Interim Commission to Study Fiscal Stability (07/08/2009)

Final
STAFF SUMMARY OF MEETING

INTERIM COMMISSION TO STUDY FISCAL STABILITY

Date:	07/08/2009	ATTENDANCE

Time:	09:05 AM to 04:53 PM	Brophy	X
		Court	X
Place:	HCR 0112	Marostica	X
		Morse	X
This Meeting was called to order by		Boigon	E
	Senator Heath	Conway	X
		Cooke	X
This Report was prepared by		Coors	X
	Elizabeth Hanson	Fagan	X
		Hume	X
		Knox	X
		Lynne	X
		Neilson	X
		White	X
		Ferrandino	X
		Heath	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Presentation by President and Speaker Commission Member Introductions State Expenditure Overview Presentation on Colorado School Finance Framework for General Fund Expenditures State Revenue Overview TABOR and Referendum C Overview Tax Exemptions and Credits June Rev. Forecast & Implications for State Budget Update on the U.S. and Colorado Economy Center for Colorado's Economic Future		- - - - - - - - - - -

All materials referred to in this summary are available on the web at Legislative Council Staff's website for the Long-Term Fiscal Stability Commission.

09:05 AM -- Call to Order and Opening Comments

The meeting was called to order by the Chair, Senator Rollie Heath. Senator Heath described the meeting materials provided to members, noting that they are available on-line at the Legislative Council Staff's website for the Interim Commission to Study Fiscal Stability.

09:08 AM -- Presentation by Senate President and Speaker of the House of Representatives

Senator Brandon Shaffer, President of the Colorado Senate, began by welcoming members and discussing Senate Joint Resolution 09-044 and the charge of the commission. He stated that he had a vision for Colorado's future and shared his thoughts about current fiscal policies. President Shaffer further explained that the fiscal challenges facing the state are collective and affect tax, budget, and other areas of policy.

09:12 AM

Representative Terrance Carroll, Speaker of the Colorado House of Representatives, also welcomed members of the commission. Speaker Carroll stated that the people in Colorado set the public agenda and decide how to finance the state's needs. He said that the challenging economic circumstances are forcing everyone to address the fiscal situation of the state as well as examine the fundamental role of government. Speaker Carroll concluded by sharing his views about bipartisanship and moving forward into the future.

09:18 AM -- Commission Member Introductions

Senator Heath discussed Senate Joint Resolution 09-044 and the charge of the commission. He stated that Colorado is currently in difficult economic times, and that the commission would receive testimony about the state's fiscal policies and revenue structures. He then reviewed the agenda for both July 8 and July 9, and discussed the next commission meetings on July 28 and July 29. Senator Heath explained there would be presentations from industry groups on July 28, and the commission will hear public testimony on July 29. He also said the commission does not have a set agenda beyond July, and the remaining meetings will be open for the commission to set the agenda.

Senator Heath responded to the members' questions about procedures and public testimony. He asked each member to introduce themselves and share their thoughts about the commission.

09:28 AM

The introductions began by Representative Don Marostica, who provided background to the commission as a citizen of Colorado and his career in land development. He stated that the current budget formula does not work well and that he looks forward to working with the commission.

09:30 AM

Ms. Marty Neilson provided background about her education and career in the financial sector. She shared her views that the commission should address difficult fiscal issues.

09:31 AM

Mr. Cris White discussed his background as a native of Colorado and his experience in the housing industry.

09:32 AM

Mr. Jonathan Coors discussed his career in technology and manufacturing and his financial background. He stated that he hoped the commission would examine issues for both small and large businesses.

09:34 AM

Representative Lois Court described her experience in public policy. She stated that she looks forward to hearing from the citizens of Colorado. Representative Court also discussed her experience teaching government.

09:36 AM

Mr. Renny Fagan described his background and career in the Colorado General Assembly and the nonprofit sector.

09:39 AM

Senator Greg Brophy discussed his background representing a rural district and his career as a farmer. He shared his thoughts about fiscal planning for inevitable economic and business downturns.

09:41 AM

Ms. Donna Lynne shared her experiences working with the City of New York during the fiscal crisis in the 1970s. She also discussed her career in the private sector, her educational background, and her current position as President of Kaiser Permanente Colorado.

09:44 AM

Ms. Amy Oliver Cooke discussed her background in small business and as a talk show host. Ms. Cooke also discussed her experiences as a mother, and shared her thoughts about the role of government.

09:48 AM

Senator Morse began by thanking the members of the commission for serving. He explained his background as a Colorado citizen, in the nonprofit sector, and on the police force. Senator Morse also discussed his educational background and his experiences in government. He continued by sharing his views about determining the role of government and paying for its services.

09:51 AM

Mr. Sean Conway discussed his background as Chief of Staff to former U.S. Senator Wayne Allard and his service as a Weld County Commissioner. He stated that he would like his children to have the same opportunities as he has had. Mr. Conway further shared his thoughts about determining the role of government and his experiences as a county commissioner.

09:54 AM

Mr. Kirvin Knox began by providing his educational and academic background. He also discussed his career in the financial and banking sectors.

09:56 AM

Mr. Timothy Hume described his experiences in farming and rural banking for the agriculture industry. He shared his thoughts about the economic challenges facing Colorado and stated he would like the Commission to achieve practical solutions.

09:58 AM

Representative Mark Ferrandino shared his experiences in the Colorado General Assembly and his career in public service. He discussed his views about government, costs, and revenue sources. Representative Ferrandino also shared his thoughts about building a society in Colorado.

10:02 AM

Senator Heath closed the introductions and thanked the members of the commission for their service. He provided his educational and career background in the U.S. Army, law, and business. Senator Heath discussed the comments of the other members, and concluded by sharing his thoughts about the opportunity to address the state's fiscal challenges.

10:11 AM

Senator Heath invited other members of the General Assembly present at the meeting to share their views. Senator Betty Boyd, Representative Kathleen Curry, Senator Chris Romer, Representative Cheri Gerou, Representative Claire Levy, Senator Mary Hodge, and Representative Glenn Vaad all shared their thoughts about the commission's charge and the fiscal challenges facing the state.

10:19 AM

The commission recessed.

10:32 AM -- State Expenditure Overview

The commission reconvened.

10:34 AM

Mr. Chris Ward, Legislative Council Staff (LCS), provided an overview of the expenditures of the state of Colorado. These presentations, entitled "LCS and OLLS Slides," are available on the commission's website.

Mr. Ward explained that the presentation would focus on the Colorado's $8 billion budget and the six largest areas of expenditures. These six areas include the following: K-12 education, health care, corrections, human services, higher education, and the judicial branch.

10:37 AM

Mr. Josh Abram, LCS, discussed K-12 public education. Mr. Abram explained that the local revenue sources provide educational funding first, which includes property tax revenue and specific ownership taxes. The remaining funding, he explained, is provided by the state. He also provided an overview of federal sources of educational funding. Mr. Abram stated that the state currently provides 65 percent of this funding and that local governments provide 35 percent.

10:43 AM

Mr. Ward continued the presentation by providing information about health care services. He explained that the Department of Health Care Policy and Financing takes the second largest amount of funding in the state. He also explained the cost per client and also discussed the Medicaid program, the Children's Basic Health Plan, and the Colorado Indigent Care Program. Mr. Ward stated that the state receives about $2 billion dollars from federal sources of funding.

10:46 AM

Ms. Christie Lee, LCS, provided an overview of funding for the Department of Corrections, another driver of the state budget. She explained that Corrections is the third largest area of state General Fund expenditures. Ms. Lee provided background about the increase in the prison population and recent legislative changes.

10:48 AM

Mr. Ward continued by discussing the fourth largest General Fund budget driver, which is the Department of Human Services. This department includes public assistance and welfare activities. He explained that inflation and demand for services are primary drivers of the cost of providing these services. Mr. Ward provided information about the demand for these services.

10:50 AM

Mr. Abram continued by explaining the expenditures for the fifth largest portion of the General Fund budget, higher education. He explained that the system includes 26 state-supported institutions of higher education, including universities and community colleges. Higher education has a total appropriation of $2.8 billion and includes the largest number of state employees (or Full-Time Equivalents (FTEs) in Colorado. In 1996, the state changed its funding formula by providing stipends to institutions of higher education. He further explained that because the state higher education institutions are considered enterprises, this revenue is exempt from Article X, Section 20, of the state Constitution, otherwise known as TABOR. Mr. Abram continued by providing an overview of resident and nonresident tuition. There are two principal factors, he explained, affecting the amount of state funding, which include enrollment and financial aid. Mr. Abram responded to questions about the budget for universities and community colleges. Discussion ensued about this funding.

10:58 AM

Ms. Lee explained that the Judicial Department is the smallest of the six largest areas of Colorado's General Fund budget. She said that the Judicial Department receives about five percent of the expenditures of the budget. The judicial caseload is a primary driver of its budget, and Ms. Lee provided background about caseload. She also discussed probation funding.

11:01 AM

Ms. Kori Donaldson, LCS, provided the commission with an overview of the funding for capital construction. She explained that the Capital Development Committee addresses the controlled maintenance of all state institutions. Ms. Donaldson provided examples of capital construction and controlled maintenance projects, including a sewer line or a fire system, as examples. The current replacement value of all state buildings as of 2009 was $7.2 billion, she explained. The budget drivers of capital construction include capital need. Ms. Donaldson provided examples of projects that were funded and projects that were cut in 2009. She continued by providing a 20-year history of capital development funding.

11:06 AM

The panel responded to questions from the commission about the presentations, including information presented about Medicaid. Discussion ensued. The commission also discussed Capital Construction funding and the assets owned by the state.

11:12 AM

The panel continued by discussing transportation financing. Mr. Ward provided the commission information about the number of miles traveled on Colorado's roads, stating that the miles traveled have increased by 25 percent. Mr. Ward then explained the funding sources for highways, including the Highway Users Tax Fund (HUTF) the General Fund, federal funding, and transportation. Commission discussion ensued about the different types of funding for transportation, HUTF transfers, and the excise tax on fuel.

11:19 AM

Commission members shared their thoughts with the panel about expenditures, funding, and the budget. The commission discussed the presentations and how the information is presented. Members of the commission also shared their thoughts about breaking down revenue streams of the General Fund and Cash Funds in the future.

In addition, the commission received several reports about budget and fiscal issues in their meeting materials. These reports, authored by the National Conference of State Legislatures (NCSL), include "Principles of a High-Quality State Revenue System," "State Budget Stabilization Funds," and "State Tax and Expenditure Limits." A copy of these reports can be found on the commission's website.

11:21 AM -- Presentation on Colorado School Finance

Mr. Todd Herreid, Legislative Council Staff, provided an overview of school finance, the Gallagher Amendment, TABOR, and Amendment 23. Commission members received a copy of a booklet prepared by LCS entitled "School Finance in Colorado." A copy of this document is available on the commission's website. A copy of the memorandum entitled "The State Constitution and School Finance" is also located there.

Mr. Herreid began by providing a basic overview, and explained that over the past 23 years, the state share of education finance has increased from approximately 44 to 65 percent.

11:26 AM

Mr. Herreid then discussed the Gallagher Amendment. He stated the Gallagher Amendment provides property tax relief for residential property owners. The Gallagher Amendment, he said, essentially adjusts the residential assessment rate up or down to keep the assessed value of both residential and nonresidential property in the same proportion. A drop in the residential assessment ratio, decreases the local funding share for state education expenditures and increases the state's share of educational funding. Mr. Herreid continued by providing a historical overview of the residential assessment rate in Colorado, both before TABOR was passed and after TABOR and Amendment 23. He responded to questions about calculating the residential assessment rate. The Commission continued discussing the history of calculating the residential assessment rate.

11:36 AM

Mr. Herreid provided background about TABOR, explaining that TABOR limits total school district revenue and property tax revenue. In addition, he explained that voter approval is required for any mill levy or assessment rate increase. He stated that a conflict exists between TABOR and the Gallagher Amendment, and discussed assessed value, inflation, and enrollment growth. He also explained that Senate Bill 07-199 prevented mill levies from falling, thus making the local share of education funding higher and the state share's of funding lower.

11:41 AM

Mr. Herreid then discussed Amendment 23 of the State Constitution. He explained that Amendment 23 requires minimum funding increases for K-12 public education. Amendment 23 also diverts money to the State Education Fund. Mr. Herreid explained that TABOR restricts school district revenue, while Amendment 23 increased funding requirements. He also noted the House Joint Resolution 03-1033 study about TABOR, Amendment 23, the Gallagher Amendment, and other state fiscal issues. Mr. Herreid responded to additional questions about state education funding. Members of the commission also asked about the enabling act, state school lands, and other educational issues.

In addition, members received a copy of the House Joint Resolution 03-1033 study, available on the commission's website.

11:47 AM -- Framework for General Fund Expenditures

Ms. Natalie Mullis, Legislative Council Staff, and Ms. Esther van Mourik, representing the Office of Legislative Legal Services (OLLS), presented an overview of the state's General Fund. A copy of the memorandum members received entitled "The Framework for General Fund Expenditures" is located on the commission's website.

Ms. Mullis began by providing background about state expenditures. She also gave an overview of the spending limits affecting General Fund revenue and provided background about Senate Bill 09-228, legislation passed in 2009 affecting the state's spending limit.

11:55 AM

Ms. Mullis discussed the requirements of the statutory reserve over the next five years as authorized in Senate Bill 09-228. She explained that transportation would receive 2 percent of General Fund revenue for FY 2011-12 through FY 2016-17. Capital construction, she noted, will receive one half of one percent for two years and one percent for three years. In addition, the statutory reserve would increase from 4 percent of appropriations in FY 2011-12 to 6.5 percent in FY 2013-17. She provided information about the triggers affecting the statutory reserve and when transfers would occur. Ms. Mullis responded to questions from the commission about the transportation appropriations. Discussion ensued about transportation funding.

12:05 PM

Ms. van Mourik, OLLS, provided the Commission with information about creating a state rainy day fund. She explained that many scholars do not consider Colorado's statutory reserve a rainy day fund because it is required to be refilled every year. Ms. van Mourik explained the basis for rainy days funds and discussed the commission's charge to examine these funds. She further stated that rainy day funds are sometimes examined in difficult economic and budgetary times.

Ms. van Mourik continued, explaining that rainy day funds have many considerations, including revenue or funding sources, and statutory or constitutional creation. In addition, identifying the size of the rainy day fund, its spending parameters, and possible repayment guidelines are also issues when considering rainy day funds. Nineteen states have capped their rainy day funds, and many other states have state rainy day fund requirements ranging from 2 to 15 percent. Ms. van Mourik provided additional background about rainy day funds in different states.

12:14 PM

The commission recessed until 1:30 p.m.

01:34 PM

The commission reconvened.

Legislative Council Staff and Joint Budget Committee (JBC) staff provided a brief overview of how to access documents about the budget on the JBC's website. Staff also provided an overview of the commission's website.

01:44 PM -- State Revenue Overview

Mr. Ron Kirk, LCS, introduced himself to the commission and began his presentation on Colorado's state revenue structure. Several memoranda authored by legislative staff, including one entitled "Colorado's State Government Revenue Structure" and "How Colorado Compares in State and Local Taxes" are available on the commission's website.

Mr. Kirk explained that 71 percent of taxes paid by Colorado citizens goes to the federal government with the remainder going to state and local governments. He discussed revenue sources by types and provided an explanation of the components of the General Fund, Cash Fund, and Cash Fund Exempt. Mr. Kirk discussed General Fund revenue trends in FY 1975-76 compared to FY 2007-08, concluding the state is much more reliant on individual income taxes now whereas in FY 1975-76, the state was equally reliant on sales and use tax and individual income taxes. Mr. Kirk further explained major cash fund revenue sources subject to TABOR focusing on topics such as gaming, severance, unemployment, insurance, and transportation-related.

The commission discussed the topic of gaming revenues and where the funds are directed. Ms. Mullis, LCS, also came to the table and provided more detail about where the gaming revenue funds are directed, explaining the differences in gaming distributions under the old and new gaming funds distribution.

01:56 PM

The presentation continued by moving to state and corporate income taxes and sales and use taxes, and how the two most recent recessions affected these. Mr. Kirk noted there were significant job losses in the technology industry sector in the 2001 recession, while the current recession shows significant job losses in all industry sectors. He noted that sales taxes are estimated to be declining over 9 percent with this recession - a significant decline. Mr. Kirk highlighted declines in individual income tax collections from the 2001 and 2007 recessions. Discussion ensued about the estimates should the tax rates not be reduced.

02:03 PM

Mr. Kirk discussed the corporate income tax, highlighting the differences between the 2001 and the 2007 recessions, where the current recession has been effected to a greater extent. He explained the state sales tax collections and declining trends over the last two recessions. Ms. Mullis stated that she expects consumers will start spending again but at a much slower pace. Mr. Kirk presented a comparison of income, property, and sales tax ranking compared to other state's.

02:14 PM

Mr. Kirk further discussed state individual income taxes, where Colorado ranks the 29th highest and shows that most taxes are paid by full year residents. State sales and use taxes rank 44th (7th lowest) which has been consistent over the last few years. Businesses and residents in Colorado pay most of the taxes collected, he explained. The commission asked questions about export of taxes and also requested a chart from legislative staff illustrating where the burden falls as to who pays taxes.

02:19 PM -- TABOR and Referendum C Overview

Ms. Kate Watkins, Legislative Council Staff, introduced herself and summarized the provisions of TABOR. A copy of legislative staff's memorandum entitled "State Spending Limitation: TABOR and Referendum C" is located on the commission's website.

Ms. Watkins explained the TABOR limit calculation and how Referendum C allows the state to retain surplus funds in excess of the TABOR limit. Ms. Watkins also discussed the five-year time-out period. She explained the different types of revenue subject to TABOR as well as the TABOR exempt funds, enterprises, and other funding sources. She explained that TABOR surpluses were previously refunded through a variety of sources, but that under Referendum C, the surplus revenue was retained. Ms. Watkins also showed categorically how Referendum C revenue has been spent.

02:29 PM -- Tax Exemptions and Credits

Mr. Kirk, Legislative Council Staff, provided the commission with an overview of income tax credits and modifications. This information can be found in Tables 1 and 2 located in the document titled "State Income Tax Credit, Rebates, and Modifications and State Sales and Use Tax Exemptions," which is available at the commission's web page.

Mr. Kirk further explained other related tax tables. He also explained the effect of sales tax exemptions and showed that many tax exemption and credits are directed toward economic development.

02:35 PM

Ms. Esther van Mourik, Office of Legislative Legal Services, discussed sales tax exemptions and several legal issues. She explained that in regard to tax policy changes, OLLS needs to further analyze the meaning of "tax policy change" and the implications of the actual definitions. Ms. van Mourik suggested more analysis needs to be done to see how TABOR and Referendum C would affect changes from exemptions and rebates and net revenue gains. Ms. van Mourik also discussed several bills passed by the General Assembly in the 2009 session.

02:44 PM

Senator Heath shared his views about tax credits and exemptions.

02:45 PM -- June Revenue Forecast and Implications for the State Budget

Ms. Mullis and Mr. Herreid, Legislative Council Staff, began their discussion on the LCS June 2009 Economic and Revenue Forecast. Senator Heath explained the legislature will be making difficult choices in the future.

Ms. Mullis summarized the extent of the recession and its affect on the state in terms of financial instability, jobs lost, high unemployment rates, and the underemployed. She pointed out that retail trade and consumer spending have fallen, resulting in a substantial decrease in General Fund revenues.

02:54 PM

Ms. Mullis emphasized the slow recovery of the economy, possibly not beginning until 2010 and that employment may not recover until 2012. Ms. Mullis presented the General Fund Budget Summary chart that shows the cumulative shortfall over the forecast period. Ms. Mullis explained in detail the shortfall by the end of FY 2008-09 and methods used to balance the budget, which included borrowing funds from FY 2009-10. She further explained that while general fund revenue is expected to increase in FY 2009-10, there were many one-time additions to revenue from legislation which will not be available in FY 2010-11and beyond. Ms. Mullis added that caseloads in state programs are expected to increase, which is not included in the budget shortfall.

03:05 PM

The commission asked questions regarding external factors and the effects they have on the forecast. Mr. Coors asked how the federal stimulus would affect the forecast. Ms. Mullis explained the federal stimulus would help with Medicaid costs over three fiscal years and pointed to page three in the forecast document which shows the progression over the forecast period.

03:06 PM

Ms. Lynne asked about the discrepancies between the LCS forecast and the Governor's forecast. Ms. Mullis explained the optimism in the Governor's forecast versus LCS's more pessimistic recovery.

03:08 PM

Ms. Cook posed an inflation-related question. Ms. Mullis explained the difference between the Consumer Price Index used for Colorado versus the nation. She explained that inflation will affect wages and other components of the revenue forecast, which have already been considered within the forecast.

03:11 PM

Mr. Herreid added information regarding school finance and how required increases in it would affect the budget shortfall. He stated that an increase from the General Fund is going to be required due to the increase in K-12 education caseload. The commission asked about the out-years of the forecast and commented on the school finance requirement. The commission also asked about inflation implications in the out-years and how that will affect the budget. Ms. Mullis explained that if inflation increases, the hope is also that wages and income will grow accordingly.

03:17 PM

Senator Heath commended the panel and the efforts put into all the presentations today. Senator Brophy commented on the importance of the information presented and how the general knowledge will play into the commission's overall charge.

03:20 PM

The commission recessed.

03:39 PM -- Update on the U.S. and Colorado Economy

The commission reconvened.

Mr. Richard Wobbekind, representing the Leeds School of Business, commented on his economic views and stated the importance of the commission's charge regarding the long term fiscal stability of the state. The commission received a copy of his presentation (Attachment A). A copy is also available on the commission's website.

Mr. Wobbekind stated that he would present some of the difficult scenarios that exist. Mr. Wobbekind commented on the instability of the state's revenue streams and the idea of cost containment in regard to state spending. He noted that his forecast differs slightly from the Legislative Council Staff forecast.

03:44 PM

Mr. Wobbekind explained that the gross domestic product (GDP) is currently turning and therefore he believes the recession is ending in this current quarter, with GDP pulling up. He suggested the year 2010 will not show strong growth, employment will lag, and the access to capital is near stagnant which will negatively affect small business and entrepreneurs. Mr. Wobbekind stated the national economy went into a recession in December 2007 and Colorado followed with a lag. He suggested the "economic scorecard" shows there are still some questionable banks and housing slump issues, but Colorado is standing slightly better than the nation. The weakest part of the economy right now is the consumer. Income and consumption has been slow for the nation over the last decade, which has led to slow personal consumption. Housing prices in Colorado have not dropped as much as in other parts of the nation. Mr. Wobbekind further explained the drop in consumer confidence with this recession but suggested it is now improving. In addition, business fixed investment appears to be turning positive. The manufacturing index, which had trended downward since 2004, has now turned and may be in a growth mode. The United State's housing supply had been falling but houses are finally starting to move in the market.

03:53 PM

The presentation moved to the federal budget. Mr. Wobbekind stated the U.S. Treasury Secretary does not appear to be convincing the world that the stimulus is working. Therefore, convincing the public that an additional stimulus package would be helpful seems unlikely. He suggested interest rates will stay low, according to the Federal Reserve, and that short term rates will increase only marginally but noted commodity prices need to increase. Colorado's commodity prices need to stabilize but are rather volatile and economic recovery would be more favored by stable prices. He stated Colorado population growth has slowed due to less migration into the state. Overall population growth is at 1.4 percent. He further explained that nonfarm employment has been decreasing in 2009 where over this period in 2008 and 2007 it had increased over the first half of the year. Employment growth by region shows only Grand Junction with positive growth. Rural Colorado has been hit hard with this recession, with tourism and natural resources hit hard and only government, education, health, and mining having added jobs. All other industries have lost jobs including industries such as professional business services and construction.

04:03 PM

Mr. Wobbekind suggested jobless claims is the closest real-time data on the economy, though he suggested using caution on looking at one week of data at a time. He stated the trend shows magnitudes of increases in claims unlike what Colorado has ever seen. Yet while Colorado will grow slow, Moody's Corporation expects the state to be one of the leaders in economic recovery. Mr. Wobbekind suggested the inflation rate should stay low for a couple years then start increasing. He further explained the property tax base has been stable and foreclosures by county are not widespread.

04:12 PM

Commission discussion ensued about foreclosures and property values and the possibility of a second surge of foreclosures. Mr. Wobbekind suggested there is a possibility, especially nationally. He stated locally, Colorado may be affected by the loss of homes from lost jobs more than from mortgage restructure. The commission asked about commercial loans and the effects of inflation. Mr. Wobbekind stated bankers are worried about the existing loans and other things that can still derail commercial loans. He suggested having confidence in the U.S. Federal Reserve Chairman's leadership and believes the Federal Reserve will begin to accept slightly higher inflation rates in order to avoid deflation. Other questions related to the agriculture economy in regard to the escalation of costs of production and the closure of New Frontier. Mr. Wobbekind believes the dairy industry will take a hit due to insufficient funding. He closed by stating that other indicators seem mixed, with livestock and crops looking better.

04:22 PM -- Center for Colorado's Economic Future

Mr. Charlie Brown, representing the Center for Colorado's Economic Future at the University of Denver, began his presentation. A copy of the center's issue brief entitled "Colorado's State Budget Tsunami" was distributed to members of the commission (Attachment B). It is also located on the commission's website.

Mr. Brown explained that an increasing amount of General Fund money is dedicated to education, Medicaid, and prisons and consequently this has led to a less flexible budget. He explained that the structural imbalance of the budget is an issue of volatility in General Fund revenue. Periods of slow economic growth are seen with huge decreases in General Fund revenue. He further stated that there is a likelihood that the forecast for assessed value may be a little too optimistic for Fiscal Year 2010-11 and that the December 2009 forecast from LCS may show more backfilling as assessed values, and thus property tax revenues decrease. He recommended that remedies go beyond belt-tightening and stated the budget needs restructuring without excessive taxes. He suggested that if the state wants to tax its way out, sales taxes would have to increase by about 40 percent.

04:36 PM

Mr. Brown continued by discussing the need for a comprehensive analysis of the state's revenue structure that would identify a fair, productive system over the long run. He suggested the legislature needs to clarify which services to provide and how to fund them without penalizing those that foster stability. He explained that the number of local governments has increased, especially among special districts, and suggested the commission look at provisions that deal with special districts. Mr. Brown suggested the state budget needs a comprehensive review that focuses on both tax and spending sides of state government and stated that at pivotal points in the economy, the state should always do a comprehensive review of its budget and associated policies.

04:42 PM

Mr. Brown responded to questions from the commission about Medicaid, stating that Medicaid should be an area to analyze due to the aging baby-boomer population, which could end up being a run-away portion of the future budget. Discussion ensued about Medicaid recipients as well as the future of federal funding of Medicaid. Ms. Mullis, LCS, returned to the table and responded to several questions. She noted that the Joint Budget Committee has information about Medicaid.

04:51 PM

Senator Heath announced that the commission will reconvene at 9:00 a.m. on July 9, 2009.

04:53 PM

The commission adjourned.