Easy as Pie: The Colorado Budget in Charts

You've probably heard that most of Colorado's General Fund budget goes to just 5 (out of 22) departments. Fascinating, huh? Well it gets even more interesting if you start slicing up the budget different ways. Especially when you factor in the way we've been balancing the budget.

For instance, this year we're cutting costs by furloughing state employees. Furloughs are a tricky way to save money.

Think about prisons. Correctional officers can't just take a day off and leave the inmates on the honor system. Not living by the honor system is what led them to become inmates in the first place.

If we furlough one guard, another has to come in (on overtime) to take his or her place. No savings there.

That's why the governor said right up front that the furloughs wouldn't apply to all state employees. He did say that, and in some detail. Apparently one investigative reporter wasn't paying attention.

In any case, the furloughs don't apply to agencies that have to stay staffed 24 hours a day, seven days a week. Those agencies are Corrections (prisons), Human Services (mental health institutes, e.g.) and Public Safety (State Patrol).

Judicial, by the way, is a separate branch of government and its ability to fulough judges, for instance, is limited by the constitution.

Here's how Personal Services look divided up by department:

(click on the chart to make it bigger)

You can see why some state employees are irritated.  Once you take Corrections, Human Services and Public Safety (and to some extent, Judicial) out of the mix, the furloughs fall pretty heavily on less than a quarter of all state employees.

Judicial Branch JBC Briefing

Decision Items

Budget and Staff Cuts

The Judicial Dept. has a plan to cut 5% from it's budget and 7.5% of it's staff in FY 2010-11:

• Trial Courts: $7,407,811 and 154.0 FTE
• Probation: $6,942,701 and 94.0 FTE
• Supreme Court and Court of Appeals: $682,031 and 10.0 FTE
• Integrated Information Services: $536,214 and 5.0 FTE
• Courts Administration: $317,206 and 3.0 FTE
• Health, Life and Dental benefits: $1,469,600

Delay New Judges

HB 07-1054 created a number of new trial court judgeships around the state. The final 15 new judges were supposed to start this year FY 2009-10. Judicial delayed them until this year and is now proposing another delay. It wants to fill 14 of the judgeships on January 1, 2011 and the 15^th on July 1, 2011.

Courthouse Security Grants

The Department wants to spend an additional $675,000 from the Court Security Cash Fund on court security grants to counties.

Public Defender Cut

The Public Defender wants to make some one-time cuts to its budget:

• waiting four months to hire 40.1 FTE (needed to handle additional cases from the 28 new judges added in (FY 2007-08 and FY 2008-09)
• delay hiring 34.5 FTE that would match 15 new judges this year (Judicial is delaying the 15 new judges)
• cut operating expenses ($241,319)
• cut automation plan ($221,433)
• cut mandated costs ($182,672)
• cut capital outlay ($176,732)

More Cuts

These are the cuts Gov. Ritter is planning to make in order to rebalance the FY 2009-10 budget to the latest revenue forecast. There are a few notes after the spreadsheet that are important to understanding the HCPF numbers.

Department	FY 2009-10 GF (Long Bill)	Gov. Cuts (Balance to June Forecast)	Cuts as a Percent	Layoffs (Annualized)
Agriculture	$6,860,955	-$694,765	-10.1%	0.0
Corrections	$677,839,527	-$25,809,462	-3.8%	-29.3
Education	$3,239,416,000	-$33,022	0.0%	0.0
Governor and Energy Office	$14,283,355	-$1,105,650	-7.7%	-9.0
Health Care Policy & Financing	$1,587,903,164	-$457,136,848	-28.8%	-0.5
Higher Education	$660,575,732	-$80,935,058	-12.3%	0.0
Human Services	$670,638,807	-$19,913,782	-3.0%	-186.2
Judicial	$336,357,516	-$10,090,725	-3.0%	0.0
Labor and Employment	$0	$0	0.0%	0.0
Law	$10,008,042	-$300,241	-3.0%	0.0
Legislature	$35,162,475	-$1,054,874	-3.0%	0.0
Local Affairs	$11,889,613	-$778,013	-6.5%	0.0
Military and Veterans Affairs	$5,862,332	-$422,754	-7.2%	0.0
Natural Resources	$29,680,331	-$2,729,440	-9.2%	-6.3
Personnel and Administration	$6,291,404	-$271,294	-4.3%	-8.0
Public Health and Environment	$28,232,074	-$1,520,308	-5.4%	0.0
Public Safety	$83,212,852	-$2,159,794	-2.6%	-6.6
Regulatory Agencies	$1,666,729	-$189,549	-11.4%	-1.0
Revenue	$75,719,920	-$1,803,535	-2.4%	-19.7
State	$0	$0	0.0%	0.0
Transportation	$0	$0	0.0%	0.0
Treasury	$1,933,721	-$28,900	-1.5%	0.0
Total:	$7,483,534,549	-$606,978,014	-8.1%	-266.6

That $457 million cut for Health Care Policy and Financing isn't as big as it seems. Part of the federal ARRA program is giving states a higher match for the money we spend on Medicaid.

We put that money into hte budget as a GF cut. It is a cut in GF, but it's replaced with the federal money. (We could put the higher Medicaid match in the budget as revenue, but that would mask the fact that we'll have to replace it with GF when ARRA ends).

The ARRA part of the HCPF cut is $345.8 million. That means the actual cut to Medicaid is $111.3 million or 7%.

Steps to Balancing the Budget (2009-10)

The June revenue forecast from Leg Council showed that we would have to cut more spending to balance the FY2009-10 budget. In response, Governor Ritter started the process of reducing spending. Here are the general steps:

• June 22 - direct agencies to cut travel and some operational expenses
• June 25 - direct state agencies to develop plans to cut 10% from their budgets (due to OSPB by Julu 20)
  
• July 7 - OSPB sent specific cost reduction goals to agencies
• July 20 - OSPB reviews agency cost cutting plans
• Aug 18 - present cuts to JBC
• Aug 24 - deliver actual supplementals and other information to JBC
• Sept 1 - most cuts take effect
  

The most unkindest cut of all

The Joint Budget Committee today voted unanimously to cut and additional $300 million from state colleges and universities. This would be on top of nearly $100 million cut earlier in the year.


If the legislature agrees with the recommendation, the budget for higher education will be cut in half. It's unlikely that the state could keep open all of the existing colleges and universities on that amount of money.


We've spent the last month scraping the state budget for things to cut and for ways to add revenue. We have not found a way to avoid this terrible decision.

Federal Money

Colorado's getting a lot of money from the federal government under the American Recovery and Reinvestment Act (ARRA). Just how much is hard to say, because it's coming in a variety of ways and depends on various conditions.

Figuring out how it will help us balance our state budget is a little easier. The money that helps us do that is coming in two forms:

• State Fiscal Stabilization Fund (Stabilization money)

• Federal Medical Assistance Percentage (FMAP or "Medicaid match")

Stabilization Fund

We're getting $760 million in State Fiscal Stabilization Funding. Of that amount, 82% has to go to education. Of the 82%, some goes to K-12 and some goes to higher education; the governor decides how much goes to each. His decision is outlined in the table below.

FMAP

The increased Medicaid match gets factored into budget as a savings. Most Medicaid spending is mandatory, so when we get a higher federal match, we can spend less money from the General Fund.

We get the increased match for:

• 3 quarters in 2008-09

• 4 quarters in 2009-10

• 2 quarters in 2010-11

The amount of the federal match increase depends on the state's unemployment rate. For the current year it works out to a 40-60 match: for each 40 cents we put in, the feds contribute 60 cents. We won't know for a while what match we'll get for next year.

Source/Use	Use	Fiscal Year	Amount	Who Decides
Stabilization		2008-09 2009-10 2010-11	$760 million	Congress/President
	Education		$486 million	82% of the total, by federal law
	K-12	2009-10	$149 million	Governor's Decision
		2010-11	$337 million	Governor's Decision
	Higher Ed		$135 million	Governor's Decision
		2008-09	$30 million	Governor's Decision
		2009-10	$53 million	Governor's Decision
		2010-11	$53 million	Governor's Decision
	Other		$138 million	Governor Deciding
FMAP	Medicaid
		2008-09	$196 million	3 quarters
		2009-10	$304 million	4 quarters
		2010-11	$150 million	2 quarters

There's a lot of other federal money that's coming to Colorado through ARRA. Here's some of it. (The online version has links to more information).

Source/Use	Use	Fiscal Year	Amount	Notes
Transportation			$500 million
	CDOT		$329 million	Map of ARRA projects
	Denver Regional Council of Governments		$55.9 million
	Pikes Peak Area Council of Governments		$13.1 million
	North Front Range MPO		$5.8 million
	Transit		$103 million	Distribution of transit money
Unemployment Benefits & Job Training			$174 million
Food Stamps & Food			$178 million
Housing Help			$68 million
Additional Money for Education			$319 million
Water Projects			$66 million
Public Safety			$35 million

Rags to Riches

It's rare, especially these days, that a Negative Supplemental turns positive. But it just happened.

"Negative Supplemental" isn't just the name of this blog, it's the JBC's oxymoronic term for a change to the state budget that takes money away from a department.

When we passed the Long Bill last year (2008), we noted $445.5 million in Federal Funds for the Dept. of Transportation's (CDOT) Construction, Maintenance and Operations line. (The total amount in the line, including $814 million from the HUTF, was $1.3 billion).

This year, CDOT sent over a negative supplemental to cut $88.6 million from the line. It wanted to make clear that the federal government was stiffing us for that much money. The federal highway fund was going broke and U.S. DOT was taking back earlier promises of money.

The department was just making a point. The legislature doesn't have any control how CDOT spends the money, so the line in the budget is just for information purposes. Changing it would, therefore, be just for informational purposes.

And the information got interesting. Between the time CDOT submitted the supplemental and when we got to it, Congress changed from being tight-fisted to downright profligate. The feds sent CDOT a surprise gift of just over $400 million.

Our staff changed the negative number to a plus $315 million. (the new money minus the earlier cut).

Food Stamp Penalty

The JBC just approved a $2.8 million penalty payment to the U.S. Dept. of Agriculture. It's hurts, but it's also a relief.

When the state suddenly switched to a new, and unfinished, computer system in 2004, a lot of people lost benefits to which they were entitled. It led to outrage, a lawsuit, and an overcorrection.

The computer system was the infamous CBMS -- the Colorado Benefits Management System. Years in the making, years in the fixing, and years in the mopping up after all of the trouble.

Back in ought-4, Stung by the criticism, the state erred on the side of generosity and, when in doubt, handed out food stamps. That led to people getting benefits who weren't entitled to them.

When the U.S. Dept. of Agriculture later audited us, it stuck to the rules and imposed sanctions. To date, we've handed over nearly $10.5 million in repayments for overpayments and interest. The JBC today OKed another $2.8 million in repayments. It should mark the end of our penance to the USDA.

Vacancy Savings

The JBC and the Executive Branch have struggled for years over how to handle vacancy savings. That's the money that builds up over time in a department's Personal Services line. The JBC considers that excess money that should return to the budgeting process for appropriation. Departments claim it's not as much as the JBC thinks, and they wind up spending it on things that legislature should, but doesn't appropriate money for.

Usually, the JBC imposes an across-the-board cut to every department's Personal Services line to sweep out accumulated vacancy savings. The amount clawed back has ranged from 0.2% to 2.5% of the department's Personal Services line. It's step six in the mysterious Option 8 method of calculating Personal Services.

Why Vacancy Savings Accumulate
Vacancy savings are the result of unfilled jobs. Say the legislature approves a new job in a department and appropriates $30,000 money to pay for it. The state's fiscal year starts July 1st, but the department department has to write a job description, publish the job, receive applications and interview candidates before actually hiring the person. That takes three months.

The legislature appropriated $30,000 to pay a year's salary, but the new employee is only going to work nine months. The department has saved $7,500 by not paying anyone for the first three months.

The same thing can happen when someone quits or retires. Retiring can generate some big savings. Let's say a 30-year veteran employee retires. The job stays open for a couple of months, then the department hires someone new, but at the bottom of the pay scale instead of the top. The department saves money from the vacancy, then saves even more by paying a lower salary to the new employee.

Departments with a lot of employees and a lot of turnover can build up considerable sums of money in their budgets. That's money we might want to appropriate for something else.

Why They Don't
Of course the departments have a different view of the situation. Take the retiring senior employee scenario. The department will acknowledge the difference between the senior salary and the starting salary, but argue that the money doesn't accumulate.

First, they'll say, they have to pay for the retiring employees unused vacation and sick leave. That will eat up part of the savings. Then, they'll point out that losing a senior employee costs them a lot of accumulated knowledge. To minimize the effect of that, they'll hire the new employee before the existing employee actually leaves to allow time for training and mentoring. All of that, they say, is more likely to leave them in the hole rather than sitting on excess cash.

Those are the general arguments. Each department has it's own specific reasons why we shouldn't try to take back vacancy savings. The general opinion among departments is that taking back vacancy savings is an arbitrary cut imposed by the JBC to free up money for other things.

Saving the Savings - Their View
This year OSPB tried to do away with the across-the-board Personal Services reductions. It argued that after years of reclaimed "vacancy savings" departments had lost so much Personal Services money that they don't have the minimum amount they need to do their jobs.

Saving the Savings - Our View
The JBC responded by imposing a 1% across-the-board reduction and waiting to see what departments came back with requests for exemptions. Applied to every department, the 1% clawback would have brought in $12 million ($7 million GF).

Negotiations
All of them asked for exemptions, via an OSPB Personal Services comeback.

Human Services said the 1% reduction would force them to hold open 31 jobs, leaving places like the Mental Health Instiute in Pueblo and the Wheat Ridge Regional Center dangeroulsy understaffed.

Corrections argued that most of the employees they lost last year were in their first five years on the job. That means the new employees hired to replace them will be earning about the same salary. And while the positions are empty, someone will be earning overtime to cover the shift. The department said it's already operating at or below minimum staffing requirements and the clawback would eliminate another 87 employees.

OSPB argued that it's Budget Balancing Package of negative supplementals already took out vacancy savings, so the additional 1% was both hurting departments and discouraging them from volunteering cuts to account for open positions.

Truce
This year the JBC relented. OSPB had some good arguments -- especially since we were reclaiming a lot of Personal Services money from the hiring freeze.

The issue isn't resolved, though. The state constitution prohibits the legislature from telling the governor how many people to hire; we just control how much is in the budget. That means truing up the Personal Services budgets with the amount actually paid as salaries will alway be a cat-and- mouse game between the legislature and the executive branch.

High Risk, Low Interest

In our search for money to balance the budget, some state senators suggested selling Colorado Water Conservation Board loans.

We have a lot of money tied up in them, but it's unlikely we could get much of the money out. The state lends the money to farmers, ranchers and local governments for water projects. They're relatively high-risk borrowers, and the state subsidizes the loans by keeping the interest rates low.

I doubt there's ever much of a market for high risk, low interest loans. Usually the higher the risk of a loan the higher the interest rate, to compensate the lender for taking the chance he won't get his money back.

In today's ultra-conservative market chances of selling the loans is even slimmer.

The idea is for the state to sell bonds secured with revenue from the CWCB loans. Dan Law, the executive director of the Colorado Water Resources and Power Development Authority, predicts we'd get about 50 cents on the dollar.

As an example, Law uses one of the higher-rated loans. CWCB loaned the City of Aurora $80 million for 30 years at an interest rate of 3.75%.

He estimates we could sell $47.5 million worth of bonds backed by the loan. That's if the bonds are taxable. We could get $63 million by selling tax-exempt bonds.

The bonds' tax status would depend on what we did with the money. Law says they'd likely be tax-exempt if we used the proceeds for capital projects; taxable if we used the money for operations.

The loan to Aurora is better than most in the CWCB portfolio. Most would sell as junk bonds and have to pay higher interest. At 15% interest, $80 million worth of loans would get us less than $30 million. That's assuming we could find buyers.

Selling the loans would also crimp the CWCP loan program. We use the income from current loans to make new loans. If we sold off parts of the portfolio and used the proceeds to balance the budget, that would leaves less money for future loans.

One advantage of the idea might be an environmental benefit. Subsidizing water projects makes water cheaper. That encourage people to use more of it. Weaning the state off subsidized loans for water projects would put a more realistic price on water and encourage us to conserve.

Balancing the Budget 2008-09

This year our revenue is coming in about $600 million less than we forecasted. That's throwing our budget out of balance. We can't have that, so we're making adjustments to bring it back into balance. Here's a summary of what we're doing.

The Problem
Last year we passed a budget (known as the Long Bill) that aligned the amount we were spending with the amount of revenue we expected to get from taxes. That's in the chart below as "2008-09 Long Bill."

In December, a new revenue forecast showed actual revenue coming in below what we forecast. With no change in spending, that put us out of balance -- by $587.5 million, to be exact. You can see that in the column labeled "With Dec. 2008 Revenue Forecast."

General Fund	2008-09 Long Bill	With Dec 2008 Revenue Forecast	With Dec 2008 Revenue Forecast & Balancing Package
GF Revenue
LCS Forecast	$8,114.30	$7,526.80	$7,526.80
Revenue Increases			$243.77
Total GF Revenue:	$8,114.30	$7,526.80	$7,770.57
GF Obligations
GF Appropriation (original)	$7,813.50	$7,813.50	$7,813.20
GF Changes			-$90.04
Increased Medicaid Match			-$107.70
GF Reserve	$300.80	$300.80	$155.11
GF Appropriation (new)	$8,114.30	$8,114.30	$7,770.57
Budget Balance (Revenue - Spending)	$0.00	-$587.50	$0.00

To bring the budget back into balance, we're doing two things:

• Adding to our General Fund revenue
• Cutting from our General Fund spending

You can see that in the column labeled "With Dec 2008 Revenue Forecast & Balancing Package."

Adding Revenue
Adding revenue to the General Fund has a couple of advantages. First, it reduces the number of spending cuts we have to make -- essentially pushing some of them off until next year, when we can spread them over 12 months. Second, it helps prop up our 6% spending limit.

The Arveschoug-Bird 6% spending limit says we can't increase spending from the General Fund by more than 6% from one year to the next. If we increase spending less than 6%, the limit ratchets down and we lose that amount of spending forever.

This year, we don't have enough revenue to spend the full 6%; adding some revenue help keep the limit up a bit.

This is the Revenue part of the chart at the top:

General Fund	2008-09 Long Bill	With Dec 2008 Revenue Forecast	With Dec 2008 Revenue Forecast & Balancing Package
GF Revenue
LCS Forecast	$8,114.30	$7,526.80	$7,526.80
Revenue Increases			$243.77
Total GF Revenue:	$8,114.30	$7,526.80	$7,770.57

You can see that we're adding $243.77 million in General Fund revenue.

This next chart shows where that money is coming from:

General Fund Revenue Enhancements (Summary)
Statutory Revenue Changes	Amount
Cash Fund Transfer Bill (SB09-208)	$226,556,443
Tobacco Bill (SB09-210)	$1,714,070
Cap Vendor Fee (SB09-212)	$12,800,000
Limited Gaming Fund Transfer (SB09-217)	$2,700,000
Total Revenue Increases:	$243,770,513

Cash Fund Transfers
The first line shows the amount we're transferring from cash funds into the general fund. Click here for a full list of transfers.

Other Revenue Enhancements
The second is money we get from the Master Settlement Agreement with tobacco companies. We're diverting a bit of it into the GF.

The third line shows money we're saving from a limit on the vendor fee. That fee is what we pay stores for collecting sales tax. Yes, we pay stores to collect to collect the sales tax you pay when you buy something. Normally they get to keep a little over 3% of all the tax they collect. We're reducing the amount a bit during the recession.

The final line shows money from the tax on casinos. It usually goes to things like promoting tourism and arts grants. We're taking about a quarter of it for the GF.

For a full list of other revenue enhancements, click here.

General Fund Cuts
On the other side of the equation, we cut spending. This is the spending part of the chart from the beginning of the article:

General Fund	2008 09 Long Bill	With Dec 2008 Revenue Forecast	With Dec 2008 Revenue Forecast and Balancing Package
GF Obligatons
GF Appropriation (original)	$7,813.50	$7,813.50	$7,813.20
GF Changes			-$90.04
Increased Medicaid Match			-$107.70
GF Reserve	$300.80	$300.80	$155.11
GF Appropriation (new)	$8,114.30	$8,114.30	$7,770.57

Here's a list of the spending cuts by department:

Department	JBC Changes to 2008-09 Approp
Agriculture	-$472,744
Corrections	-$5,780,572
Education	-$65,277,431
Governor	-$2,560,759
Health Care Policy	$41,230,154
Higher Education	-$30,000,000
Human Services	-$17,118,277
Judicial	-$1,773,055
Labor	$0
Law	-$790,000
Legislature	$0
Local Affairs	-$425,548
Military Affairs	-$168,551
Natural Resources	-$1,538,446
Personnel	-$594,261
Public Health	-$247,480
Public Safety	-$2,643,177
Regulatory Agencies	-$112,765
Revenue	-$1,428,538
State	$0
Transportation	$0
Treasury	-$265,096
Capital Construction Fund	$0
Controlled Maintenance	-$72,300
Total:	-$90,038,846

And that's the summary of how we're balancing the budget for FY 2008-09.

General Fund	2008 09 Long Bill	With Dec 2008 Revenue Forecast	With Dec 2008 Revenue Forecast and Balancing Package
GF Revenue
LCS Forecast	$8,114.30	$7,526.80	$7,526.80
Revenue Increases			$243.77
Total GF Revenue:	$8,114.30	$7,526.80	$7,770.57
GF Obligatons
GF Appropriation (original)	$7,813.50	$7,813.50	$7,813.20
GF Changes			-$90.04
Increased Medicaid Match			-$107.70
GF Reserve	$300.80	$300.80	$155.11
GF Appropriation (new)	$8,114.30	$8,114.30	$7,770.57
Budget Balance (Revenue - Spending)	$0.00	-$587.50	$0.00

Moving Money

Colorado's budget includes a lot of different funds. The General Fund is the big one, but we also have dozens of Cash Funds.

Here's a spreadsheet that lists the funds and the amount of money the JBC is proposing be transferred during the current year (FY 2008-09). In all, it comes to just over $182 million.

During the last recession the legislature did the same thing, only more drastically. In FY 2001-02 General Fund revenue plummeted by $1 billion. The legislature got by with just $15 million in direct cuts to spending -- they made up the rest by transferring nearly $1 billion from Cash Funds.

That's not an option this year. Back then a lot of the funds had huge balances that had built up overs years. All of the funds are leaner now, both because they got drained during the last downturn and because we're more careful about avoiding big balances.

Technically Cash Funds exist to pay for a specific service, like medical licenses. Doctors pay a fee to get a license and the money for the fee goes to administrative costs and enforcing medical regulations. It's a fee on a specific group of people to provide a service to that same group.

Big balances in Cash Funds mean people are paying higher fees than they need to. We limit balances in Cash Funds to 30% of their annual costs. That covers costs and allows for a reserve in case something goes wrong.

Covering Fewer Kids

The JBC voted to carry a bill eliminating two scheduled expansions in CHP+ (Colorado's version of SCHIP - the children's health insurance program).

The state was going to raise the eligibility level to 225% of the Federal Poverty Level this year for both children and pregnant women. We can't afford it.

The expansion could go ahead if another bill, the Hospital Provider Fee, passes.

The JBC Bill stopping the expansion is called "Delay CHP+ Eligibility Expansion." It hasn't been introduced yet.