Joint Committee Committee on Legislative Council (12/20/2010)

Final
STAFF SUMMARY OF MEETING

COMMITTEE ON LEGISLATIVE COUNCIL

Date:	12/20/2010	ATTENDANCE

Time:	10:02 AM to 11:52 AM	Balmer	X
		Boyd	X
Place:	LSB A	Cadman	E
		Ferrandino	X
This Meeting was called to order by		Gibbs	E
	Senator Shaffer B.	Hodge	X
		Kerr A.	E
This Report was prepared by		Kopp	E
	Katey McGettrick	May	E
		McNulty	X
		Morse	X
		Scanlan	E
		Scheffel	X
		Spence	X
		Stephens	X
		Weissmann	E
		Shaffer B.	X
		Carroll T.	E
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Revenue Forecasts and TABOR Outlook Severance Taxes and FML Revenue Assessed Value Forecast PK-12 Enrollment Forecast Adult Prison Inmate and DYC Forecast School Finance Outlook OSPB Forecast Other Business		- - - - - - - -

10:02 AM -- Revenue Forecasts and TABOR Outlook

Natalie Mullis, Chief Economist, Legislative Council Staff, reviewed the agenda for the forecast meeting (Attachment A) and distributed the December 2010 forecast to the committee (Attachment B). She explained that the meeting would conclude with the presentation of the Office of State Planning and Budgeting (OSPB) forecast.

10:04 AM

Fiona Sigalla, Legislative Council Staff, explained that the Colorado economy continues to recover but that recovery will remain below trend. She noted that corporate profits have reached record levels, but the state of the economy is discouraging companies from spending and hiring. She noted the fiscal policies undertaken at the federal level to assist with the sluggish economy. She also stated that private employment has slowly been rising since May, but it has not been sufficient to keep the unemployment rate from rising, which is at its highest since 1983. Ms. Sigalla stated that high commodity prices are stimulating the agriculture and energy industries. She explained that there has been an increase in drilling rigs and permits in Colorado, which are positive signs for those industries. She noted that there are problems that the economy must work through before the economy can improve: lowering debt levels, dealing with negative equity in home ownership, and weak residential and nonresidential real estate markets. She noted the pressure this places on the financial services industry, which is struggling to deal with these issues. She shared that Colorado banks have 60 percent of assets in real estate, compared to 50 percent nationally. Ms. Sigalla continued her presentation, noting the effect the economy has had on bank lending. She stated that recovery tends to be slow as debt levels are lowered. She anticipated that the economy will be slow for the next two years. Ms. Sigalla and Ms. Mullis responded to questions about the presentation from Representative Gerou and Representative Balmer.

10:14 AM

Senator Lambert asked that the economist staff provide him with the research used to reach the conclusions in the forecast about how high commodity prices are stimulative and not inflationary. He expressed concern about unemployment and shared information about the current economic conditions in Colorado Springs. He requested information on how much the labor force has shrunk since the recession. Senator Heath commented on the state of the manufacturing industry in the forecast. Ms. Sigalla responded to his question, noting that despite the slow job growth in the manufacturing sector, the output of the industry is strong.

10:20 AM

Ms. Mullis discussed the general revenue forecast with the committee. She reviewed Table 1 of the revenue forecast. She explained the reasons for the reduction in the General Fund outlook. Senator White asked Ms. Mullis about the effect of the federal health care bill and if there will be enhanced revenue to the state as a result of that legislation. Ms. Mullis responded that if it affects taxable income, then it would affect Colorado.

10:24 AM

Representative Ferrandino asked Ms. Mullis to explain the change in the General Fund outlook from September to December. Ms. Mullis responded that many one-time sources of money are expiring and that the total shortfall is about $1 billion. She stated that the size of the shortfall depends on what the legislature decides to fund and at what levels of funding. She referred the committee to page 7 of the forecast. She also discussed the effect of Senate Bill 09-228 regarding transfers. Senator Morse responded to her comments regarding SB 09-228, noting the triggers in the legislation and that the tax credits are evaluated year by year, and the credit can be carried forward until the year that funds are available.

10:30 AM -- Severance Taxes and FML Revenue

Jason Schrock, Legislative Council Staff, presented the severance tax forecast and shared a handout with the committee (Attachment C). He also referred the committee to page 18 of the forecast, which discusses the trends in severance tax revenue. He noted that severance tax revenue is recovering after a steep decline in FY 2009-10. He projected moderate increases in severance tax revenue because the United States continues to increase its use of natural gas. Mr. Schrock continued his presentation, discussing the federal mineral leasing revenue (FML) forecast. He noted that it is similar to the severance tax revenue forecast. Representative Balmer asked about the change in 2008 to the FML formula for distribution and if there are changes needed to be made to it. Mr. Schrock responded, noting that the formula does not account for increases in federal revenue. In closing, Mr. Schrock discussed the possibility that severance tax revenue may be less volatile in the future due to the increased use of natural gas nationally as an energy source and the increased availability of natural gas.

10:39 AM -- Assessed Value Forecast

Jason Schrock, Legislative Council Staff, also presented the assessed value forecast. He noted that this forecast assists in determining the funding for the school finance act. He noted that the forecast includes property values in all 178 school districts, including commercial, residential, vacant, and industrial property. He explained the process for collecting this information, which included talking to assessors throughout the state. He explained that last year's assessed value forecast was off by one-tenth of a percent. He referred the committee to page 57 of the forecast for information on assessed values. He highlighted the fact that there is a lag in the changes in the economy and changes in property values, and in turn, property taxes, and noted that this lag effect is occurring now. He noted that 2011 is an assessment year for real property, which is assessed every two years. The effect of this is that the lowered property values are projected statewide. He referred the members to page 68 to Figure 22 and discussed the trends that the map shows, particularly in mountain communities that have been hurt by lack of real estate demand and financing in that area. He noted that fall of values in the Western part of the state, which, in contrast to the Front Range decline, is not as severe. He stated that the areas that are seeing increases in property values are on account of the growth of oil and gas industry. He predicted that the 2012-13 forecast will reflect flat property values. In conclusion, he discussed the residential tax rate and noted that it is set by the state constitution as required by the Gallagher amendment.

10:48 AM -- PK-12 Enrollment Forecast

Kate Watkins, Legislative Council Staff, presented the Pre-Kindergarten through twelfth grade enrollment forecast, which begins on page 49 of the forecast. She directed the committee to page 56 in the forecast. She explained the push and pull of school enrollment, which is affected by where there are job opportunities for parents. She noted that the pullback in the oil and gas industry has had a large effect on the western and southwestern parts of the state. She stated that over the next two years it will flatten out. She explained that Colorado's rural and agricultural areas continue to see slight declines in enrollment, which has been happening for the past decade. She concluded by stating that enrollment increased by about 10,000 students in the current school year.

10:52 AM -- Adult Prison Inmate and DYC Forecast

Marc Carey, Legislative Council Staff, presented the adult prison inmate and Division of Youth Corrections (DYC) population forecasts. He noted that this forecast begins on page 69 and referred the committee to the table on page 70, which discusses historical and forecasted trends. He noted the decrease in male and female inmates. For the forecast period, Mr. Carey projected an accelerated decline in the prison inmate population. He also compared the 2009 forecast to this year's forecast. He discussed the factors that affect this forecast, which can be found on 73 of the document. He noted four laws enacted last year that will reduce the overall prison population.

10:58 AM

President Shaffer asked if there is a cost savings associated with the decline in the prison enrollment. Mr. Carey responded that he could calculate that and provide that information to the committee. He continued his presentation, discussing the overall decline in parole caseload, but noted an increase for this forecast period as releases are expected to increase. Mr. Carey stated that, for 2011, a 3.7 percent increase in cases is projected, and by 2013, it is expected to increase more. Discussion ensued among the committee and Mr. Carey regarding Figures 24 and 25 in the forecast.

11:04 AM

Senator Newell asked about the youth offender system population. Mr. Carey noted that it is not broken out separately in the Division of Youth Corrections population forecast, but that he can provide that information. Mr. Carey concluded by discussing the DYC population, which begins on page 77. Mr. Carey responded to questions from the committee regarding Figure 27 and the status of the crime rate in Colorado in relation to the declines in the prison population.

11:11 AM -- School Finance Outlook

Todd Herreid, Legislative Council Staff, presented the school finance outlook in light of the most recent forecast presented and distributed a handout to the committee (Attachment D). He shared that property tax collections will be $10 million below forecast and that specific ownership tax collections will also be lower. He noted that this is an issue that the state will have to deal with when the legislature convenes. He responded to questions from the committee about the decrease in the local contribution and on calculating the per-pupil effect of a $23 million recission.

Mr. Herreid discussed the FY 2011-12 budget year effects, given the decline in the revenue forecast, and discussed the budget stabilization factor. He stated that the state's share will need to increase as a result of the local revenue decline. He explained that the handout shows different budget scenarios to pay for the shortfall. He stated that at the end of 2010-11, the balance of the State Education Fund (SEF) will be at about $130 million. He responded to questions from the committee regarding his presentation.

11:30 AM -- OSPB Forecast

Lisa Esgar, OSPB, introduced Peter Strecker to present the forecast (Attachment E). He referred the members to page 3 of the OSPB forecast, noting the difference between the OSPB forecast and the Legislative Council forecast. He then referred the members to page 5 of the OSPB forecast. He noted that the forecast he is presenting contains proposed bills from the governor to balance the budget. He also noted that the OSPB forecast assumes that the transfers from SB 09-228 will impact the FY 2012-13 budget. He then referred the committee to page 8, which discusses TABOR and Referendum C revenue limits. He also discussed page 11, which is the OSPB General Fund revenue estimate by tax category.

11:39 AM

Mr. Strecker responded to questions about: the difference in the Legislative Council General Fund estimate and the OSPB estimate; Table 6 of the OSPB forecast; and the anticipated increases in personal income growth reflected in the OSPB forecast. Representative Ferrandino asked a question about page 27 of the OSPB forecast. A discussion on personal income growth ensued, with Mr. Strecker noting that OSPB uses information from Moody's to calculate the forecast. Ms. Esgar also discussed the differences between the forecasts, noting that OSPB applies the budget balancing proposals. She noted that under either forecast, it does not appear to need additional funds to balance the current fiscal year. She explained that OSPB staff is continuing to meet with the current Governor and is meeting with the Governor elect to balance the budget.

11:48 AM -- Other Business

Mike Mauer, Legislative Council Staff, presented to the committee on an issue raised by President Shaffer regarding the Legislative Council Rules for approving vouchers for legislative expenses. Mr. Mauer addressed the time consuming issues with approving expense items and President Shaffer explained that often the approval happens after the expenditure has occurred. President Shaffer shared that at the next meeting he will likely propose an amendment to the rule for the committee to consider.

11:52 AM

The committee adjourned.