State finances don’t inspire optimism

Economist addresses crowd

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The state of Colorado has taken a few steps back from the edge of the financial cliff, but researchers say it’s not out of danger of falling off.

“There’s not truly cause for optimism,” Phyllis Resnick, lead economist with Colorado State University’s Colorado Futures Center, told business and community leaders at the South Metro Denver Chamber of Commerce on Dec. 10. “We’ve delayed some of the inevitable, but we haven’t really gotten rid of the problem.”

The good news is that the center predicts a budget gap in 2024 of nearly half of what it expected in its 2011 study, which was about $3.5 billion. CFC said at the time that by then, there would only be enough in the state’s coffers to pay for Medicaid, K-12 education and corrections — just enough to “medicate, educate and incarcerate,” said Resnick.

Federal stimulus money and a robust housing recovery helped delay the pain, said Resnick.

“Revenues have come back kind of on steroids,” she said. “But I think this is artificially stimulated. I expect sales-tax revenue to continue to decline.”

The bad news is that the shortfall is still probably going to happen, but not until 2029 or so.

There are a lot of reasons, but a major one is an aging population that spends more money on services, which are not taxed, than products. In 1959, people spent about 56 cents of every dollar on goods; today it’s just 36 cents. Things continue to get cheaper — think electronics — and people more often are buying online, where there is no sales tax.

Additionally, the recession and record-high youth unemployment rates kept a lot of young adults from moving out and starting their own families, so they don’t need houses and furniture and all the trappings of the American dream quite yet.

They’re also not having kids, which means lower spending on education in the coming years — good news for the state budget, bad news for the schools.

Those kids have been going to college, however.

Student-loan debt is now $1 trillion nationally, second only to housing in terms of household debt.

These are the same kids who were supposed to prop up Medicaid and Social Security for all those seniors, the numbers of which will grow by 50 percent in the next two years.

On top of all those problems, most of which are occurring nationally, Colorado has the unique situation of TABOR. The constitutional amendment caps revenue growth to the amount of inflation plus population change, and requires any excess be returned to taxpayers unless voters say the governmental entity can keep it.

CFC predicts having an excess will be the norm starting in about 2016 because of Colorado’s hospital-provider fee, established in 2009 to pay for the Medicaid expansion.

“The juxtaposition of cuts in general-fund programs, which could include cuts to schools, higher education and a variety of other programs, at the same time the state is returning `surplus’ funds to taxpayers under TABOR, will be puzzling to many Colorado citizens,” writes CFC in its executive summary.

The state could begin to close the gap by exempting the hospital fee from TABOR and taxing some personal services like haircuts and lawn mowing, for example, says Resnick.

“Why not modernize the system to capture where the economic activity is taking place?” she asked. “If we could make these two changes, we could come pretty close to becoming structurally sound through the end of this decade.”

Next up would be taking a hard look at how property taxes are calculated in an effort to shore up the education system, she said.

“Inaction, of course, would bring about a strictly budget-cutting solution,” reads the study. “The cuts would be extreme. For example, closing the gap with cuts alone, while maintaining full funding for K-12, Medicaid and corrections, would result in cuts of nearly 75 percent to all of the other 17 general-fund departments by 2030.”