Looking Forward Colorado’s fiscal prospects after Ref C Preliminary findings August 2007

Looking Forward | Colorado’s fiscal prospects after Ref C Four goals for our fiscal work 1.Inform and help shape the debate over Colorado’s fiscal prospects after Ref C. 2.Conduct research to identify where current fiscal trends will take us. 3.Share these preliminary findings with community leaders throughout Colorado. 4.Gather feedback and input to produce a final report.

Looking Forward | Colorado’s fiscal prospects after Ref C 1982: Voters pass Gallagher Amendment to protect residential property tax payers 1991: Legislature passes Arveschoug-Bird 6 percent annual growth limit on the General Fund 1992: Voters pass TABOR Amendment - requires voter approval of tax increases - sets tight revenue limits that shrink government and limit its ability to rebound after economic downturns 1997: Legislature passes Senate Bill 1, for the first time committing General Fund revenues to transportation 2000: Voters pass Amendment 23 to mandate a minimum level of funding for public schools 2002: Legislature passes House Bill 1310, committing excess general fund revenues at the of a year to transportation and capital construction How we got here

Looking Forward | Colorado’s fiscal prospects after Ref C More of how we got here Late 1990s: TABOR surpluses grow to more than $1 billion per year. Legislature cuts income and sales taxes to avoid collecting future surpluses : Economic recession and historic drop in state revenues. Surpluses vanish. Legislature cuts state services by $1 billion annually and uses one-time stop-gap measures (including moving payday for workers and borrowing from cash funds) to balance budget : Economy and revenues rebound, but TABOR’s “ratchet effect” prevents critical state services from joining in recovery 2005: Voters pass Referendum C to take a five-year time-out from the TABOR revenue limit. Legislature able to avoid future cuts, partially restore services

Looking Forward | Colorado’s fiscal prospects after Ref C Preliminary findings 1.Projected General Fund revenues exceed estimated current services General Fund appropriations over the study period by an average of $466 million a year. 2.However, estimated current services General Fund appropriations exceed the 6 percent spending limit in each fiscal year studied. 3.This means Legislature will have to cut estimated current services General Fund appropriations between $275 - $350 million annually (including K-12, higher ed and health care) to stay within the 6 percent spending limit. 4.Total TABOR revenue will be slightly below the TABOR limit (as amended by Ref C) when it is reset in FY through FY and slightly over it in FY However, projected revenue will likely result in TABOR rebates starting in FY and beyond.

Looking Forward | Colorado’s fiscal prospects after Ref C

Observations 1.Maintaining the status quo current services budget will be a challenge. –Is this where we want to be? –Does this provide sufficient funding for important investments in K-12 education, higher education, early childhood education and transportation? 2.The 6 percent spending limit will be an impediment to funding our estimated current services General Fund appropriations, even though there are sufficient revenues to do so.

Looking Forward | Colorado’s fiscal prospects after Ref C Observations 3.Our estimates do not include funding for: ―Initiatives to reduce drop-out rates ―Proposals from 208 Commission for Health Care Reform ―Proposals from P-20 Council. ―Raising higher education to level of peer states ―Maintaining highways at current levels ―Increased rainy day fund (8-10 % of General Fund ―Increased support for veterans ―New capital construction projects ―Likely slower growth in federal funding

COLORADO COMPARED Total Expenditures per $1000 of income49 per capita44 K-12 education per $1000 of income49 per capita34 Medicaid per $1000 of income49 per capita47 CHP per $1000 of income49 per capita47 Higher Education per $1000 of income49 per capita47 Highways per $1000 of income49 per capita47 Source: Carol Hedges, “Aiming for the middle”, COFPI. Looking Forward | Colorado’s fiscal prospects after Ref C

Observations 3.We are all in this together. We cannot address one area in isolation from the others. 4.Our revenue estimates also do not include an economic downturn. If that happens, revenues are likely to be lower.

Looking Forward | Colorado’s fiscal prospects after Ref C We want your feedback: Questions Comments Observations Send your comments to: Laurie Hirschfeld Zeller at:

Looking Forward | Colorado’s fiscal prospects after Ref C Contact information: Rich Jones, Robin Baker and Frank Waterous The Bell Policy Center Alex Medler and Scott Groginsky Colorado Children’s Campaign ext. 244 and 275 or Carol Hedges Colorado Fiscal Policy Institute ext. 309