Colorado economy climbing ‘sand dune’, forecasters say

Higher budget forecasts were announced Friday along with predictions that budget surpluses may enable funds to be appropriated to K-12 education. However, “sand dune” like conditions will likely slow economic growth, causing legislators to warn that cuts to those programs will still be deep as a one-time infusion of cash is spread out over several budget years.

“It was nice to hear there is light at the end of the tunnel,” Sen. Pat Steadman, D-Denver, told the Colorado Independent. “However, taking a longer range view, we have a long ways to go before we are out of the woods.”

Under Senate Bill 11-156, $386 million of an estimated $447.1 million surplus projected by the Legislative Council will be transferred June 30 to the state education fund to help prop up school districts. Still, Steadman said the Joint Budget Committee will likely take the long-term approach and use that money over multiple years due to future budget gap expectations. He said the money should be broken up and spread out over at least the next couple of fiscal years. The surplus came about not only as the result of legislative budget fixes but through a projected influx of $161.3 million dollars in state revenue. Both the Legislative Council and the Governor’s Office said at least part of that increase was due to a one-time, late tax payment of nearly $50 million.

“That short-term money going into the education fund June 30 really needs to bridge the gap, or help us address shortfall, over the next couple of fiscal years.” Steadman said. “It is not like that can offset all of the cuts proposed. This is really one-time funding, and we have a more structural problem that goes over several fiscal years.”

Revenue forecasts by both the Governor’s Office and the Legislative Council projected better than previously expected revenues, but cautioned the ongoing Japanese disaster, rising costs of goods, and social unrest in the Middle East were potential speed bumps in Colorado’s economy. Economists further see the Colorado economy constrained by high unemployment, consumer debt and energy prices.

The Colorado Legislative Council’s chief economist, Natalie Mullis, painted a picture of an economy hiking a sand dune, where each step slips a little backward.

She said Council staff predict a decreased budget gap of $601.7 million for fiscal year 2011-2012 after it had projected a $1 billion shortfall earlier. She further augmented that number by explaining that after changes to inflation, the addition of the education fund transfer and increases in mandatory expenditures for caseload growth were accounted for the gap shrinks to $450 million.

The Governor’s Office, while not predicting as rosy a figure, was not far off from the Legislative Council’s prediction.

“The forecast indicates that Colorado’s economy is expected to continue to grow,” Henry Sobanet, executive director for the Governor’s Office of State Planning and Budgeting said. “However, global conditions such as the earthquake in Japan, rising food and energy prices and political unrest in the Middle East create heightened risks for unfavorable economic conditions in the coming months. We are continuing to monitor all economic indicators.”

Both the Governor’s Office and Legislative Council cautioned that the influx of $161.3 million dollars in state revenue was not sustainable and that multiple strong budget years will be required to put Colorado on firm footing.

“Because we believe much of this increase is from one-time sources from capital gains and higher profits, these funds may mitigate some budget cuts but a lot of tough work remains to close our structural gap.” Sobanet said. “Gov. Hickenlooper’s first choice for scaling back reductions would be in K-12 education.”

Factors constraining economic growth were further described by economists of both staffs.

Jason Schrock, chief economist for the Governor’s Office of State Planning and Budgeting, told the committee that increases in the cost of goods would likely dampen a strong manufacturing sector and limit the purchasing power of individuals and business.

Further fears were addressed by Kate Watkins of the Legislative Council, who described an economy healing but still on crutches.

“A growing economy that is being restrained by high levels of unemployment and debt is putting a drag on consumers’ ability to get out and spend,” Watkins said. “High unemployment is keeping wages and salary growth low due to high competition for jobs. Coupled with with high debt levels, the unemployed, over-leveraged and underpaid consumer has the economy on its feet, but it is not moving very fast.”

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