Without taking definitive action, Colorado in 12 years will generate only enough sales, income and other general-purpose tax revenue to pay for the three largest programs in the general fund: public schools, health care and prisons, according to a new report by the University of Denver’s Center for Colorado’s Economic Future (CCEF).
According to phase two of a study commissioned by the Colorado Legislature, there will be 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. The entire budget will be consumed by what center Director Charlie Brown called “the Big Three.”
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 nonpartisan center undertook the study last year at the request of the Legislature. The CCEF’s first report — issued in February — demonstrated how the current balance of expenditures and revenues is unsustainable. Phase two finds the situation is more dire than earlier forecast. It also details the extent of a looming structural gap as costs for the three biggest budget items rise beyond the capacity of existing revenue streams.
Models developed by the CCEF show projected spending for all programs in the general fund will exceed projected revenues by nearly $3.5 billion by fiscal year 2024–25.
The enormity of this gap suggests that Coloradans consider tax increases and spending cuts, the center finds. Attempting to dig out of the hole solely through cuts is problematic. Many state functions are mandated by law, Medicaid spending is regulated by the federal government, and extreme cuts to K-12 education may not be acceptable to residents and lawmakers. But, the center finds, there is hope for balance through a combination of cuts and increased revenue.
“The solutions are going to be very difficult,” Brown said. “Some very tough choices lie ahead, but doing nothing is not an option.”
The center modeled several options for raising revenue. Among those with the most potency to address the long-term problem: restructuring and rebalancing the state/local partnership in financing K-12 education; a graduated income tax; and expanding the state sales tax to more services.
That could mean a statewide property tax for education, tax “brackets” for high earners, and sales tax on services ranging from pet grooming to legal representation or architectural design.
On the other side, there may have to be cuts. That could leave lawmakers in the unenviable position of leaving taxpayers “paying more to get less.” Cuts may include the elimination of subsidies to state college tuition or even entire state services.
“None of these things are easy,” Brown said. “These are really tough pills to swallow.”
The center is only offering each proposal as an option for lawmakers to consider and has not taken a position on which specific actions must be taken. CCEF instead takes the stance that something must be done, and the only workable solution may be a combination of cuts and revenue enhancement.
“What we’re hoping is this kind of information can get out to local leaders, civic leaders and the general public, and that they will recognize this cliff that we’re heading toward,” Brown said.
The CCEF introduced an online tool that allows users to adjust state revenue levels to develop a better understanding of the challenges facing the state as lawmakers seek to close the budget gap.
Read the executive summary of phase two of the study at www.du.edu/economicfuture.