Ritter shows care, uses federal funds wisely in balancing budget

Gov. Bill Ritter presented a plan to the Joint Budget Committee today that closes an additional $271 million shortfall in the state budget for fiscal year 2009-10.

When combined with the $320 million in cuts he proposed in August, it eliminates a gap projected to be $589.4 million below September's revenue forecast.

Ritter used a mix of one-time cuts, transfers and federal funds to balance the budget.

"These are the most challenging times for state budgeters in decades, and we think Gov. Ritter continues to do a responsible job navigating between bad options," said Wade Buchanan, president of the Bell Policy Center.

The largest cut proposed today is a $145 million reduction in spending on higher education. However, this will be backfilled with federal funds from the American Recovery and Reinvestment Act (ARRA), pending approval of a waiver from the federal government.

Another $45 million in ARRA funds will be used to replace General Fund cuts in Corrections. This accounts for the last of the $138 million in ARRA Government Services Funds that the governor can use for budget stabilization.

The purpose of the Recovery Act was to help state governments bridge the gap between the recession and recovery. These funds help protect funding for important public systems such as our state colleges and universities, and they help avoid cutting prison guards.

"We think Gov. Ritter has been wise to use the ARRA funds rather than to slash critical state services at the time of greatest need," said Buchanan. "That is exactly what the funds are intended to be used for."

Other actions include shifting Medicaid payments for the last two weeks of fiscal year 2009-10 into 2010-11, saving $16.3 million. Payments will be delayed, but all allowable, billed services will be paid to providers.

Rates paid to certain fee-for-service and managed-care providers under Medicaid will be reduced by an additional 1 percent beginning Dec. 1, 2009.

State government will take advantage of current low interest rates to refinance Certificates of Participation (COPs) used to fund capital construction projects at state colleges and universities and to build the Colorado State Penitentiary II. This will save about $10 million.

The governor also proposed using federal funds in the long-term reserve fund for the Temporary Assistance for Needy Families (TANF) program to cover $3 million in General Fund appropriations for fiscal year 2009-10. These reserves have not been appropriated, and existing TANF services are not expected to be affected by this change.

Most of the proposed actions are one-time transfers or cuts that will be replaced with federal revenues. It is a reasonable plan that protects vital public systems while minimizing the harm and pain to most Coloradans.

However, Gov. Ritter faces a significant challenge in crafting the fiscal year 2010-11 budget, which he will submit to the Joint Budget Committee on Nov. 6th. According to his Office of State Planning and Budgeting, current revenue estimates peg the shortfall at $1.3 billion below base expenditures for a normal year.

As the recession continues, Coloradans are turning to safety-net programs in higher numbers. For example, Medicaid caseloads in fiscal year 2010-11 are expected to increase by at least 10 percent over fiscal year 2009-10 totals and are projected to increase by 45 percent over pre-recession levels.

Another complicating factor is the loss of federal ARRA funds. There will be enough to only partially offset cuts to higher education in fiscal year 2010-11, and additional federal payments under Medicaid (FMAP) run out half way through next fiscal year.

Gov. Ritter's budget director, Todd Saliman, told the Joint Budget Committee that "options other than budget reductions will also be considered" in creating the 2010-11 budget.

We agree that all options should be considered and urge the governor and legislators take a thorough look at Colorado's current tax credits and exemptions. Many of these may make sense in good times -- and some may make sense today. But given the severity of the budget gap confronting us in the coming fiscal year, every option needs to be on the table.

Longer-term, it is imperative that we take a hard look at state revenues as well as spending. Our estimates show that even after the economy recovers, state revenues will not return to levels needed to provide the same level of service as provided in fiscal year 2006-07. When adjusted for inflation, General Fund revenues do not return to pre-recession levels through fiscal year 2011-12.