Colorado grapples with varying revenue forecasts
December 19, 2008
DENVER ” The question for Colorado officials isn’t whether times are bad. They just need to know how bad things will get before slashing state spending.
A pair of tax forecasts out Friday varied widely ” but both showed the national recession has come to Colorado and won’t let up in the near future, meaning state cuts are likely as revenue from sales and income taxes dip.
A projection released by economists working for Gov. Bill Ritter projected nearly flat general tax revenues this fiscal year, about $7.8 billion.
Ritter said his projection shows a shortfall of about $80 million for the fiscal year ending next June.
But another projection, a legislative forecast also out Friday, paints an even grimmer picture. That report predicts tax receipts will tumble more than $600 million below what has been budgeted.
So which estimate is correct?
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Neither. And both.
Economists look at a dizzying variety of predictors when they draw up forecasts. How many new houses might be built. When Wall Street might recover. Even the numbers of Coloradans headed to public schools and prisons next year. So the results can vary dramatically, leaving state budget writers with a delicate job trying to balance the state’s checkbook without unnecessary cuts in essential services such as road repairs.
When lawmakers rolled out their gloom-and-doom forecast at the Capitol Friday, they were upstaged by Ritter’s announcement of the new secretary of state, delivered one floor below. But Ritter defended his rosier numbers.
He pointed out that his office, which will present a proposed budget to lawmakers early next year, is aware Colorado’s economy is shrinking. Ritter said he’s already prepared for it, warning state agencies to brace for cuts of 2.5 percent.
Ritter called for a state hiring freeze in September, and he proposed four bills this week aimed at saving jobs by giving businesses a tax credit for creating positions and investing in community college jobs training.
“We have prepared for the potential of making cuts,” Ritter said. But he conceded the differing projections will leave budget writers in a bind.
“Those are dramatically different numbers,” he said.
The lawmakers’ forecast was indeed bleak. The report noted the deteriorating national economy and concluded that hard times are headed to Colorado, too.
“The negative forces stemming from the financial crisis, housing market contraction and slowdown in consumer spending have begun to impact the state,” the report noted.
The legislative report also noted that Colorado is seeing its biggest decline in revenue from gambling since it became legal in 1991. Gambling revenue dropped 3.6 percent last year and will drop 17 percent this year as gamblers snap their wallets shut, legislative forecasters warned.
When lawmakers craft changes to Ritter’s budget, they’ll use their own more negative forecast. As in most states, Colorado law requires a balanced budget.
“What people already know is, we’ve got a tough economy,” said Rep. Joel Judd, D-Denver, a member of the budget-writing Appropriation Committee.
Both forecasts said Colorado’s economy could be worse, and that many states face bigger shortfalls than Colorado.
“It’s really bad in some parts of the country. It’s not as bad here, but it’s worse now than we thought it was last time we got a forecast in September,” Judd said.
Also, both reports predicted the economy would begin to improve next year and into 2010.
But even that piece of good news comes with a big warning to budget writers. Just as tax revenues could pick up, a state amendment expires that currently relaxes the Taxpayer’s Bill of Rights, or TABOR, and allows the state to keep some of any additional revenue.
TABOR is an amendment to the state constitution that limits growth in taxes and spending.
Even Ritter’s rosier prediction reaches a bleak conclusion. Running down the weak areas of the economy, plus the expiration of the TABOR exemption, the governor’s report concludes, “Colorado’s budget picture looks much worse than previously forecasted.”