JASON SCHROCKECONOMISTCOLORADO LEGISLATIVE COUNCILDECEMBER 7, 2010

JASON.SCHROCK@STATE.CO.US303-866-4720

The Economy and the State Budget: Tough Times to Continue

The Fall is Over

NBER: Recession Ended June 2009

….but how long will it take to GET BACK UP?

NBER = National Bureau of Economic Research.

The Shape of Things to Come

The “Shape” of Recovery

V-Shape U-Shape W-Shape

Strong Growth Slow Growth Double-Dip

The Debt-Fueled Boom Busted…Leaving us with a Mountain of Debt

Businesses

Households

Financial Sector

Colorado Nonfarm Employment

Sources: History, U.S. Bureau of Labor Statistics. Forecast, Legislative Council Staff September 2010.

Seasonally Adjusted

Business is Doing Better

Source: Bureau of Economic Analysis. Profits and income are with inventory valuation and capital consumption adjustments.

Production of Goods is Expanding (but Needs to Continue) Indices of Manufacturing Activity

Source: Institute for Supply Management. Source: Federal Reserve. Index 2007 = 100

Expanding

Contracting

State Retail Sales, Actual and Forecast

Source: Colorado Department of Revenue and Legislative Council Staff September 2010 Forecast

Property Tax Assessed Values

Actual $92.6 Billion

Source: Legislative Council Staff December 2009 Forecast; Colorado Division of Property Taxation.

State Budget

Three Major Sources of Revenue

FY 2010-11 Total State Budget: $19.5 billion

FY 2010-11 General Fund Budget

$7.0 billion

Source: Joint Budget Committee.

State Budget Challenges and Shortfalls

Declining and Weak Revenue, Combined with “Expenditure Pressures” are Straining the State Budget

General Fund Revenue Outlook

Source: History, Colorado State Controllers Office. Forecast, Legislative Council Staff September 2010 Forecast.

Measures Used to Address Shortfalls

• Transfer of Money from other Funds to General Fund• Increase Revenue (e.g., suspend sales tax vendor fee,

eliminate/reduce tax exemptions and credits, etc)• Federal Money• Refinance Programs using more Cash Funds;

Increase Fees for Services• Salary/Hiring Freeze• Permanent and One time Cuts to Programs• Use of Reserves

FY 2010-11 General Fund Budget Shortfall

$7.0 billion

Source: Joint Budget Committee, Legislative Council Staff, and Office of State Planning and Budgeting.

FY 2011-12 General Fund Budget Shortfall

$7.0 billion

Source: Joint Budget Committee and Legislative Council Staff.

FY 2011-12 General Fund Budget Request

$7.0 billion

Source: Joint Budget Committee and Legislative Council Staff.

FY 2011-12 General Fund Budget Request

$7.0 billion

Source: Joint Budget Committee and Legislative Council Staff.

State’s Oil and Gas Industry is Growing Again

Source: Baker Hughes.

Guess the Chart

Severance Tax Collections ($000)

FML Revenue to Colorado ($000)

Source: Legislative Council Staff September 2010 Forecast.

Transfers of Severance Tax Revenue to General Fund ($121 Million)

Transfers of FML Revenue to General Fund ($77 Million)

More Transfers for FYs 2010-11 and 2011-12?

FY 2010-11 Budget Balancing Plan $118.8 Million in Cash Fund Transfers to General Fund (requires legislature to pass)

Includes $103.8 Million Severance/FML Revenue Transfers $5 Million from Local Government Severance Tax Fund $70 Million from Mineral Impact Fund (FML Revenue) $10 Million from Perpetual Base Account (Severance Tax,

Water Projects) $8.4 Million from Higher Ed Maintenance and Reserve

Acct. $10.4 Million Local Government Permanent Fund

More Transfers for FYs 2010-11 and 2011-12?

FY 2011-12 Governor’s Budget Request Includes $120.2 Million in Cash Fund Transfers to General Fund (requires legislature to pass)

Includes $57 Million in Severance/FML Revenue Transfers $27 Million from Local Government Severance Tax

Fund $15 Million from Mineral Impact Fund (FML Revenue) $15 Million from Perpetual Base Account (Severance

Tax, Water Projects)