State faces long-term financial issues, economists say

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(Photo: CPR)

Photo: State Capitol Dome 1Economists at Colorado State University predict the state government will see a gap of almost $3 billion between what it spends and what it brings in by 2030.

That's according to a new report out Tuesday from the Colorado Futures Center although the state’s finances seem to be in decent shape.

Colorado is pulling out of the recession faster than other states in the country, ending the last fiscal year with a general fund surplus and unemployment hitting its lowest point since early 2009.

The biggest contributors to the future fiscal gap are higher health care and education costs for the state, according to the study's lead authors Charlie Brown and Phyllis Resnick.

In addition, they expect the state will have to pay about $900 million in TABOR refunds by 2030.

"In every year from 2017 on, we see a refund happening," Resnick says. And the refunds come out of the state's general fund.

Much of this is due to the fact that a new hospital provider fee, which hospitals agreed to pay to help the state expand Medicaid, counts against the state's revenue limit.

The fee was designed to keep taxpayers from having to support the Medicaid expansion but Tuesday's report by the Colorado Futures Center suggests changing that rule.

"When that fee was passed, it wasn't exempted from the TABOR limit," Resnick says. "So the revenue that comes in from that fee for the hospitals uses up some of our room under the limit."

Brown and Resnick last did this research in 2011 at the request of the state legislature. At that time, the state was headed for a $3.5 billion gap by 2025, they found. By comparison, Tuesday's report looks optimistic.

Brown and Resnick say the reason is two-fold: first, more people put off having children during the recession and, secondly, the state won't have to pay as much for education over the next 10 years or so.

"There's more time to deal with the problem than we thought," Resnick says.

But she also offers a caution: "With all of us being master procrastinators, that doesn't mean we can ignore the problem."

Resnick adds that while she's optimistic because the shortfall is delayed, she's a little more worried that "we might kick the can down the road again."

Brown agrees, saying the space between what the state's bringing in and what it's spending will accelerate towards the latter half of the next decade sometime between 2025 and 2030.

"Unfortunately, we look at this and the structural problem, the structural brokenness is still there" Brown says. "The problem is there and we need to recognize it and deal with it."

In addition to the TABOR issues, Brown and Resnick believe the state will have to address its tax system. As the economy shifts more and more to a services economy, instead of a goods economy, the state will bring in less revenue from sales taxes, since most services aren't taxed.

"Everybody who moved into the suburbs and bought their first house and had their big, green lawn went out and bought a lawnmower,” Resnick says. "Now they’re just as likely to hire a mowing service, which means one lawnmower purchased for each neighborhood, instead of each house."

"It's a very remarkable shift," Brown says of the period from the late 1950's through 2040.

"I like to say we have a 20th century tax code that we’re trying to fit to a 21st century economy," Resnick says.