DALLAS - When Colorado lawmakers assemble under the General Assembly's golden dome in Denver next month, they will confront a $600 million deficit that is expected force drastic budget cuts for the first time since the last recession.
While neighboring states Arizona and Utah have already wielded the budget ax in 2008, Colorado managed to end the calendar year with minimal belt-tightening and no special session.
But the harsh reality facing the state's legislature on Jan. 7 was revealed last week as Todd Herreid, economist for the Legislative Council, told leading lawmakers that they would have to rebalance the budget to the tune of $600 million by the end of the current 2009 fiscal year, which ends June 30.
That was far worse that Gov. Bill Ritter's estimate of a $77 million budget gap, for which he had already prepared a list of proposed cuts before Herreid's estimates were released.
Although Colorado's condition is considerably better than many states, due to support from energy production and a generally more robust economy, "now it's a situation, at least in our minds, where we're both in the hospital but our roommate is in worse shape," Herreid said.
In the current fiscal year that began July 1, states have closed about $40 billion in budget gaps and have identified another $40 billion after that, according to a report issued by Standard & Poor's last week. That compares to deficits totalling $49 billion for fiscal 2003 and $17.5 billion for the following year, according to the National Conference of State Legislatures.
"In total, the states closed budget gaps of more than $200 billion following the 2001 recession (gaps recorded in fiscal 2001-2005)," the Standard & Poor's report said. "While we are not at that level yet, the recession is still in progress and we believe that fiscal 2010 and 2011 will be challenging as state revenues generally lag economic recovery."
While double-A rated Colorado is not among the six states with a deficit exceeding 10% of general fund resources, its 8% gap means Ritter's plan to cut the $7.8 billion state budget may prove insufficient, according to Herreid.
Among Ritter's proposed cuts that could affect bond issuance in the state are a $428 million reduction in road funding and maintenance of the freeze on $55 million of capital projects. A nearly completed 960-bed prison in Fremont County may sit idle because the state lacks funds to pay staff.
After adding $120 million to the $2.5 billion budget for higher education in fiscal 2008, the governor is acknowledging that cuts could be made in that area.
Meanwhile, in an effort to boost the economy, Ritter wants to increase funding to the Clean Energy Fund by $1.4 million beginning in the next fiscal year. The new money would be targeted towards economic development incentives for clean energy companies around the state.
The 2007 Colorado Legislature provided funding for the purpose of creating the Clean Energy Fund, which provides revenue to advance energy efficiency and renewable energy throughout the state through its grant programs.
Anticipated revenue for fiscal 2009 has dropped from $8 million to below $4 million. As a result, programmatic funding and economic development grants were reduced for the 2008-09 year.
"Colorado obviously is not immune to the global economic crisis," Ritter said earlier this month. "People are losing their jobs, families are struggling to keep food on the table, and businesses are doing their best to stay afloat.
"We must continue to play to our strengths and stay focused on 21st century, knowledge-based growth sectors like the new energy economy, biosciences, technology, and aerospace - and other Colorado mainstays like tourism - to help get Colorado's economy moving again," he said.
With Denver hosting President-elect Barack Obama's nominating convention this summer and Sen. Ken Salazar, D-Colo., recently chosen as interior secretary, Ritter can expect to have direct line to the White House.
In support of Obama's plan to use highway construction and other infrastructure projects as a source of economic stimulus, Ritter advised the president-elect that Colorado has more than 160 highway, bridge, transit, and airport projects, estimated at more than $1.4 billion, that would be "shovel-ready" within 180 days. The state also has natural gas pipelines and numerous renewable-energy projects, including building transmission lines, that could be jump-started by a federal stimulus package, according to the governor.
Standard & Poor's noted that state governments tend to borrow more heavily during economic downturns to balance budgets, address liquidity requirements, fund capital requirements, address unfunded liabilities, and fund economic stimulus programs.
"Following the 2001 recession, states authorized about $30 billion of debt to fund current operations, employing various bonding strategies including tobacco securitization, pension bonding to fund current pension costs, and deficit bonding," the rating agency wrote. "In terms of cash-flow borrowing, nine states have accessed the market this year for about $17 billion. California, Illinois, and Rhode Island have plans for additional borrowing in fiscal 2009. Given budget pressures on the states, we believe that total cash-flow borrowing by the states for fiscal 2010 will increase."
However, turmoil in the credit markets may make those measures more difficult to employ during this recession, according to analysts.
"The current market is pushing interest rates higher and it is costing more for states that need access to notes and bonds," the report noted. "We believe that the length of the disruption in the tax-exempt market will determine the price and demand for additional debt and the budget issues associated with it. In our opinion, if the capital markets remain constricted, the ability to borrow may be limited."
