The Economy and the State Budget: Tough Times to Continue

1. The Economy and the State Budget: Tough Times to Continue Jason Schrock Economist Colorado Legislative Council December 7, 2010 jason.schrock@state.co.us 303-866-4720

2. 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.

3. The Shape of Things to Come The “Shape” of Recovery V-Shape U-Shape W-Shape Slow Growth Double-Dip Strong Growth

4. The Debt-Fueled Boom Busted…Leaving us with a Mountain of Debt Financial Sector Businesses Households

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

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

7. Production of Goods is Expanding (but Needs to Continue) Indices of Manufacturing Activity Expanding Contracting Source: Institute for Supply Management. Source: Federal Reserve. Index 2007 = 100

8. State Retail Sales, Actual and Forecast Source: Colorado Department of Revenue and Legislative Council Staff September 2010 Forecast

9. Property Tax Assessed Values Actual $92.6 Billion Source: Legislative Council Staff December 2009 Forecast; Colorado Division of Property Taxation.

10. State Budget Three Major Sources of Revenue

11. FY 2010-11 Total State Budget: $19.5 billion

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

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

14. General Fund Revenue Outlook Source: History, Colorado State Controllers Office. Forecast, Legislative Council Staff September 2010 Forecast.

15. 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

16. FY 2010-11 General Fund Budget Shortfall $7.0 billion Source: Joint Budget Committee, Legislative Council Staff, and Office of State Planning and Budgeting.

17. FY 2011-12 General Fund Budget Shortfall $7.0 billion Source: Joint Budget Committee and Legislative Council Staff.

18. FY 2011-12 General Fund Budget Request $7.0 billion Source: Joint Budget Committee and Legislative Council Staff.

19. FY 2011-12 General Fund Budget Request $7.0 billion Source: Joint Budget Committee and Legislative Council Staff.

20. State’s Oil and Gas Industry is Growing Again Source: Baker Hughes.

21. Guess the Chart

22. Severance Tax Collections ($000)

23. FML Revenue to Colorado ($000) Source: Legislative Council Staff September 2010 Forecast.

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

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

26. 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

27. 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)