"The rug got pulled out from under us."
That's the reaction from state Sen. Dominick Moreno, D-Commerce City, and other members of the Joint Budget Committee to the news that they have no extra money and could be in the hole for the 2020-21 budget that's due to come out on March 30.
The March revenue forecast is the one that gives budget-writers their last look at what they can spend in the coming fiscal year. It's what determines whether they can add or cut.
This time, it's going to be about cutting.
In December, lawmakers hoped they would have about $800 million to add to the 2020-21 budget. But on Monday, Legislative Council economists said the real number is closer to $27.3 million.
That's not even enough to cover required constitutional or statutory increases to programs like Medicaid, K-12 education or other programs where Colorado is expected to match federal spending. "We may have to change state law or find the money elsewhere," Moreno said.
Virtually any ideas about new programs in the 2020-21 budget are likely now gone. In Gov. Jared Polis' budget request, that means early childhood education, increases to the statutory reserve that gives the state a cushion against recession, and $52 million to pay down the state's debt to K-12 education, known as the budget stabilization factor. "I think we'll have to take a long and hard look ... and new ideas or programs will be the first to be set aside," said JBC Chair Rep. Daneya Esgar, D-Pueblo.
"Everyone can expect that any new programs proposed will have to be revisited," Moreno added. "We barely have enough money to afford current operations of state government. There's not much if any room for new programs."
But during a Monday afternoon news conference, Gov. Jared Polis said he "would not put any stock" in the Monday revenue forecasts, stating "the economic situation is in complete flux."
What came out during Monday's presentations, both from Legislative Council economists and from the governor's Office of State Planning and Budgeting, is uncertainty. The council economists tweeted during the presentation that more than 40% of General Fund revenue -- from corporate and individual income taxes -- usually comes in between March and June, when the virus is expected to hit hardest. "This drives current year revenue uncertainty."
The rapid hit to the economy from COVID-19, coupled with fighting over oil between Russia and Saudi Arabia, means numbers are changing by the hour, according to Larson Silbaugh, an economist with the Legislative Council.
"We have no hard economic indicators" measuring the impact of the COVID-19 outbreak, Silbaugh told JBC members and a handful of other lawmakers who joined the meeting Monday afternoon. That includes numbers from housing permits, initial jobless claims, temporary staffing and vehicle sales, where most recent numbers were reported in February, before even the first U.S. death from COVID-19 had been announced.
And the TABOR refunds projects for fiscal year 2020-21 and 2021-22? Gone. The state will have to cover some of the things that refund was supposed to pay for, such as the $162 million senior property homestead exemption for 2020-21. The downturn in oil prices also means the state will have to pay $48 million more for K-12 education in areas of the state that rely heavily on oil and gas revenues to fund their schools.
The $279.9 million TABOR refund slated for 2019-20, which would be paid in April of 2021, is gone, as is the $404.5 million refund slated for the following year. The TABOR refund estimated for 2021-22 and paid in 2023 was $611.1 million as of December. As of Monday, it's $216.6 million.
The bad news just kept coming. Fears of a recession, according to Luke Teater, deputy economist with OSPB, are on the rise, and could have significant budget impacts. Teater, however, said a recession could be very sharp but short in duration. He forecasted an overall budget shortfall for the next three years of $3.8 billion, and said those revenues losses are much larger than previous recessions in 2001 and 2008.
For 2019-20, with just over three months left in the budget year, state general revenues are projected to drop by $300 million. In 2020-21, it's $400 million less, and in the following year, $370 million less in general fund revenues, OSPB economists estimated.
OSPB Director Lauren Larson suggested the JBC could budget to a range, meaning that if revenues continue to decline, the General Assembly could make some funding conditional on available revenues. This would work better for transfers and one-time expenses than for operating expenses, she explained.
If revenues unexpectedly increase, she said, the JBC could add to the general fund reserve. It's currently at around $900 million, but it needs to last for several years in a downturn.
The one upside is that the state does have resources to deal with the COVID-19 pandemic, she said. There's $5 million in non-emergency dollars available and another $100 million available in emergency disaster funding, she said. And more is coming in from the federal government. That includes $9 million from emergency federal legislation already signed into law, and another bill passed by the House Saturday could provide up to $350 million to cover existing Medicaid services as well as expanded food assistance and interest-free loans to bulk up the state's unemployment fund.
JBC members hope to have the 2020-21 budget ready for lawmakers when they return on March 30 after a two-week recess to allow the Capitol to be cleaned and hoping that the worst of the COVID-19 outbreak could be over.