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The Outlook for the Colorado Economy and State Budget

The Outlook for the Colorado Economy and State Budget. CML Natalie Mullis (in Absentia) Chief Economist Colorado Legislative Council February 24, 2011 natalie.mullis@state.co.us 303-866-4778 www.colorado.gov/lcs. “Worst Recession Since the Great Depression”. “Freefall”.

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The Outlook for the Colorado Economy and State Budget

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  1. The Outlook for the Colorado Economy and State Budget CML Natalie Mullis (in Absentia) Chief Economist Colorado Legislative Council February 24, 2011 natalie.mullis@state.co.us 303-866-4778 www.colorado.gov/lcs

  2. “Worst Recession Since the Great Depression”

  3. “Freefall”

  4. We’re in Recovery!

  5. Recovery Is Here - Really Contributions to Gross Domestic Product Seasonally Adjusted Annual Rate Source: Bureau of Economic Analysis.

  6. Nation’s Manufacturing Sector ExpandingIndices of Manufacturing Activity ISM Purchasing Manufacturer’s Index Industrial Production Index Expanding Contracting Source: Institute for Supply Management. Source: Federal Reserve. Index 2007 = 100

  7. Nation: Business is Doing Better Source: Bureau of Economic Analysis. Profits and income are with inventory valuation and capital consumption adjustments.

  8. Colorado’s Energy Industry Mending Slowly Source: Baker Hughes.

  9. Consumers No Longer Running Scared (But Still Cautious) Colorado Retail Trade Sales Three-Month Moving Average, Seasonally Adjusted Monthly Data U.S. Real Personal Consumption Expenditures Source: U.S. Bureau of Economic Analysis. Source: Colorado Department of Revenue.

  10. The Job Situation Is Improving Total nonfarm employment saw small gains in 2010 Source: U.S. Bureau of Labor Statistics. Seasonally adjusted data through November 2010.

  11. Broader-Based Industries are Doing Better CO Industries Losing Jobs Dec. ‘09 to Dec. ‘10 CO Industries Gaining Jobs Dec. ‘09 to Dec. ’10 Source: U.S. Bureau of Labor Statistics. Seasonally adjusted data through December 2010.

  12. However, Challenges Continue… • Financial Sector Struggles • High levels of Public & Private Debt • Housing market woes • Low levels of commercial construction • High unemployment • Uncertain business climate • Rising input prices

  13. Debt Will Loom Large for A Long Time U.S. Debt as a Percent of GDP Source: Federal Reserve Bank. Data through 2010 quarter one.

  14. Financial Industry Will Take Time to Heal Source: Federal Deposit Insurance Corporation. Totals for all U.S. institutions. Data through 2010 quarter three.

  15. The Housing Market Will Also Require Time Residential construction remains at low levels Total Permits Colorado Single Family Permits Source: Colorado Department of Local Affairs. Seasonally adjusted data through October 2010.

  16. Unemployment Will Remain High 8.8% Unemployed in December Colorado Unemployment Rate Source: U.S. Bureau of Labor Statistics and Legislative Council Staff projections based on the December 2010 forecast.

  17. Colorado Nonfarm Employment Seasonally Adjusted Sources: History, U.S. Bureau of Labor Statistics. Forecast, Legislative Council Staff December 2010.

  18. What Does this Mean for the Budget? ?

  19. Sources of State Revenue Three Major Sources • Medicaid funding • Transportation funds • Stimulus dollars • Transportation taxes & fees • Severance tax • Gaming revenue • Individual & corporate income tax • Sales & use tax • Liquor and alcohol taxes

  20. Individual Income Taxes FY 2008-09 -12.9% General Fund FY 2009-10 -5.8% Sources: Colorado Department of Revenue. Annualized Data. Cash-accounting basis. Data through December 2010.

  21. Sales Taxes FY 2008-09 -9.2% General Fund FY 2009-10 -5.5% Sources: Colorado Department of Revenue. Annualized Data. Cash-accounting basis. Data through December 2010.

  22. General Fund Revenue Outlook Drop in revenue of 12.9% between FY 2007-08 and FY 2008-09 and a drop of 4.3% between FY 2008-09 and FY 2009-10 Source: Colorado State Controllers Office and Legislative Council Staff projections based on the December 2010 forecast.

  23. FY 2010-11 General Fund Budget Total General Fund Budget: $7.0 billion Source: Joint Budget Committee.

  24. FY 2010-11 General Fund Budget Shortfall $ 348 millionshortfall to fill 4% reserve (Governor’s Forecast) Supplemental Package: $156 M Education Refinance $103 M Cash Fund Transfers $64 M Medicaid Refinance $115 M Reduce Reserve ($77) M Placeholders (Medicaid, Human Services & 1% Personnel Reduction) ($12) M Gaming Transfer Adjustments $349 Million - Total Total General Fund Budget: $7.0 billion Source: Joint Budget Committee and Legislative Council Staff.

  25. FY 2011-12 General Fund Budget Shortfall Over $1.1 billion shortfall LCS Forecast Total General Fund Budget: $7.0 billion Source: Joint Budget Committee and Legislative Council Staff.

  26. FY 2011-12 General Fund Budget Shortfall Over $1.1 billion shortfall* *Assumes no salary increases and current levels of services as required under current law Source: Joint Budget Committee, Legislative Council Staff, and Office of State Planning and Budgeting.

  27. Actions to Balance the Budget • Cash fund transfers to the General Fund • Reserve requirement reductions • Increases in revenue • Suspended sales and income tax exemptions and credits • Raising fees • Federal stimulus funds • Salary/hiring freezes for state employees • Permanent and one-time cuts to programs • K-12 Education: Budget Stabilization Factor • Higher Education • Other Programs

  28. Governor’s FY 2011-12 Budget Proposal • Combined Impact of Ritter & Hickenlooper Proposals: -$303.5 million • General Fund Expenditure Change: +$137 million • Biggest Cut K-12: -$208 million • Higher Education: -$20.3 million • Health Care: +$388 million • Revenue Augmentation: +$440 million • Cigarette Sales Taxes & Vendor Fee: +$89 • Cash Fund Transfers: $193 million • Suspend FPPA Payments: $25 million • Reserve: $163.7 million

  29. Specific Items in Hickenlooper’s Proposal • Eliminate various programs: • K-12 • Eliminate school leadership academy • Eliminate interest on school loans program • Human Services: Pueblo Mental Health Institute • Close 20-bed Therapeutic Residential Child Care Facility • Close Circle Program • Corrections: • Close Ft. Lyon Prison • Eliminate Parole Wrap-around Program • Cut education and community programs • Parks: • “Repurpose” 4 state parks

  30. Total Appropriations Does not adjust for double-counted appropriations. Source: JBC Staff

  31. TABOR and Referendum C

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