In a piece of good news, it was announced on Friday that the Peterson Air Force Base in Colorado Springs would be the home to US Space Command for at least the next 6 years.  Governor Polis welcomed this news, saying that the state is a natural fit for US Space Command with a strong military community and aerospace community.

 

This week Joint Budget Committee members continued to wrestle with setting the budget for the upcoming fiscal year.   On Tuesday, economists from Legislative Council Staff (LCS) and the Office of State Planning and Budgeting presented updated state revenue projections.  What was a difficult situation in mid-March has turned in to a much larger hole to fill.  OSPB’s Day 62 of the Legislative Recess

projections for General Fund revenue, relative to the March Forecast, came in $3.4 billion lower from now through the end of FY2020-21 for a total of $5.5 billion lower over the next two years.  Legislative Council Staff projected $11.6 billion in General Fund revenue for the current fiscal year and $10.3 billion for the next fiscal year.  The Office of State Planning and Budgeting (OSPB) projected $11.6 billion in General Fund revenue in FY2019-20 but a slightly higher amount of $10.7 billion in FY2020-21.   A couple key differences were that the OSPB forecast projected $25 million lower revenues from marijuana taxes and $69 million higher for transportation related revenues.  Projections were lowered for most cash fund revenues including severance tax revenue, limited gaming revenue, and gasoline taxes.  Changes to the federal income tax through the CARES Act will also depress state income tax revenue.  OSPB projects these federal changes will reduce state income tax revenue by $400 million over their forecast period.  Over the course of the recession, LCS expects to see an 18% drop in General Fund revenue.  Overall, the budget situation is dire this year, and anticipated to be even worse next year. Many of the budget reductions contemplated this year, to sweep cash funds or lower fund balances, are one-time actions that won’t be an option next year.  The Joint Budget Committee decided Thursday to budget to the OSPB forecast.

 

The State Property Tax Administrator also presented estimates for the residential assessment rate on Tuesday.  The residential assessment rate is projected to decrease from 7.15% to 5.88%, driven by increases in the value of homes and reductions in value to oil and gas property and commercial property, which have been hit hard by closures mandated to limit the spread of the coronavirus.  While this change—triggered by the Gallagher Amendment—would provide a tax break to many home owners, it would reduce revenues for many critical government services including fire districts, K-12 schools, counties, and special districts that heavily rely on property tax revenue.   The projected 1.27% decrease in the residential assessment rate would reduce funding for K-12 education by $490 million across the state.  Because of the two year reassessment cycle, reductions to local property taxes won’t hit the state budget currently being developed by budget writers, but would impact future years. 

 

As the coronavirus spread, shutting down most parts of the economy, thousands of people were laid off, putting pressure on the unemployment system.  The Unemployment Insurance Trust Fund is expected to be insolvent by the end of June 2020.  The federal stimulus has added a $600 per week additional benefit and allowed more people to claim benefits for longer, and provided the funding for these benefits. However, the state Unemployment Insurance Trust Fund still pays out benefits for those who qualify for regular unemployment benefits.  The unemployment rate jumped from 2.5% in February to 4.5% in the March report and in April is expected to be in the double digits.  400,000 people have filed for unemployment insurance during the downturn which is 16% of the state’s employment base.  Mountain communities reliant on tourism and workers in service industries have been especially hard hit.  The Unemployment Insurance Trust Fund is expected to see a $1.9 billion deficit by the end of FY2020-21.  When the Fund becomes insolvent, the state borrows from the federal government in order to continue paying benefits.  This expense isn’t repaid by the General Fund, but instead a surcharge is added onto what employers pay into the unemployment insurance system.  This surcharge is expected to start in January 2021. 

 

After the revenue forecast, the JBC made decisions for school finance, for now holding the budget stabilization factor flat at $572 million next year.  The budget must be set to current law, which requires that the budget stabilization factor remain flat, so any further adjustments to K-12 funding will happen in a separate bill.  The JBC will revisit school finance next week.  For the rest of the week, the JBC reviewed requests from the Office of State Planning and Budgeting to change previous budget actions.   The JBC did accept some of these requests but continued to delay on many big decision items.  At the beginning of the week, $2.5 billion in cuts still needed to be found to balance the budget.  While progress was made to chip away at the $2.5 billion hole, by the end of the week, two budget writers remarked that some of the actions they had taken in line with OSPB’s requests actually added money back in that they will have to find elsewhere in the budget. 

 

On Friday, the JBC made decisions on transportation funding for the next year.  The State Treasurer was ready to issue the second tranche of COPs just before the coronavirus pandemic hit the state and was forced to hold off on the issuance.  Because of low interest rates, the $500 million COP issuance is expected to bring in a premium above the $500 million mark.  The JBC voted to use $49 million from the premium for controlled maintenance, to suspend the annual $50 million General Fund transfer to CDOT for the COP payments for two years, and to delay the transportation bonds measure for another year to November 2021.  Using the $49 million from the COP premium will require a bill to be passed in a matter of days when the legislature returns.  Friday the JBC also made a decision related to state employee compensation.  The JBC voted to reduce the personal services line item by 2.5%. This reduction will provide agencies with less funding, but give the agencies the ability to decide how to implement it (vacancy savings, etc) rather than mandating furloughs or salary decreases. The Committee also voted to suspend the direct distribution to PERA for one year, saving $225 million of state General Fund. 

 

Next week the JBC will review delayed decisions for Department of Human Services, Department of Health Care Policy & Financing, Department of Education, Department of Higher Education and more, and make final balancing actions with the goal of wrapping up by Wednesday.  This would give JBC staff enough time to prepare the Long Bill and the package of bills to accompany the budget. 

 

COVID-19 Update

 

  • 20,838 cases
  • 3,789 hospitalized
  • 60 counties
  • 119,996 people tested
  • 1,091 deaths

 

This week campgrounds were allowed to open in state parks across Colorado.  Governor Polis announced that on May 25 he would announce whether restaurants, summer camps, and ski resorts will be allowed to open and more details on the next phase of Safer at Home.  He extended executive orders 037 to give counties more flexibility to enact open burning bans and 008 that allows the Secretary of State to enact rules to limit in person contact during 2020 elections.  The primary election for US Senate and state offices in Colorado will be held on June 30, 2020.  The executive order 038 was extended for another 30 days to continue to allow licensed medical professionals to delegate responsibilities to other medical professionals to ensure that there is an adequate health care workforce available to respond to COVID-19.  Governor Polis also reflected on the loss of over 1,000 Coloradans from the coronavirus.  The state crossed that threshold this week.  He asked for Coloradans across the state to take a moment of silence tonight at 7:00pm to honor those lost to this pandemic.  Today is Peace Officers Memorial Day. Governor Polis said today that now we are even more grateful for police officers and firefighters and other first responders. Governor Polis said on Friday that he hopes that the federal government can change the Paycheck Protection Program in order for ski resorts, with their seasonal workforce, to be eligible for this relief.   He signed onto a letter with other governors from states with a prominent skiing industry asking the federal government to allow ski areas to be eligible for the Paycheck Protection Program.  The letter points to the discrepancy that allows summer seasonal employers to be eligible for PPP loans.  This would greatly aid Colorado’s outdoor industry, which is crucial to the state’s economy and way of life, and has been hard hit by the coronavirus pandemic closures.  Governor Polis also announced he created Spanish versions of his Facebook and Twitter pages to help spread information related to COVID-19.

 

Governor Polis along with governors and legislative leadership from 4 other western states sent a letter to Congressional leadership, urging for them to pass legislation to provide $1 trillion in support for states and local governments.  The letter lays out the types of cuts that state leaders are forced to make without additional federal aid, “like whether to fund critical public healthcare that will help us recover, or prevent layoffs of teachers, police officers, firefighters and other first responders”.  The fourth supplemental, the HEROES Act introduced recently in Congress would provide $3 trillion in additional aid in response to the coronavirus including more flexible funds for state and local governments.  The Act contains $500 billion in aid to state governments, $375 billion for cities and counties and $20 billion for tribes.  State and local governments could use these funds for COVID-related expenses and to backfill recently projected foregone revenue—unlike CARES Act Coronavirus Relief Fund dollars that can only be used for new expenses related to COVID-19.  The Act also provides resources for hospitals, small businesses, a second round of $1,200 stimulus checks to taxpayers, and additional support for education.  The US House of Representatives is set to vote on this Act today, but the HEROES Act will face pushback in the US Senate where Majority Leader McConnell continues to push for business liability protections, notably not included in the HEROES Act.