Presentation on Budget
COMMITTEE ON JOINT FINANCE
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09:08 AM -- Presentation on Budget
Ms. Natalie Mullis, Legislative Council Staff (LCS), began her presentation on the state budget and the Colorado economy. Members received a copy of her presentation (Attachment A).
Ms. Mullis began by explaining that the economy has been experiencing a rapid free fall. The recession was precipitated by the bursting of a major asset bubble in both the consumer and housing markets. In addition, a financial bubble burst in the commercial real estate sector. Ms. Mullis further explained that many jobs have been lost throughout the economy and it is not expected that these jobs will return. Additionally, local businesses and state government have reduced benefits and salaries for their employees. These employees are working fewer hours because businesses have reduced their need for labor, and many individuals have stopped looking for employment. Therefore, consumers have lost both wages and wealth, which has impacted consumer spending. The downturn has also hit consumers psychologically.
Ms. Mullis continued her presentation by discussing General Fund revenue projections. General Fund revenue has decreased by approximately $1 billion dollars since last year. Because consumers are not spending, a slow recovery is expected. She explained that the human recession impacts the revenue available for the General Fund appropriations. The recession is not over for the state's budget situation, she explained. Ms. Mullis also provided an overview of the drivers of General Fund appropriations. In addition, she explained other major areas of General Fund expenditures.
Ms. Mullis continued by discussing the projected revenue shortfall by the LCS September Revenue Forecast, which is a cumulative shortfall over two fiscal years. She also discussed the provisions of Article X, Section 20, otherwise known as TABOR and Referendum C. She explained that Referendum C allowed the state the retain additional revenue. She also explained that Medicaid caseloads in Colorado are higher than expected.
Ms. Mullis responded to questions from the committee. Representative Kagan asked how the revenue decline could be so precipitous in such a short period of time. Ms. Mullis explained that revenue has sharply declined in the time period since as the impacts of the recession began to impact the state. Representative Kagan also asked about the cumulative $1.2 billion shortfall from the LCS September 2009 Forecast. Ms. Mullis explained that the revenue decline is from the figures presented in the March 2009 forecast.
Representative Gerou stated that Colorado's construction industry is being hard hit by the recession, and expressed her views that the next bubble is coming in the commercial real estate market. She asked Ms. Mullis if the forecast considered these issues.
Ms. Mullis responded that markets are volatile and that the forecast did take these factors into consideration. In particular, commercial real estate was incorporated into the September forecast as a drag on the market. Additionally, small businesses, are assisted by lower values because rents often decline. This provides a counterbalance in the economy, she stated.
Senator Sandoval asked whether the number of Colorado citizens that are no longer receiving unemployment benefits was taken into consideration, and Ms. Mullis explained that the forecast includes extensions of unemployment benefits. She also explained the unemployment rate.
Senator Hudak asked about the Medicaid caseload and whether the additional money Colorado has received from the federal stimulus act in federal Medicaid matching funds had been taken into consideration. Ms. Mullis explained that it had been factored into the September forecast for FY 2009-10 but not for FY 2010-11. The forecast did consider the additional federal Medicaid funding that has already been incorporated into the budget. Senator Hudak also asked about the TABOR limit and the Referendum C time-out period. Ms. Mullis explained that the TABOR limit had a "ratchet down" impact but the Referendum C cap does not. Without Referendum C, the state would have had to refund additional revenue to Colorado taxpayers. Discussion continued about this issue.
Senator Steadman raised questions about the growth in Medicaid caseload and whether increased eligibility requirements were taken into consideration in the numbers presented. He also asked about the hospital provider fee that was recently adopted. Ms. Mullis explained that the projections are from the Joint Budget Committee. The present caseload increase is incorporated into the shortfall projection for this fiscal year, she explained.
Senator King stated that the total government spending was about $18 billion last year, and raised questions about revenue projections for total state spending. Ms. Mullis stated that the total projection for this fiscal year is about $18 billion, but that LCS does not have an estimate for future years because the forecast does not include projections for other sources of revenue. Senator King stated that it is possible that total government spending in a recession will still increase in the state. Senator King also asked whether the staff had incorporated the Governor's budget proposal, and Ms. Mullis explained the Joint Budget Committee has recently prepared this information. Discussion continued about total state spending, the Referendum C cap, and the forecast period.
Senator Romer shared his views that the economic recovery is not being spread evenly across members of the society. He also expressed his thoughts about possible budget reductions to higher education.
Ms. Mullis explained the economic indicators examined in the forecast. Representative Roberts also expressed her thoughts about the impacts of the economic downturn in the Western Slope region. Discussion ensued about these issues.
Representative Frangas asked about the unemployment rate and its impact on state revenue. Ms. Mullis explained the LCS September forecast projects flat employment growth. Committee discussion ensued about overall economic growth, the increase in Medicaid caseload, and Colorado's job market.