Transcript The National and State Economic Outlook

The Outlook for the
Colorado Economy
and State Budget
CML
NATALIE MULLIS (IN ABSENTIA)
CHIEF ECONOMIST
COLORADO LEGISLATIVE COUNCIL
FEBRUARY 24, 2011
[email protected]
303-866-4778
WWW.COLORADO.GOV/LCS
“Worst Recession Since the Great Depression”
“Freefall”
We’re in Recovery!
Recovery Is Here - Really
Contributions to Gross Domestic Product
Seasonally Adjusted Annual Rate
10
8
6
Percent Chage
4
2
3.2
0.9
5.0
2.9
2.3
-0.7
1.6
0.6
3.7
1.7
3.2
2.6
0
-2
-0.7
-4.0
-4
-6
-4.9
-6.8
-8
-10
Personal Consumption Expenditures
Net Exports
Gross Domestic Product
Source: Bureau of Economic Analysis.
Gross Private Investment
Gov't Consumption & Investment
Nation’s Manufacturing Sector Expanding
Indices of Manufacturing Activity
ISM Purchasing
Manufacturer’s Index
105
70
65
Industrial Production Index
Expanding
60
55
100
95
50
90
45
40
Contracting
35
30
Source: Institute for Supply Management.
85
80
Source: Federal Reserve. Index 2007 = 100
Nation: Business is Doing Better
Billions
$1,600
$1,400
Corporate Profits After Tax
$1,200
Proprietors' Income
$1,000
Business Spending on
Equipment & Software
$800
$600
$400
$200
$0
Source: Bureau of Economic Analysis. Profits and income are with inventory valuation and capital consumption adjustments.
Colorado’s Energy Industry Mending Slowly
Source: Baker Hughes.
Consumers No Longer Running Scared
(But Still Cautious)
Colorado
Retail Trade Sales
Three-Month Moving Average,
Seasonally Adjusted Monthly Data
$10
$7
$9
$6
$8
$7
Source: U.S. Bureau of Economic Analysis.
Billions
Trillions
U.S.
Real Personal Consumption
Expenditures
$5
$4
Source: Colorado Department of Revenue.
The Job Situation Is Improving
2,800
2,700
Employed Coloradans
(Thousands)
2,600
2,500
Total nonfarm employment saw small gains in 2010
2,400
2,300
2,200
2,100
2,000
1,900
Colorado Nonfarm Employment
1,800
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Source: U.S. Bureau of Labor Statistics. Seasonally adjusted data through November 2010.
20
09
20
10
Broader-Based Industries are Doing Better
CO Industries Losing Jobs
Dec. ‘09 to Dec. ‘10
CO Industries Gaining Jobs
Dec. ‘09 to Dec. ’10
Source: U.S. Bureau of Labor Statistics. Seasonally adjusted data through December 2010.
However, Challenges Continue…
 Financial Sector Struggles
 High levels of Public & Private Debt
 Housing market woes
 Low levels of commercial construction
 High unemployment
 Uncertain business climate
 Rising input prices
U.S. Debt as a Percent of GDP
Debt Will Loom Large for A Long Time
Source: Federal Reserve Bank. Data through 2010 quarter one.
Financial Industry Will Take Time to Heal
$500
2010Q3 Noncurrent Loans:
$378.3 Billion
860
829
800
$400
775
702
600
$300
552
400
416
252
200
-
48 50 47 50 53 61 65 76 90
117
$200
305
$100
171
$0
Source: Federal Deposit Insurance Corporation. Totals for all U.S. institutions. Data through 2010 quarter three.
U.S. Noncurrent Loans (Billions $)
Number of "Problem"
U.S. Financial Institutions
1,000
The Housing Market Will Also Require Time
Thousands of Permits
70
60
Residential construction
remains at low levels
50
40
Total Permits
30
20
10
Colorado Single Family Permits
0
Source: Colorado Department of Local Affairs. Seasonally adjusted data through October 2010.
Unemployment Will Remain High
10%
Colorado Unemployment Rate
9%
8.8% Unemployed in December
8%
7%
6%
5%
4%
3%
2%
1%
0%
Source: U.S. Bureau of Labor Statistics and Legislative Council Staff projections based on the December 2010 forecast.
Colorado Nonfarm Employment
Seasonally Adjusted
Sources: History, U.S. Bureau of Labor Statistics. Forecast, Legislative Council Staff December 2010.
What Does this Mean for the Budget?
?
Sources of State Revenue
Three Major Sources
Federal
Funds
• Transportation taxes & fees
• Severance tax
• Gaming revenue
• Medicaid funding
• Transportation funds
• Stimulus dollars
Cash
Funds
General
Fund
• Individual & corporate income tax
• Sales & use tax
• Liquor and alcohol taxes
Individual Income Taxes
$5.5
General
Fund
FY 2008-09
-12.9%
Millions
$5.0
$4.5
$4.0
$3.5
FY 2009-10
-5.8%
$3.0
Sources: Colorado Department of Revenue. Annualized Data. Cash-accounting basis. Data through December 2010.
Sales Taxes
$2.2
General
Fund
$2.1
FY 2008-09
-9.2%
Millions
$2.0
$1.9
$1.8
$1.7
FY 2009-10
-5.5%
$1.6
$1.5
Sources: Colorado Department of Revenue. Annualized Data. Cash-accounting basis. Data through December 2010.
General Fund Revenue Outlook
Drop in revenue of 12.9% between FY 2007-08 and FY 2008-09
and a drop of 4.3% between FY 2008-09 and FY 2009-10
Source: Colorado State Controllers Office and Legislative Council Staff projections based on the December 2010 forecast.
FY 2010-11 General Fund Budget
Total General Fund Budget:
$7.0 billion
Source: Joint Budget Committee.
FY 2010-11 General Fund Budget Shortfall
$ 348 million shortfall
to fill 4% reserve
(Governor’s Forecast)
Supplemental Package:
$156 M
$103 M
$64 M
$115 M
($77) M
Education Refinance
Cash Fund Transfers
Medicaid Refinance
Reduce Reserve
Placeholders
($12) M
(Medicaid, Human Services
& 1% Personnel Reduction)
Gaming Transfer Adjustments
$349 Million - Total
Total General Fund Budget: $7.0 billion
Source: Joint Budget Committee and Legislative Council Staff.
FY 2011-12 General Fund Budget Shortfall
Over $1.1 billion shortfall
LCS Forecast
Total General Fund Budget: $7.0 billion
Source: Joint Budget Committee and Legislative Council Staff.
FY 2011-12 General Fund Budget Shortfall
Over $1.1 billion shortfall*
Carry Over FY 2010-11 Shortfall
$204.2
Replace One-Time Sources of Funding
Federal Stimulus for Medicaid
$363.6
Federal Stimulus for Higher Education
$89.2
Amendment 35 Funds for Medicaid
$96.0
Caseload Increases
K-12 Funding
Budget Shortfall
$250.2
$150.0
$1,153.2
*Assumes no salary increases and current levels
of services as required under current law
Source: Joint Budget Committee, Legislative Council Staff, and Office of State Planning and Budgeting.
Actions to Balance the Budget
 Cash fund transfers to the General Fund
 Reserve requirement reductions
 Increases in revenue
 Suspended sales and income tax exemptions and credits
 Raising fees
 Federal stimulus funds
 Salary/hiring freezes for state employees
 Permanent and one-time cuts to programs
 K-12 Education: Budget Stabilization Factor
 Higher Education
 Other Programs
Governor’s FY 2011-12 Budget Proposal
 Combined Impact of
Ritter & Hickenlooper Proposals: -$303.5 million
General Fund Expenditure Change: +$137 million
 Biggest Cut K-12: -$208 million
 Higher Education: -$20.3 million
 Health Care: +$388 million
 Revenue Augmentation: +$440 million
 Cigarette Sales Taxes & Vendor Fee: +$89
 Cash Fund Transfers: $193 million
 Suspend FPPA Payments: $25 million
 Reserve: $163.7 million

Specific Items in Hickenlooper’s Proposal
 Eliminate various programs:
 K-12
Eliminate school leadership academy
 Eliminate interest on school loans program


Human Services: Pueblo Mental Health Institute
Close 20-bed Therapeutic Residential Child Care Facility
 Close Circle Program


Corrections:
Close Ft. Lyon Prison
 Eliminate Parole Wrap-around Program
 Cut education and community programs


Parks:

“Repurpose” 4 state parks
Total Appropriations
Does not adjust for double-counted appropriations.
Source: JBC Staff
TABOR and Referendum C