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Colorado reserves would last just 3 weeks in recession, says report

Author: Marianne Goodland - August 29, 2018 - Updated: September 13, 2018

Map4-PR_Rainy_Day_18-07_650-1280x1105.jpg
Map shows how many days each state could run on rainy-day funds alone in a major recession. (Courtesy Pew Charitable Trusts)

Colorado ranks slightly better than average among the states in how long the state could run on its “rainy day” reserves in a major recession. Still, that’s not long, says a new report from the Pew Charitable Trusts.

The report says Colorado state government could run for 21.5 days on its rainy-day funds alone if another major recession caused problems akin to the ones the state faced during the 2008 Great Recession and in the years that followed. That compares to the 50-state average of 20.5 days.

Still, Pew says that’s progress for Colorado, which is one of  26 states that could “cover a bigger share of spending with rainy-day funds” than they could before the Great Recession.

But the report adds that Colorado is also among the states that have a “thinner cushion against budget shortfalls” when rainy-day reserves are added to general fund dollars left over at the end of a budget year.

The Pew report doesn’t take into account any changes made to the general fund reserve in the last fiscal year that ended on June 30.

Colorado’s general fund reserve — the state’s version of the rainy day fund — is at $674.9 million. The June 2018 revenue forecast from the state Office of Planning and Budgeting said the reserve in 2018-19 should be at around $813 million.

Both Gov. John Hickenlooper and the General Assembly have made efforts to boost the reserve from its statutorily-required 6 percent to around 7.25 percent of appropriations.

While that may sound like good news, four years ago, a study from George Mason University estimated Colorado’s government would need about $790 million in reserve to weather an average recession. A particularly bad one, like 2008, would require about $2 billion in reserves to avoid substantial budget cuts or raising taxes.

The last recession resulted in a $1 billion cut to K-12 education, and that tab is still open. Other agencies, such as the state’s public colleges and universities, also wound up with big cuts to their general fund support, which they covered with 9 percent (on average) annual tuition increases.

Colorado and Oregon both were cited in the report, released Wednesday, for having the second-highest growth in rainy-day funds since the pre-recession peaks. However, the report noted that both states have constitutional limits on tax revenue growth — TABOR in Colorado — that could trigger refunds to taxpayers if those gains continue.

That mirrors forecasts from the Legislative Council and the Governor’s Office of State Planning and Budgeting. Economists said in June that taxpayer refunds that would go to seniors and disabled veterans to cover half of their property taxes, for example, are likely in the coming year.

The states with the most cash-on-hand to cover a recession include Alaska, which could fund its government for more than a year without any change at all (376 days); Wyoming, at 366 days; Texas, with 70 days, and West Virginia at 56 days.

The Pew report said there is more general fund dollars in reserve, $54.7 billion among the 50 states, than ever before. That could cover a median of 20.5 days, or 5.6 percent of general fund spending, the report said.

The possibility of another recession isn’t just an academic exercise. Many economists believe the nation is already overdue for its next recession, predicting one could take place as soon as next year. Colorado economists have cited both a tight labor market, made worse by immigration issues, and the president’s trade war as factors that could trigger a downturn and a recession after that.

Marianne Goodland

Marianne Goodland

Marianne Goodland is the chief legislative reporter for Colorado Politics. She's covered the Colorado General Assembly for 20 years, starting off in 1998 with the Silver & Gold Record, the editorially-independent newspaper at CU that was shuttered in 2009. She also writes for six rural newspapers in northeastern Colorado. Marianne specializes in rural issues, agriculture, water and, during election season, campaign finance. In her free time (ha!) she lives in Lakewood with her husband, Jeff; a cantankerous Shih-Tzu named Sophie; and Gunther the cat. She is also an award-winning professional harpist.


One comment

  • Joel Judd

    August 30, 2018 at 9:20 am

    “The last recession resulted in a $1 billion cut to K-12 education, and that tab is still open.” In the 10th year of the Obama recovery, we’re still shorting education $0.8B/per year! Times are so good we’re pushing up against the TABOR cap, yet we’re still inadequately funding education and our reserve. Yes, the next recession will be painful.

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