Transcript Document

Colorado’s Economy and Its Impact on
State Spending
Chris Stiffler
Economist
Outline of the Talk
• Where we’ve come from
• Where we are now
• What future challenges we face
Three basic pots of money in the State budget
$22.6 billion total budget in 2014
Federal Funds
$7.2 billion
32%
38%
General Fund
$8.7 billion
Cash Funds
$6.7 billion
30%
General Fund Revenue Sources
Sales, use and
excise taxes
30.7%
66.1%
Other sources
3.1%
Individual
and
corporate
income
taxes
What does the money buy?
2014 Colorado General Fund :
$8.7 billion
Everything
else
Human
Services
K-12 Education
10.7%
8.9%
Corrections
38.6%
8.2%
7.6%
Higher
Education
Health care
26%
Where Have We Been?
Colorado General Fund
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$-
Money for budget is tied to economy
Caseloads increase if money is available or not
Local Dollars (property tax) vs. State Dollars
Where Have We Been?
Cuts Were Made During Tough Fiscal Times
$2.5
Higher Education
Billions of Dollars
Academic Fees
$2.0
Nonresident
Tuition
$1.5
Resident
Tuition
$1.0
$0.5
$0.0
ARRA
Tobacco/Gaming/
Other
General Fund
Where Have We Been?
Cuts Were Made During Tough Fiscal Times
K-12
$1056
$7,021
$6,652
$6,479
$6,474
$6,813
$5,000
$6,874
$5,500
$6,359
$6,000
$6,661
$6,500
$7,077
$7,000
Where are We Now?
Economic Indicators
• By the main economic indicators, Colorado’s
economy is doing really well.
*Colorado’s
Economy (GDP)
Growing at 4.1%
This is faster than U.S. GDP at
2% and faster than Colorado
pre-recession (2001-2007)
average growth rate of 2.3%
*Source: Bureau of Economic Analysis 2012 to 2013 state GDP
**Source: Bureau of Labor Statistics LAUS
Unemployment Rate in Colorado**
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
9.1
4.0
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
Where are We Now?
Rebounding Economy but Not for Everyone
• Real wages have fallen for lowincome working Coloradans.
• Low wage workers saw the greatest
job losses during recession
• Median Income is still below prerecession levels---down 5.2% since
2007.
• 95% of all economic growth in the
U.S. in the three years after the
recession went to the top 1% of
earners.*
• Led Standard and Poor’s to reduce
the 10-year U.S. growth forecast
from 2.8% to 2.5% “because
inequality’s drag on long-run
economic growth.”
*Source: Saez (2014) “Striking it Richer”
Percent Change in Colorado Wages
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
20th percentile
7%
1%
-7%
50th percentile (Median)
80th percentile
Source: Economic Policy Institute analysis of
Current Population Survey data
What Does this Mean for State Budgets?
TABOR Rebates: When state revenues (Fiscal
Year Spending) exceed a voter approved cap, the
Colorado Constitution requires money be
refunded to taxpayers.
The Colorado Constitution says state revenue
can’t grow faster than inflation and population.
Caseload Growth and Costs Will Out-Pace
Inflation and Population
• CPI-U measures what consumers buy
like food and housing but doesn’t
accurately measure the cost of
providing for the growing cost of
services like education, transportation
and healthcare.
Percent Change in CPI-U Segments
1993-2013
187%
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
124%
98%
72%
66%
All Items
• The formula’s blunt measure of
population growth doesn’t acknowledge
that some of the fastest-growing
populations place a higher demand on
government services.
Education
Medicare
Prescription Transportation
Drugs
Projected Population Growth for 2012-2040
132%
140%
120%
100%
80%
60%
55%
50%
40%
20%
0%
Total population
Source: Institute on Taxation and Economic Policy “A Closer Look at TABOR”
65+ population
school-age population
Caseload Growth and General Fund
360
Medicaid Caseload
State Share School Finance
Index FY 01 = 100
310
Higher Education Enrollment
Inflation
260
CO Population
K-12 Enrollment
210
General Fund Operating Appropriations
General Fund Revenue
160
110
60
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
Changes in the Demographics
• During the next 15 years, the aging of the population will:
– Change the housing mix, likely dampening growth in housing
values and the property tax base;
– Change income and spending patterns, likely dampening
growth in the income and sales tax bases; and
– Increase demand for government services, applying further
budget pressure on governments.
– The economy is still recovering and must work through debt
and imbalances before growing again at potential.
Structural Issues in our Tax Code
Gas Tax:
22 cents a gallon since 1991
$
$1.00 in 1991
$
$0.40 today
Lost purchasing power and more fuel efficient cars
An Outdated Tax System
Increases in purchases not subject to sales tax
80%
60%
40%
0%
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
2015
2019
2023
20%
% Goods
% Services
Economic Issues to Keep an Eye On
Federal Monetary Policy
Global Economy
Oil Prices
Questions?
Colorado Fiscal Institute
720-379-3019
www.coloradofiscal.org