Time:09:20 AM to 10:48 AM
Shaffer B.
This Meeting was called to order by
Representative Carroll T.
Carroll T.
This Report was prepared by
Katey McGettrick
X = Present, E = Excused, A = Absent, * = Present after roll call
Bills Addressed: Action Taken:
Legislative Council Staff Economic Forecast
Governor's Office of Planning and Budgeting Economic Forecast

09:21 AM -- Legislative Council Staff Economic Forecast

Todd Herreid, Legislative Council Staff, began the presentation by discussing the differences between the September and December Legislative Council economic forecast (Attachment A). Mr. Herreid specifically discussed the state of the housing market and the emerging financial crisis in September. Mr. Herreid explained that, at that time, Legislative Council Staff believed that the steps the federal government took to stabilize the economy would restore consumer and investor confidence. Based on that assumption, Legislative Council Staff forecasted in September that the United States economy would flatline for the next four quarters. He shared with the committee members that Colorado has done better than the U.S. economy, and that Colorado saw job gains in the past quarter. Mr. Herreid explained that inn September, Legislative Council Staff estimated there would be continued job growth. He noted, however, that there was also a decline in sales tax revenue in September as well, which was explained by the fact that people were spending more money on food and gas, which are not subject to the sales tax.

081221 Attach A.pdf

09:26 AM

Mr. Herreid continued his presentation by turning to the current economic situation. He explained that the steps that the federal government has taken has not restored consumer and investor confidence as expected. He further stated that the more troubling piece to the economic downturn is the national job loss trend, because in the last three months, these losses have accelerated at the national level. He noted that in November, the nation saw the highest loss of jobs since the 1970's, and that most economists expect the U.S. economy to contract into 2009, which affects Colorado because the job growth forecast has been lowered, with the state losing 0.7 percent jobs in 2009. He explained to the committee that the job loss situation is better in Colorado than the rest of the nation, but will still be an issue that state will face, because Colorado has experienced three straight months of job losses totaling 6700, which indicates that Colorado is not insulated from the national economic issues. He also discussed the effect of the economic troubles on the state's tourism industry.

09:31 AM

Mr. Herreid continued to discuss the effect of the economy on the leisure and tourism industry. He explained that the Denver Metro section of the forecast has a list of the companies that are projecting job losses. Mr. Herreid shared with the committee that Legislative Council Staff projects a $529 million decline in state revenue, and that in fiscal year 2009-10, the state will experience flat growth. He reminded committee members that the forecast is predicated on current law, and does not take into account any stimulus packages that may be passed by the U.S. Congress. Mr. Herreid then asked Ms. Mullis to explain the general fund forecast in more detail.

09:34 AM

Prior to Ms. Mullis beginning her presentation, Representative Pommer asked what in a stimulus package would help Colorado. Mr. Herreid stated that possible benefits from a stimulus package could be in the infrastructure area, but not until fiscal year 2009-10. He also noted that checks to consumers could provide a benefit to the state, depending on what consumers purchase.

09:36 AM

President Groff asked how long it would take to revise the forecast upon passage of a federal stimulus package. Mr. Herreid explained that anything passed before the March 20 forecast would be incorporated into Legislative Council Staff's projections. President Groff also asked if a stimulus package would increase consumer confidence. Mr. Herreid explained that it was possible.

09:38 AM

Senator Tapia asked about Table 1 in the Legislative Council Staff forecast. Mr. Herreid explained that Ms. Mullis will explain the budget implications for the revenue forecast.

09:39 AM

Ms. Natalie Mullis, Legislative Council Staff, also began her presentation by discussing the September Legislative Council Staff forecast. Ms. Mullis explained that the projected $100 million shortfall from the September forecast is now a $649 million shortfall. She reviewed Table 1, on page 3 of the forecast. Ms. Mullis advised committees members of three ways to address shortfall: cuts to programs, raising revenue, or injecting one-time money into the budget, and discussed the pros and cons of each one. She explained that cuts are magnified when they are initiated during the last 3 to 4 months of the fiscal year, and that if cuts are pushed to next fiscal year, the cuts could be absorbed throughout the year. Ms. Mullis cautioned the committee that adding one-time money to the budget does not solve the ongoing budget problems, because that results in a larger shortfall in the upcoming budget year.

09:43 AM

Ms. Mullis explained $3.2 billion is required in the next two years to get out of the recession. Ms. Mullis also addressed Senator Tapia's question about capital construction. She explained there is little money available for these projects, and that the general fund outlook assumes the shortfall is made up through cuts. Ms. Mullis informed the committee that Legislative Council Staff projects no TABOR surplus in the near future.

09:46 AM

Jason Schrock, Legislative Council Staff, presented on severance tax revenue. Mr. Schrock referred the committee members to Table 5 on page 13 of the forecast. He explained that severance taxes are a volatile revenue source, and that the forecast for these revenues has been lowered because the economic downturn is affecting energy prices. He noted that even though the forecast has been lowered, the expected revenue is still a strong estimate. Mr. Schrock also discussed Table 6 on page 16 regarding the federal mineral leasing (FML) revenue distributions, explaining that a drop of revenue is expected in fiscal year 2009-10, with a recovery in the outyears of the forecast.

09:49 AM

Senator Morse asked Mr. Schrock to summarize the impact of FML on current shortfall. He explained $529 million is a general fund shortfall, which is not impacted by severance tax revenue. Representative Judd asked if the FML revenue will be enough to meet the financial obligations.

09:51 AM

Senator Schwartz asked if new exploration and new pipeline capacity are factored into the severance tax projections. Mr. Schrock explained that these factors are considered but that drilling would be curtailed in the upcoming year because there is more supply than can be sold due to decreased demand. Senator Schwartz also asked if new permitting is factored into the forecast. Mr. Schrock explained that permits are taken into account because it determines production.

09:54 AM

Mr. Herreid presented on the assessed value forecast, which he noted begins on page 38 of the forecast. He summarized the outlook on assessed values by discussing Table 10 on page 39 of the forecast. He noted the difference between nonresidential and residential assessed values. He explained that the weakness in the housing market is affecting the residential assessed value, and that nonresidential assessed values includes commercial property and oil and gas, which have been strong, explaining the increase in the nonresidential value. Mr. Herreid projected that the state will recover from downturn in 2010, improving residential assessed values.

09:57 AM

Representative Marostica asked if the nonresidential assessed value includes construction costs. Mr. Herreid explained that it does.

09:58 AM

Leora Starr and Kate Watkins, Legislative Council Staff, presented on the Pre-K - 12 enrollment forecast. Ms. Starr explained that Legislative Council Staff projects a growth rate in enrollment of 1.4 percent, which equates to about 10,000 students per year. She further noted that the Denver Metropolitan Area will see the largest increase, with over 6,000 students per year, that Colorado Springs is projected to see an increase of 1000 - 1200 students per year, and that the western region of Colorado is the fastest growing region due to the increase in the energy and supporting industries located there. Ms. Watkins explained the projections for the eastern plains, Southwest, and San Luis Valley regions of the state, noting that these three areas will see declines in enrollment. Ms. Watkins explained that the northern region has seen growth due to the fact that there is more affordable housing in that area.

10:03 AM

Marc Carey, Legislative Council Staff, presented on the adult prison inmate and division of your corrections population forecast. Mr. Carey first explained the adult prison population, discussing Table 12 on page 45 of the forecast. He noted that in fiscal year 2009, the inmate population remains stable, and equates to the addition of about 39 new inmates monthly. He also discussed Table 13, which compares the adult inmate population from forecast to forecast. He explained some factors that could affect the prison population, such as population growth, recent legislation, and the economic downturn, with any affect from economic downturn happening later.

10:07 AM

Mr. Carey continued his presentation by discussing parole populations, and referred the committee to Table 14 on page 47 of the forecast. He explained that for fiscal year 209, there is a projected growth rate of 3.8 percent in state cases. He continued with youth correction populations, noting the projected decreases in this population, as detailed in Tables 16 and 17 on page 52.

10:10 AM

Senator Tapia stated that he believes the decreases are due to the Governor's efforts to combat recidivism, but noted that a lack of funding could reverse these trends. Representative McFadyen discussed the staffing needs at a facility that is slated to open in her district in 2009 or 2010. She stated that it will require a significant FTE, perhaps upward of 500.

10:13 AM

Representative Weissmann asked Mr. Herreid to return to the witness to discuss the Medicaid population and the stimulus package. Mr. Herreid explained that the Legislative Council economists do not do a projection on the Medicaid caseload, but that the Joint Budget Committee (JBC) does. Senator Shaffer also expressed interest in understanding how Medicaid funding affects the state budget, as well as municipal and county budgets. Mr. Herreid explained that the federal budget could alleviate pressure on the state budget, but deferred to the JBC for an answer on that. With that, the Legislative Council Staff presentation concluded.

10:16 AM -- OSPB Budget Outlook

Todd Saliman and Peter Strecker presented the Governor's Office of State Planning and Budgeting (OSPB) December revenue forecast (Attachment B). He noted that unlike Legislative Council, OSPB does not forecast on assessed values. Mr. Saliman explained that over the next four fiscal years, the OSPB forecast does not project that there will be adequate revenue to increase spending by six percent in any of the fiscal years. He explained in fiscal years 2010-11 and 2011-12, OSPB is projecting the state to have large TABOR surpluses, because the Unemployment Insurance (UI) solvency tax will not expire, which results in extra revenue received by the state that are subject to TABOR limits. Mr. Saliman stated that OSPB projects a General Fund revenue growth of .4 percent, and that throughout the Referendum C timeout about $5 billion will be retained by the state, which is $1.4 billion less than OSPB previously forecasted. He noted that the TABOR refunds are nearly $ 200 million for fiscal year 2010-2011, and nearly $542 million for fiscal year 2011-12. Mr. Saliman explained that there are differences between the OSPB and Legislative Council Staff forecast.

081221 Attach B.pdf

10:20 AM

Representative Pommer about the implications of UI revenue and the 6 percent limit. Mr. Saliman explained that the solvency tax revenue will equal what will be required to be refunded to taxpayers.

10:22 AM

Representative Weissmmann asked if it would be possible to enterprise unemployment insurance. Mr. Saliman stated that it was a good question, but not one that OSPB could answer at this time. Senator Morse asked Mr. Saliman to discuss the 6 percent implication raised by Representative Pommer. Mr. Saliman explained that the Referendum C timeout rid the racheting effect for TABOR limit but not the 6 percent limit, and because of this the spending limit base will be permanently lowered. Senator Morse if it was an allocation issue as opposed to a limit. Mr. Saliman explained that the theory is correct but because of the revenue coming in, there is no money being allocated to Senate Bill 1 and House Bill 1310.

10:26 AM

Peter Strecker, OSPB, discussed the OSPB General Fund revenue estimates projected in Table 3, on page 11. Mr. Strecker explained that there are four components to income tax projections: paycheck withholdings, estimated payments, refunds, and cash returns. Withholdings and estimated payments are 2 current indicators on how strong Colorado's economy is doing, which are positive, and will prop up the budget in the current fiscal year. On corporate side, Mr. Strecker explained that OSPB projects a 6.6 percent drop in revenue, which will impact the current year. He directed committee members to Table 5 on page 19, which discussed the history and forecast for key Colorado economic variables, including current income, population and employment, construction variables, and prices and sales variables. He explained that OSPB will explore the differences in these numbers with LCS.

10:31 AM

Mr. Saliman discussed Table 1A on page 4, discussing the general fund appropriations estimates, which he noted varied widely from LCS. Representative Ferrandino asked if the state did not have the TABOR refund, would it be able to fill the six percent limit. Mr. Saliman explained yes and no, because in fiscal year 2010-11, it almost covers the 6 percent, while in fiscal year 2011-12, retaining the TABOR refund would cover the six percent limit with a small surplus. Representative Ferrandino also asked what money has been saved from the hiring freeze. Mr. Saliman said that the results from the savings would be available soon, but are only one time savings, and not a solution for solving the states long term budget issues.

10:35 AM

Mr. Saliman directed the members attention to Table 2 on page 10, which details TABOR Revenue and Referendum C Revenue Limits. He then discussed page 14, which contains their severance tax revenue outlook, which he noted is similar to LCS. However, Mr. Saliman noted that OSPB projects weaker FML revenues than LCS forecast, but that both estimates are reasonable. He also discussed transportation-related HUTF funds, which OSPB project to decline. Mr. Saliman states that OSPB projects an increase in jobs in current calendar year, but a decline in 2009. He also reviewed the change in housing permits.

10:38 AM

Senator Penry asked Mr. Saliman to explain differences between the Legislative Council and OSPB forecasts. Mr. Saliman explained that he just received the LCS forecast and need to review before discussing the differences, and that it is important to review and understand the differences because they affect budget decisions made by the legislature and the Governor. Mr. Herreid explained that he also needed time to review the OSPB forecast, and explained how the LCS changed its forecast, stating that it was primarily driven by the job loss projections. He further explained that a second piece that changed the LCS forecast is capital gains. Mr. Herreid noted that during the last recession capital gains was cut in half very quickly, and he believes that the same thing will likely happen again in this economic downturn. He explained that the sales tax is another factor, which is currently underperforming, and could be worse in the coming months.

10:44 AM

Senator Tapia said that it is very difficult for a non-accountant to understand the budget documents. Senator Tapia explained that he has become more comfortable of the LCS format, and that OSPB's format is different, making it difficult to compare. He requested that the two offices try to find a common format to assist members in understanding the differences in the forecasts.

10:46 AM

The committee adjourned.