Local Government Severance Tax Fund Transfer

The Governor is proposed, and the JBC agrees, to transfer $10 million from the Local Government Severance Tax Fund into the General Fund to help balance the budget.

Money from that fund goes to local governments to offset the costs of energy development, like oil and gas production.  The Dept. of Local Affairs distributes the money two ways:

• direct distributions according to a formula
• grants

The transfer won't change the amount available for Direct Distributions to local governments, but it will reduce the amount available for grants.  Even with the transfer, there will still be $32 million for grants in FY 2010-11.

The transfer requires a change in law; it's in (TBD).

Not so refreshing

One of the ways we're trying to balance the budget is to suspend or eliminate some special tax exemptions, like the one that applies to candy and soft drinks.

Repealing the exemption would let the state's 2.9% sales tax apply to soda and candy.

We haven't heard much from candy companies, but the soda industry is fighting hard to keep the tax break.

We got dozens of letters from people who work at the Pepsi Bottling plant in Denver.  They were handwritten, but nearly-identical.

One letter stood out:

Please read this entire letter. I know you are inundated with mail, but this is important. I work for Pepsi in Denver.

The company has recently assigned us to write letters...  The intent is for us to express our opposition into taxing beverages.

I, unlike many around me, strongly support a tax on beverages that are loaded with corn syrup or sugar. I am afraid that if my supervisors where aware of my position, that my job would be in jeopardy, but I feel this issue and the health of future generations is more important than corporate earnings for shareholders.

I have almost given up on the idea that Washington is not run by corporate America, however there is still hope for the state governments stand up and say no to corporate interests and do what is right for the people. I trust you know what is right, but like my Grandpa always use to say “It’s no what you know about the problem, but what you do about it that matters.”

Feel free to contact me if you would like more information regarding my position.

I'm keeping his name a secret so that he can keep his job.

Coca-Cola sent a dozen or so employees to testify in committee.  They said they were afraid they'd lose their jobs if Coke loses its sales tax break.

They're boss emphasized the point.

Chris Harr, president of the Colorado Beverage Association and Denver-based general manager for the Pepsi Bottling Group, said that adding 2.9 percent sales tax to soda would reduce sales of soft drinks by as much as 2.8 percent and that such a sales dip would cost some 800 Coloradans their jobs.

That's from the Denver Business Journal, but We heard the same testimony during the committee hearing.

Is it true?  I doubt it.  For one thing, the soda companies don't really set the retail prices.  They sell wholesale; stores decide what to charge their customers.  (Coke and Pepsi do force some retailers to charge higher prices, but they do it by charging them a higher wholesale price and keeping them from buying their products for less from places like Costco).

If a sales tax raises the price (which in turn, the companies argue, reduces sales), then the price should be higher in states that impose a sales tax on soda.  Plenty do.

Fourteen states charge sales tax on soda as part of a general tax on all food.  Twenty-one states charge a higher tax on soda than they do on other foods.

Texas and California, for instance, have a special 6.25% tax on soda.  Colorado, as of now, has no tax on soda.  Here's how the states compare on soda prices:

Product	Colorado (No Tax)	California (6.25%)	Texas (6.25%)
2 Liter Coca-Cola	$1.69	$1.69	$1.69
2 Liter Safeway Soda	$0.75	$0.75	$0.75
12 Pack Soda	$4.99	$4.99	$4.99

The prices are identical.  I got them by comparing supermarket ads.

Colorado (No Tax)

California (6.25% Tax)

Texas (6.25% Tax)

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.

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.