Unless it takes definitive action, Colorado is only a dozen years away from a scenario in which it only has enough revenue to pay for the three largest programs in the general fund: public schools, health care and prisons. Illustration by Ed Stein
Colorado wouldn’t be Colorado without its world-class ski slopes. But when skiers venture out of bounds, the quest for adventure can quickly become a struggle for survival.
For some, Colorado’s fiscal condition mirrors that of its famous peaks. Both hold enormous potential and enormous danger. Both have carefully designed warning systems. And both can quickly turn disastrous if those warning systems are ignored.
There’s not much one can do to protect a skier willfully charging into high-country danger zones, but is there still time to save Colorado as the state meanders close to its fiscal edge?
That’s precisely the question DU’s Strategic Issues Program (SIP) sought to answer.
Led by Jim Griesemer, professor at and dean emeritus of DU’s Daniels College of Business, the SIP each year convenes a nonpartisan panel of 20 leaders from varied backgrounds to examine an issue important to the citizens of Colorado. In fall 2010, Griesemer convened a panel of accomplished representatives from the worlds of business, government, health care, education, finance and law — including Ed Mueller, CEO of Qwest Communications; Donna Lynne, president of Kaiser Permanente Colorado; and Peggy Kerns, director of the National Conference of State Legislatures’ Center for Ethics in Government — to consider the problems facing Colorado’s government.
The result of their efforts is Rethinking Colorado’s Government: Principles and Policies for Fiscal Sustainability, a 47-page report published in October 2011.
“Rather than attack these issues individually (as many groups have done), our panel concentrated on broad principles and on the structure of government, seeking to define changes that would enhance long-term fiscal stability and at the same time be applicable to a variety of policy areas,” Chancellor Robert Coombe wrote in the document’s introduction. “Consequently, the recommendations made in the report … define a roadmap for general progress, a foundation upon which those solutions might be built.”
Panelists heard from 32 experts — among them former Colorado Gov. Bill Ritter; Roxy Huber, executive director of Colorado’s Department of Revenue; Russell George, former
executive director of the Colorado Department of Transportation; Joan Hennberry, executive director of Colorado’s health care policy and financing department; and John Thomasian, director of the National Governors Association’s Center for Best Practices — and read reams of background material before beginning the task of developing practical solutions to the surging imbalance between state revenue and expenses.
A challenge to rethink the very nature of state government serves as the cornerstone of their recommendations.
“Debates over taxes and spending take place within a context that reflects a traditional, institutional perspective of government,” the report states. “This traditional view sees state government primarily as a supplier of public services.”
“Instead of placing the institution of government at the center of the discussion,” the panel recommended, “shift the focus and think about public services from a citizen viewpoint.”
With citizen value as its driver, the panel recommended changes that would affect Medicaid, government supply chains, K-12 and higher education, constitutional amendments 23 and TABOR, the Colorado Department of Transportation and the state’s Public Employees’ Retirement Association (PERA).
No sacred cows
Another DU team with an eye on state government, the Center for Colorado’s Economic Future, found in a report issued in August that unless it takes definitive action, Colorado is only a dozen years away from a scenario in which it only has enough revenue to pay for the three largest programs in the general fund: public schools, health care and prisons.
As center director Charlie Brown outlined in his presentation to the SIP panel, if things continue on their current course, there will be little or no tax revenue for public colleges and universities, the state court system, child-protection services, youth corrections, state crime labs and other core services of state government by 2025.
That is the magnitude of the structural imbalance facing the state unless policymakers and voters find a way to bridge an ever-widening chasm between projected expenditures and revenues.
“The most recent recession has put a squeeze on our budget, one we are likely to feel for a long time to come. We simply do not have the resources to do everything. And so we must prioritize. … There are no sacred cows,” House Minority Leader Mark Ferrandino (D-Denver) said in 2012 legislative opening day comments published by The Denver Post.
There will, however, be hard-fought battles over what is funded and what is cut. SIP recommendations may provide a guide for those debates.
Among the panel’s recommendations were calls to take full advantage of federal Medicaid waivers and push the federal government to fund 100 percent of the state’s Medicaid costs. Those proposals undoubtedly will find support from legislators grappling with Medicaid rolls that are at an all-time high.
The Medicaid surge “really hurts the budget,” Keith King (R-Colorado Springs) said during an interview on Denver radio show In the Lobby. “Part of the problem we have in the state of Colorado is that we’ve raised the entitlement level up to sometimes 200 percent or more on certain types of benefits. It’s totally unaffordable. It’s just not going to work in the state of Colorado, just like it’s not going to work anywhere else.”
King’s assessment is supported by many in the business community, including DU alumna Leslie James (MS ’08), who finds increased reliance on Medicaid troubling.
“My observation is that government has become the panacea for all problems, whether it’s health care, employment, entertainment or whatever. That’s not what government should do. It’s not sustainable,” says James, a global account manager for Sprint. “It just seems like too many people are taking from the system and not enough people are putting in. There has to be a better way of doing this. If you’ve got 10 people paying in and 15 people taking out, something’s got to give.”
Open government’s doors
The SIP panel also recommended Colorado take steps to promote competition and support business by allowing government departments and agencies to choose either internal or external (nongovernmental) suppliers for support services such as printing, property maintenance, IT and purchasing.
“These functions often enjoy a monopoly status within state government. … While internal agencies can certainly be efficient, those that are less responsive have the potential to impede the effectiveness of operating departments,” the report states. “Introducing competition into the internal environment of state government offers the potential to improve state operations and should always receive careful consideration.”
Colorado House Rep. Angela Williams (D-Denver) thinks this panel recommendation has merit.
“I do believe we should open government up for competition internally and externally to ensure we have transparency, get the best prices, and receive and provide top-quality products and services,” Williams says.
New rules for education
Another recommendation calls for stipends — based on financial need — for K-12 and higher education students and a dramatic curtailing of the state’s oversight role. Under the proposal, Colorado’s K-12 managerial responsibilities would be limited to defining and assessing outcomes and paying the full cost of achieving the outcomes it sets.
K-12 education currently comprises slightly less than 50 cents of every general fund dollar spent, but with per-pupil funding below the national average, calculating taxpayers’ return on investment isn’t easy.
“Discussions about a billion dollars aren’t meaningful to most citizens,” Griesemer says. “What is meaningful are answers to questions like, ‘What am I paying for education? Do the benefits equal the cost in relative terms?’ When you begin to express the cost of government in those terms, you have something citizens can grab hold of.”
According to the panel’s vision, student stipends would increase choice, encourage competition and drive improvement at both the K-12 and the university level — a concept Williams says will require thorough evaluation.
“It’s interesting, but we would need to be able to understand where those stipends would come from,” Williams says. “We’re already on a tight budget. Who would fund them?
“We also need to address the issues raised if a family lives in one area, say Denver, and wants to send their children to a school in Lakewood,” she continues. “Will they bump kids from that Lakewood school? The recommendation needs additional investigation to determine funding and the effect it will have on the school system overall.”
The SIP report also suggests big changes for Colorado’s constitution, specifically putting Amendment 23 — which mandates that K-12 per-pupil funding keep pace with inflation — and most of the Taxpayers Bill of Rights (TABOR) on the chopping block.
“I’ve already gotten calls from people very concerned with eliminating parts of TABOR, but the important point to remember is that we elected officials to make decisions,” says panel member Phil Vaughan (BA ’88), president of Phil Vaughan Construction Management Inc. “With Amendment 23 and TABOR, we’ve tied the hands of our legislators and tied a knot around our own necks.”
Panelists also called for a new approach for managing Colorado Department of Transportation (CDOT) funding. An accountability center would align CDOT revenue —acquired from fuel taxes, registration fees and the federal government — with specific service areas.
“The accountability center is a structural organization that links a limited number of resources with a particular outcome. It’s very easy to understand,” Griesemer says. “The general fund structure that Colorado and most state governments use takes a lot of different revenue sources, puts them in one bucket and pays for a variety of services with that money. That makes it very difficult for taxpayers to determine the benefits they get for the amount they pay.”
Additionally, the SIP report supports fully funding Colorado’s annual contribution to PERA, but advises expanding retiree benefits only if the plan is 100-percent funded and if careful review of long-term implications justifies the increase.
Positive momentum
Overall, the belt-tightening recommendations may help stabilize Colorado even as economic waters continue to swirl. Legislators will have to do much of the heavy lifting, but everyday citizens are required to do their part as well.
Speaking as one of those everyday citizens, DU alumnus Tom Cryer (BSBA ’76), a Colorado-based Realtor broker associate for the Kentwood Co., says his fellow Coloradans are up for the challenge.
“No matter how much or how little people immerse themselves in the details, the process will be more transparent than it is today,” Cryer says. “Taxpayers are stockholders in our government. If budgets are made public and if people begin to look at government as stockholders, as they should, government will be managed more responsibly.”
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