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Financing Colorado’s Future – An Analysis of the Fiscal Sustainability of State
Government
When did the Great Recession Become the Least Interesting Problem Facing Colorado?
Source: CBEF state macroeconomic model
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
Employment Recovery
Actual June 2011 Forecast 30 Year Trend
History Forecast
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Perc
enta
ge G
row
th
Fiscal Year
Recovery Will Bring Revenue Growth
June Forecast
30 Year Trend
But Colorado’s Structural Budget Problems Will Worsen
82.5%
120.3%
213.9%
0%
50%
100%
150%
200%
250%
Cumulative Growth Rates From FY 11-12 through FY 24-25 for General and State Education Fund Revenues and Departments of Education and Health Care Policy and Financing
Net General and State Ed Fund Revenue Department of Education Health Care Policy and Financing
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
$10,000.0
$12,000.0
$14,000.0
$16,000.0
$18,000.0
$20,000.0
Dol
lars
in M
illio
ns
Fiscal Year
Due to Medicaid and K-12 Education Forecasts, the Budget Picture Worsens
Comparison of General and State Education Fund Revenue with Expenditures FY 11-12 through FY 2024-25
Other Agencies
SB 228
Big 3
GF+SEF Revenue
Diagnosis: What is Happening?
Structural and demographic changes will affect revenue Medicaid growing at 1.7 times revenue Age Demographics Medical Inflation
System being used to pay for is K-12 failing the state Leakage in local property tax
Colorado is Aging
0 to 2435.08%
25 to 4427.52%
45 to 6426.91%
65 to 9910.49%
2010
0 to 2433.98%
25 to 4426.12%
45 to 6422.81%
65 to 9917.09%
2025
Source: Colorado Demographer’s Office
Aging Affects Revenue
Source: Consumer Expenditure Survey, BLS
$229.83
$397.14 $413.55
$280.05
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
$450.00
Under 25 yrs 25-44 yrs 45-64 yrs 65+ yrs
Patterns of Household Contribution to the Sales Tax Baseby Age of Householder
The Economy is Changing
Source: Moody’s Economy.com
54.33%
23.29%
45.67%
76.71%
41.00%
53.70%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
Personal Consumption Expenditures for Goods and Services as a Share of Total: U.S. History and Forecast
Goods Share Services Share Services Less Health Care Share
Aged Care Represents Disproportionate Share of Medicaid Cost (FY 10 Data)
Colorado is About to Become an Older State
Source: Colorado Demographer’s Office
And Aged Care will Drive Medicaid Costs
$0
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
$7,000,000,000
State HCPF Expenditures by Division FY 2011-12 to FY 2024-25
DHS Other Programs
DHS DD Programs
Other Medical Services
Indigent Care
Executive Director
Mental Health
Medical Service Premiums
The State Share of School Finance will Continue to Grow
62.90%
70.19%
58.00%
60.00%
62.00%
64.00%
66.00%
68.00%
70.00%
72.00%
Forecast State Share with Levy Freeze
K-12 Local and State Shares: The Problem Illustrated
$0
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
$7,000,000,000
$8,000,000,000
$9,000,000,000
Expe
ndit
ures
Fiscal Year
A Full Departmental Forecast of CDE Adds Slightly to K-12 Funding Costs
CDE General and State Education Fund Forecast
Management and Administration
School for the Deaf and Blind
Library Programs
Other School Assistance Pgms
Categorical Programs
School Finance
Illustration: Can the Structural Imbalance be Addressed with Cuts?
Objectives of a Package of Cuts Protect receipt of federal funds Health Care Policy and Financing Human Services
Fund the constitutionally created offices within the executive branch as well as the other 2 branches Attorney General Governor State Treasurer
Fund the Department of Corrections
Illustration: A Cut Scenario
Although K-12 per pupil base funding is protected by Amendment 23, it is thought that formula “factors” can be cut.
Factors add about 25% to adjust for variances among districts in: Enrollment size Cost of living Proportion of at-risk students
Although 25% is added by the factors, only about 20% can be cut without affecting the per pupil base of some districts
Illustration: Cut Methodology Absorb first round of cuts by cutting up to the maximum in K-12 Once K-12 cuts are maximized, cut the remaining 10 departments to
balance the budget (programs in parentheses are the largest funded by the General Fund within each department) Agriculture (Agricultural Services Division) Higher education (College Opportunity Fund) Local Affairs (Divisions of Local Government and Housing) Military and Veterans Affairs (maintenance and utility costs for 15 armories) Natural Resources (Division of Water Resources) Personnel and Administration (Division of Accounts and Control) Public Health and Environment (Prevention and Disease Control and
Epidemiology Divisions) Public Safety (Division of Criminal Justice, CBI, Colorado State Patrol) Regulatory Agencies (Civil Rights Division) Revenue (Taxation Business Group)
$0
$2,000,000,000
$4,000,000,000
$6,000,000,000
$8,000,000,000
$10,000,000,000
$12,000,000,000
$14,000,000,000
$16,000,000,000
$18,000,000,000
$20,000,000,000
Gen
eral
Fun
d Re
venu
e an
d Ex
pend
itur
es
Fiscal Year
This is How Such a Package of Cuts Would Look
SB 228
Other
Dept of Education
Const Branches/Offices
DHS
Health Care Pol & Fin
Corrections
Net GF & SEF Revenue
Maximum Negative Factor for K-12
0.60%
72.73%
1.21%
0.63%
2.73%
0.59%
3.20%
9.64%
0.19%
8.48%
Distribution of “Other”
Higher Education
Agriculture
Revenue
RegulatoryAgencies
Public SafetyPublic Health
Personnel
Natural Resources
Military &Veterans Affairs
Local Affairs
-50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
Cum
ulat
ive
Perc
enta
ge In
crea
se
Fiscal Year
Options for Addressing the Imbalance with Revenue
Total Expenditures (Incl SB 228 Transfers)
Baseline Revenue Forecast (GF + SEF)
Double Sin Taxes
Eliminate Exemption for Food at Home (no offset)
Restore Sales Tax Rate to 3%
Restore Income Tax Rate to 5% (Indiv and Corporate)
Eliminate Exemption for Home Energy (no offset)
Extend Sales Tax to Personal Services (at 2.9% rate)
Graduated Income Tax, Individual Income Tax Only
Statewide Property Tax
Illustration: Addressing the Structural Imbalance with Revenue
Objectives of a package Revenue sources that grow in step with future spending
pressures (adequacy) Revenues produced sufficient to fill the gap (capacity) Revenue sources that reflect the structure of the economy
(efficiency) Revenue sources that are balanced A balanced package would contain a mix of sources in which
the strengths of each compensate for the weakness of others Mitigate volatility Address structural issues Maintain or enhance the fairness of the tax system
Competitive with other states
Illustration: Revenue Methodology
Elements of a Package Add personal services to the sales tax base Levy property taxes for schools with a statewide mill levy Phase statewide levy in for full implementation by FY 2024-25 Reduce state share from 63.2% to 60% over the phase-in period
Restore four graduated income tax brackets Index the brackets to prevent “bracket creep”
Tax first $50,000 of income ($0 to $50,000) at 4% Tax next $50,000 of income ($50,000 to $100,000) at 4.7% Tax next $100,000 of income ($100,000 to $200,000) at 5.4% Tax income above $200,000 at 6.1%
$0
$2,000,000,000
$4,000,000,000
$6,000,000,000
$8,000,000,000
$10,000,000,000
$12,000,000,000
$14,000,000,000
$16,000,000,000
$18,000,000,000
$20,000,000,000
Reve
nues
and
Exp
endi
ture
s
Fiscal Year
This is How Such a Package of Taxes Would Look
Property Tax Added by Statewide School Levy
Graduated Income Tax
Sales Tax on Personal Services
General + State Education Fund Revenue
General Fund Total Spending (Incl SB 228)
Volatility Remains a Concern
3.06%
1.82%
0.03%
2.71%
1.24% 1.00%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Individual Income Tax Sales and Use Tax Selective Excise Taxes
Percent Increase in the Rate of Growth in the Revenue Source that Results from a 1% Change in the Rate of Growth
of Personal Income
Colorado (1992–2009) 50 States (1992–2009)
$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
$5,000.0
$6,000.0
$7,000.0
$8,000.0
$9,000.0
$10,000.0
$ M
illio
ns
Fiscal Year
Keeping the Wolf From the DoorIllustration: General Fund Spending Rule Based on Personal Income Growth and Budget
Stabilization Fund
Budget Stabilization Fund Balance
Gross General and State Ed Fund Revenue
Allowable General and State Ed Fund Limit Based on Personal Income Growth
Minding the Store
Forecasts are only as good as current assumptions and policies Long term forecasting should be done routinely Analyze policy changes for long term impact
We agree with the GFOA recommendations Financial capacity and long-term service objectives should be aligned Longer term horizon - 10 years Use revenue and expenditure forecasts, debt positions and monitoring
mechanisms such as a scorecard of key indicators of financial health Elected officials and the public should be able to easily grasp the
government’s long-term financial prospects and the strategies in place for achieving financial balance.
Thank You!In addition to the direct support from the University of Denver, the following foundations supported this work
• Boettcher Foundation• Bonfils-Stanton Foundation• Colorado Health Foundation• Colorado Trust• El Pomar Foundation• Gates Family Foundation• Kaiser Permanente• Piton Foundation• Rose Community Foundation
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