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How the State Can Save $600 Million a Year

Colorado faces a significant shortfall in the state budget. In December, legislative staff economists projected a $631 million deficit in the fiscal year 2008-09 state budget.

While other states responded to revenue shortfalls with aggressive budget cuts, Colorado has yet to do so.

Gov. Bill Ritter has proposed higher levels of state spending. In November 2008, he submitted a budget request calling for a 5 percent increase — equal to $376 million — in the state general fund budget for FY 2008-09. On Jan. 2, his budget director submitted a supplemental budget request for an additional $5.7 million for FY 2008-09, and an additional $1.1 million for FY 2009-10 in general fund budgets. The supplemental requests brought the increase in general fund expenditures up to the 6 percent cap imposed by the Bird-Arveschaugh limit.

On Jan. 15, the governor submitted a budget-balancing plan for FY 2008-09. Most of the revenue shortfall is offset by transfers and diversion of funds, and a reduction in reserves. The governor proposes only $201 million in reduced spending. Most of the reduced spending is from the hiring freeze.

The governor also expressed hope that Colorado will receive some of the federal bailout money. He promised to use those funds to replenish reserves and cash funds. It is not clear how this allocation of federal bailout money will stimulate the Colorado economy.

Clearly these are temporary, stopgap measures to offset the revenue shortfall this year. What no one is discussing is the fact that Colorado needs to find $600 million in permanent budget cuts because national and state economic forecasts project a recession well beyond the current fiscal year. Colorado likely will experience a revenue shortfall in 2010, when the TABOR limit again will be in effect. Even if the economy recovers by 2010, the state will need to budget within the TABOR limit.

There is a better way to achieve the requisite $600 million in permanent budget cuts. A preliminary study in 2005, using priority budgeting, identified the following potential savings in the state budget:

• Asset divestiture: $50 million to $150 million

• Program suspension or elimination: $32 million

• Program consolidation: $150 million to $219 million

• Sentencing reform: $28 million to $42 million

• Medicaid reform: $45 million to $90 million

• Education reform: $3 million to $4 million

• Procurement and collection reform: $15 million to $30 million

• Competitive sourcing: $24 million to $49 million

Total: $347 million to $616 million.

These estimates were published in an Independence Institute issue paper in 2005, prior to the increase in state spending sanctioned by Referendum C. Referendum C allowed the state to spend an estimated $5.8 billion in surplus revenue that would have been rebated to taxpayers under the TABOR amendment from 2005 to 2010.

Given this increased spending, the potential savings from enacting the above reforms is now most likely toward the upper end of the estimates.

If so, the state could permanently reach the $600 million in budget cuts required to balance the budget.

It should be emphasized that the above estimates are preliminary, based on an initial budget review. The review is based on best practice management and efficiency techniques that have been employed and have worked around the country. The state needs to begin priority budgeting, which would provide the basis for a more comprehensive review. But these preliminary estimates reveal a variety of policy and budgetary options available that have not been fully implemented. The preliminary estimates show that Colorado can balance the state budget in a fiscally prudent manner without raising taxes or gutting the Taxpayer’s Bill of Rights.

This article orginally appeared in the Denver Post, January 26th.