New revenue forecasts from state economists don’t include any good news on school finance.
Revenues to the state general fund in the current 2016-17 budget and for the 2017-18 budget will be lower than projected previously, according to the forecasts presented by Legislative Council staff and the Office of State Planning and Budgeting to the Joint Budget Committee on Tuesday.
Forecasts have been adjusted downward because of lower-than-expected sales and use tax collections, some softness in corporate tax revenues and because of severance tax refunds required by a court decision earlier this year.
The forecasts indicate that the 2017 legislative session will face difficult challenges in crafting the budget for 2017-18. Projected revenues will not be sufficient to fund the full 6 percent state reserve, and required spending on transportation and construction, TABOR refunds and severance tax refunds will significantly limit revenue available for increases in other state programs.
Funding for K-12 may be particularly difficult, and it looks like lawmakers may not have the flexibility they had during the 2016 session, when they were able to hold the negative factor steady at about $831 million.
Both LC and OSPB project that general fund revenues won’t be sufficient to fund the full 6 percent state reserve. Chief legislative economist Natalie Mullis projected the reserve will be only 3 percent. Lawmakers could choose to close this budget with a lower reserve, but that would increase pressures on the 2017-18 budget.
Or, lawmakers could choose to fully fund the reserve, meaning mid-year cuts could be made to other programs during supplemental budget adjustments early in the 2017 session.
Moving on, Mullis predicted lawmakers face “very difficult decisions” in crafting the 2017-18 budget.
She outlined this scenario:
- General fund revenue will grow by $582 million over 2016-17
- But $409 million will be needed for TABOR refunds and required transfers to transportation and construction
- An additional $330 million would be needed to restore the reserve to 6 percent
Those commitments total about $740 million, well above the $582 million in new revenue.
OSPB director Henry Sobanet provided a similar but slightly more optimistic scenario.
Such a tight budget situation would make it very difficult to maintain or expand current K-12 spending from the general fund. Current spending requirements mean there will be little excess revenue in the State Education Fund to help bolster per-pupil funding.
And, in response to a question from JBC chair Rep. Millie Hamner, Sobanet said he doesn’t expect a larger-than-projected increase in district property tax revenues. Such an increase last year enabled lawmakers to protect K-12 from cuts Gov. John Hickenlooper had proposed.
Both forecasts predicted continued modest economic growth through 2018-19 but warned that broader economic uncertainty could have negative effects on state revenues in future years.
What’s ahead
- Hickenlooper will present his proposed 2017-18 budget to the legislature on Nov. 1. Key elements to watch include what he proposes doing about the reserve and his suggested negative factor.
- Another pair of forecasts in late December will set the tone for early legislative budget discussions.
- The forecasts made in late March will be the basis for final decisions on the 2017-18 budget.
A sobering footnote
A table on page 39 of the OSPB forecast (linked below) notes that when adjusted for population growth and inflation page, state general fund revenue is basically flat from 2012-13 through 2017-18.
See the full reports