1. Education Budget Outlook
Natalie Mullis
Chief Economist, Legislative Council Staff │
February 3, 2016
CASE Nuts and Bolts

2. Outlook for the Education Budget
Where does the money come from?
Where are we?
How did we get here?
Where are we going?

3. Where does the money come from?
General Fund / SEF
Local Share
Federal Funds
Federal Funds separate from formula
State Funding =
Total Program Funding
Minus
Local Share
Mostly Property Taxes
Specific Ownership Taxes
Income Taxes
Sales Taxes

4. General Fund Revenue Billions of Dollars
State Share
General Fund Revenue Billions of Dollars
Source: The Office of the State Controller & LCS, OSPB December 2015 Revenue Forecasts.

5. The Business Cycle is Mature
Businesses led the recovery…
But the consumer is driving growth now
Labor market near full employment
Households budgets balanced (some spending, some saving, and record low debt burdens)
Better credit conditions
Household net worth up
Weighing on growth:
Global economy
Oil
High housing costs
Tightening monetary policy
Low labor force and productivity growth

6. Low energy prices are weighing on regional growth
West Texas Intermediate Crude Oil Price
Dollars per Barrel
Henry Hub
Natural Gas Price
Dollars per Mcf
Update /double check latest prices.
Update /double check latest prices.
Source: Energy Information Administration (weekly average prices).

7. Statewide Property Tax Assessed Values
Includes Tax Increment Financing
Residential
$46.4B in 2015
Nonresidential
$58.9B in 2015
Source: Colorado Division of Property Taxation
*Legislative Council Staff December 2015 Forecast

8. Geography of Colorado Oil and Gas Activity

9. Education Budget: Where are we?
In A Tough Spot
12.1% lower than formula without “negative factor”
General Fund revenue growth negative after adjusting for inflation
State Education Fund close to depleted
Property tax values up, but only for one year (and that may not help the education budget)

10. Education Budget: How did we get here?
Legal situation
The Constitution and school finance
Financial situation
Still catching up to where we were before the great recession
Colorado State Capitol, 1906

11. Legal framework: The Constitution & School Finance
Gallagher Amendment
45/55 Property Tax Base Ratio
Adjusts the Residential Assessment Rate
TABOR
Requires a vote to increase the Residential Assessment Rate or Mill Levy
For district’s that have not “debruced,” requires mill levies to be reduced when revenue exceeds a district’s TABOR limit
Amendment 23
Requires “Base Funding” to Increase

12. Relative State and Local Shares of School Finance, 1983 to FY 2015-16
Note: Prior to 1993, K-12 funding was done on a calendar year basis.

13. Residential Assessment Rate and Mill Levy
Local Share
Residential Assessment Rate and Mill Levy
Source: Colorado Department of Local Affairs, Division of Property Taxation

14. State Share
K-12 Education Budget: Average per pupil funding has exceeded pre-recession levels…
Local Share
Source: Joint Budget Committee and Legislative Council Staff.

15. …but inflation-adjusted funding still lags
State Share
…but inflation-adjusted funding still lags
Local Share FY
-$855M
12.1%
-$831M
11.8%
Supp.
-$880M
-$130M
-$1.1B
-$381M
-$774M
-$1.1B
Source: The Office of the State Controller & LCS, OSPB September 2015 Revenue Forecasts.

16. Education Budget Where are we going?
Economy & revenue growing
Tough budgets will persist
Structural issues
TABOR
Cliffs from use of one-time moneys
View from the Lincoln Memorial, Colorado State Capitol

17. What the General Fund Pays For FY 2015-16
State Share
What the General Fund Pays For FY
FY General Fund
Operating Budget
$9.6 billion

18. Colorado State Budget Caseload Growth & the General Fund Budget
Sources: Colorado Department of Education, U.S. Census Bureau, & Bureau of Labor Statistics, and JBC Staff.

19. TABOR and Referendum C White bars indicate the Referendum C time out Darker green bars indicate years revenue exceeded or is expected to exceed the limit
*Legislative Council Staff December forecast. “P” indicates preliminary.
Source: Colorado State Controllers Office and Legislative Council Staff.

20. School Finance Funding SEF Balance and Change in GF Appropriations
Millions of Dollars
Going forward…
Source: Legislative Council Staff Report on the State Education Fund

21. School Finance Funding SEF Balance and Change in GF Appropriations
Millions of Dollars
$830.7M
Negative Factor
Source: Legislative Council Staff Report on the State Education Fund

22. School Finance Funding SEF Balance and Change in GF Appropriations
Millions of Dollars
$830.7M
Negative Factor
Source: Legislative Council Staff Report on the State Education Fund

23. School Finance Scenarios Going Forward
State Share
School Finance Scenarios Going Forward
Local Share
Total Program Funding Projections
LCS December 2015 Revenue Forecast
JBC Staff Recommendation
$40.8M one-time increase in negative factor
Eliminate negative factor
Current law: constant
$830.7M negative factor
Statewide Base Per Pupil Funding
Current funding level

24. Higher Education Left axis: Major funding sources, in billions, not adjusted for inflation Right axis: Student FTE, in thousands
Total Student FTE
Resident FTE
Nonresident Tuition
Resident Tuition
ARRA is american reinvestment and recovery act – federal stimulus bill
ARRA
General Fund
Source: Joint Budget Committee Staff. * FY tuition and student FTE reflect Governing Board projections.