Lawmakers did not receive the luck of the Irish Saint Patrick’s Day economic forecast they were hoping for on Friday, learning that they will have to close a nearly $700 million budget shortfall.
The projection to close the gap is based on a spending request from Gov. John Hickenlooper in November.
The shortfall is about $135 million higher than thought in December after the last revenue forecast, as lawmakers had been operating under the assumption that they would need to close a gap of about $565 million.
The quarterly revenue forecasts presented to lawmakers on Friday are what state budget writers will use to finish crafting the budget for the 2017-18 fiscal year, which begins in July. Work will continue next week before the legislature begins debating the so-called “Long Bill.”
Henry Sobanet, Gov. John Hickenlooper’s budget director, explained that the shortfall – which comes as Colorado’s economy is doing well – is the result of spending limits.
“We’re not able to retain all the dollars, even with the higher projection, because we’re at our revenue limit for next fiscal year,” Sobanet. said.
Lawmakers are planning for taxpayer rebates in the upcoming budget, which could be as high as $264 million in the 2017-18 fiscal year, according to an analysis by legislative council staff.
Refunds would start around $23 for the lowest-earning individuals making up to $39,000 per year, reaching as high as $526 for top earners making more than $221,300 per year.
So-called TABOR refunds are not expected in the current fiscal year.
Adding to the complicated nature of this year’s budget is that state budget writers must fill an estimated $135 million school funding hole triggered by the constitutional Gallagher amendment, according to an analysis by the governor’s office.
The law is meant to balance property tax revenue that comes from residential and business properties. Gallagher reduces the percent of property value subject to taxation whenever statewide total residential property values increase faster than business property values. The effect is cuts to residential property taxes and less money for schools, which heavily rely on the property taxes.
The state must restore those cuts to local schools.
The governor’s office proposed raising marijuana taxes to assist with backfilling the money, which they say would raise about $42 million.
The proposal would increase the special sales tax on adult-use recreational marijuana to 12 percent in the fiscal year that begins in July. The tax was scheduled to fall to 8 percent in the upcoming budget, from where it stands now at 10 percent.
Hickenlooper also proposed cutting the Senior Homestead Exemption by half in the upcoming budget, which would generate about $68 million. The property tax exemption is available to senior citizens.
Instead of being able to reduce property taxes on a residence by exempting 50 percent of the first $200,000 in market value, seniors would only be allowed to claim the exemption on the first $100,000.
When the governor made his $28.5 billion budget request to lawmakers in November, his office identified about $500 million in balancing measures. Those ideas included:
- Reducing taxpayer refunds by reducing collections of the Hospital Provider Fee, which is assessed on hospitals to force a match of federal health care dollars;
- Increasing the so-called “negative factor,” or the gap in fully required education funding;
- Reducing required transfers of money to roads and highways; and
- Pulling money from cash funds.
Joint Budget Committee vice-chairwoman Rep. Millie Hamner, D-Dillon, reminded the governor’s office that some of the proposals to backfill money and balance the budget are not popular.
“You’ve already presented to us some options that we could consider for getting this budget in balance that are not unanimously popular,” Hamner said. “I wonder if when you come back on Monday, are you also going to offer up some other ideas for us in terms of balancing the budget?”
Sobanet joked, “We’ll be working to stimulate the economy over the weekend, for the current fiscal year only, because that’s where we have room under the limit.”
Sen. Kevin Lundberg, R-Berthoud, suggested that the state’s budget problem has less to do with spending limits and more to do with spending priorities. He pointed out that Medicaid takes up about 25 percent of the state budget.
“For the state of Colorado it’s a bit of a wakeup call that even in good times we’re spending more than we have revenues to work with,” Lundberg said.
The state is facing one of its more precarious budgets in years, with uncertainties revolving around what will happen on the federal level under a new Trump administration. Medicaid dollars are the biggest unknown factor.
Sweeping federal cuts could throw the entire state budget into flux, potentially forcing the governor to call a special session over the summer to balance the budget.
But JBC chairman Sen. Kent Lambert, R-Colorado Springs, downplayed concerns over having to come back over the summer. He said even if the budget is thrown out of balance, the JBC could work independent of the legislature, and then perhaps have the governor call a short three-day special session to approve the work.
“We’ll be setting this budget according to the information that we’ve had. We don’t know about the future changes.
“We might bring back some committees, they could discuss a move ahead, and if it’s something that we could absorb within our current budget, or even if we have new revenues, we might actually be able to appropriate money using the JBC when the legislature is not here.
“We could be cuing up (bills), bring the legislature back for three days, pass them through … and then let the legislature go back to bed, or the beach, or whatever.”