budgeted appropriations. This is even after the $320 million in cuts Gov. Bill Ritter announced in August.
Most of the decline is caused by lower estimates for sales and use taxes. Consumers are cutting back more than previously anticipated because of the ongoing recession and loss of jobs. Estimates for sales tax revenues for the current fiscal year dropped by $130 million, or 6 percent, from the June estimates. The state is now expected to collect $30 million, or 1.6 percent, less in sales taxes in FY 09-10 than it did in FY 08-09.
Income taxes are projected to come in $72.8 million lower in FY 09-10 than projected in June. The legislative economists attribute this to an accrual accounting change; the amount of income tax is attributed to a fiscal year depending on when the action triggering the tax occurred.
The economists see slow growth for FY 10-11, which will begin in July 2010. While General Fund revenues are projected to increase by $420 million, or 6.4 percent, the total General Funds available to spend are projected to drop by $397 million, or 6 percent, because one-time revenue sources such as cash fund transfers, used to balance the budget, will be either reduced or not available.
Meanwhile, the governor's economists at the Office of State Planning and Budgeting (OSPB), were more optimistic. They project that, with the cuts made in August, there will be enough revenues to meet projected expenditures in both FY 09-10 and FY 10-11.
OSPB projects higher revenues than the Legislative Council economists. The main difference involves income tax revenues, with OSPB projecting $441 million more in income tax revenues in FY 09-10 and $216 million more in FY 10-11 than the Legislative Council economists. Much of the differences involve estimates over the amount of taxes withheld and the amounts likely to be refunded in coming years.
Even though his office's estimates were higher, OSPB director Todd Saliman told lawmakers they would budget to the more conservative numbers, meaning the Legislative Council staff's estimates.
Unless the deficits projected for each year are closed by making permanent cuts or revenue increases, the Legislative Council staff carries them forward into the next fiscal year. Therefore, it projects a deficit for FY 09-10 of $560.7 million, which does not count the $320 million cuts the governor made in August. The staff also projects a deficit in FY 10-11 equal to $1.3 billion. This represents $560.7 million carried over from this fiscal year and an additional $770.9 million shortfall for FY 10-11.
Using this same approach, the staff projects a deficit of $1.6 billion in FY 11-12, which rolls forward the shortfalls in the previous three fiscal years.
Because there is no allowance for growth in caseloads, constitutional spending requirements or inflation, the Legislative Council staff acknowledges this approach understates the size of the shortfall under current law.
As part of the Looking Forward project, researchers from the Bell, the Colorado Fiscal Policy Institute and the Colorado Children's Campaign calculated the appropriations needed to maintain 2007-08 levels of service through fiscal year 2011-12. These projections include adjustments for increased caseloads and changes in inflation for K-12 and higher-education spending.
Based on our Looking Forward projections, revenues will fall $1.2 billion, $1.3 billion and $963 million short of the cost of maintaining 2007-08 levels of service in FY 09-10, FY 10-11 and FY 11-12, respectively.
If the Legislative Council staff's revenue projections presented today are accurate, balancing the budget with cuts alone will inflict tremendous pain on a wide range of Coloradans, many of them our most vulnerable citizens. Future budget projections do not look much better.
Given the size and nature of the possible cuts, it is important that the legislature and governor put all the options on the table, including current tax credits and exemptions. Long-term solutions to our budget problems require a thorough assessment of our revenues, the services we demand and how we pay for them.