Henry Sobanet's Budget Games

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Henry Sobanet's Budget Games

by Ari Armstrong, July 19, 2005

Only in the world of bureaucrats, tax-and-spend politicians, and high-tax advocates is a budget increase known as a "budget reduction."

In a July 12 letter to The Denver Post, Henry Sobanet, Director of the Colorado Office of State Planning and Budgeting, makes some strange claims about the budget. He writes, "The fact is that substantial budget reductions are inevitable next year unless the state is allowed to retain revenue that is already being collected from existing taxes. That is the question before voters in Referenda C and D. Based on the June forecast, my office expects that the fiscal year 2006-07 budget will have to be cut by 3.4 percent, about $208 million, from this year's level."

That document (reproduced at this web page), dated June 21, shows that, from now until 2009-10, the general fund, total TABOR revenues, and the TABOR limit are all expected to increase under current rules (see Table 2).

Table 3 of that document shows that "Total Funds Available" are also expected to increase for every year from now until 2009-10.

How, then, does Sobanet get away with claiming that "budget reductions are inevitable next year," when all the data, both from the Office of State Planning and Budgeting as well as from the Legislative Council, clearly indicate that the budget will increase next year under current rules?

Sobanet's main assumption is that a lot more money will go into the cash reserve fund next year, and the funds that go into reserves will not be available for appropriations.

Put another way, Sobanet is arbitrarily defining the "budget" in such a way as exclude portions of the budget, so that the remaining portion of the budget decreases.

Put another way, Sobanet is playing language games for partisan political purposes, all at the taxpayer's expense.

Here's what the document claims under "June 2005 OSPB Forecast Highlights:" "Based on the June 2005 OSPB revenue projections and FY 2004-05 supplemental expenditures, the state will not have enough General Fund revenue to meet the statutory four percent reserve. Furthermore, the available appropriations in FY 2006-07 will require the budget to drop 3.4 percent from the current level, assuming current law."

The document continues, "Under current law, the OSPB forecast shows that the state will not have enough General Fund revenue to preserve the FY 2004-05 and FY 2005-06 statutory four percent reserve requirement specified in C.R.S. 24-75-201.1(1)(d)(III). Based on current revenue projections, in FY 2005-06, the state will fall below a two percent reserve, which requires the Governor to implement a plan to restore the two percent reserve. During the 2005 legislative session, the General Assembly passed and the Governor signed into law, House Bill 05-1330, which specifies options that the Governor can take should the FY 2005-06 reserve fall below two percent. From Table 3 it is also apparent that the available budget in FY 2006-07 will require appropriations to drop 3.4 percent from the current level, assuming current law."

Finally we get to the heart of the matter with Table 3. From fiscal year 2005-06 to 2006-07, the document shows that "Total Funds Available" increase from $6,750,400,000 to $6,923,900,000. That represents a "budget increase" of $173.5 million, because the figures for the second year are higher than those for the first year. (Of course, this deals only with the general fund, though the total budget is also expected to increase every year into the future. Note that the estimates from Sobanet's office vary somewhat from the estimates provided by Legislative Council.)

However, the same period shows the "Reserve as a % of Appropriations" going from 1.4 percent to 4.0 percent. In 2005-06, the "Statutory Reserve" is shown being behind $163 million. $247.1 million was needed to meet a 4 percent reserve, yet only $84.1 million was contributed. In 2006-7, the assumption is that a full $238.8 million will be put into the reserves.

At the same time, "Total Obligations" of "Expenditures" increases from $6,666,300,000 to $6,685,100,000. So rising "obligations," combined with more money put toward the reserve, results in a "General Fund Appropriations (Long Bill)" that decreases from $6,178,300,000 to $5,970,500,000. The difference between those figures is $207.8 million, the basis of Sobanet's claims.

Sobanet continues in his letter, "Making it worse, about two-thirds of the budget -- K-12 education and Medicaid -- is 'untouchable.' Funding for those mandated programs will have to grow by some $200 million. So the bottom line is that more than $400 million will have to be cut from the remaining third of the budget. That includes public safety, prisons, transportation, health care, natural resources, and agriculture, just to name a few."

Sobanet's claims are false. Neither K-12 education nor Medicaid is "untouchable." True enough, because of Amendment 23, which increases funding for K-12 faster than the rate of inflation even during rough economic times, the legislature cannot unilaterally touch K-12 spending. But the legislature could refer a measure to next year's ballot to fix that amendment.

Likewise, Medicaid can also be touched by a legislator. Priority Colorado explains, "Currently, Colorado is one of 23 states which provides Medicaid coverage to seniors and people with disabilities even though they are eligible for State Supplemental Payments; Colorado does so by extending eligibility beyond 74 percent of the federal poverty line (FPL). In addition, Colorado offers many optional services that states can choose to provide in [addition] to the minimum federal service levels." The paper suggests reforms that would save an estimated $45 to $90 million. (Thankfully, Medicaid has already stopped purchasing Viagra and other sex drugs for sex offenders.)

But let's take Sobanet's figures for "Total Funds Available" and"General Fund Appropriations (Long Bill)" at face value to see how they would graph:

Funds Available General Fund Appropriations
2003-04$6,035,200,000$5,590,700,000
2004-05$6,363,200,000$5,935,200,000
2005-06$6,750,400,000$6,178,300,000
2006-07$6,923,900,000$5,970,500,000
2007-08$7,397,000,000$6,328,800,000
2008-09$7,881,700,000$6,708,500,000
2009-10$8,403,900,000$7,078,800,000

Notice that "general fund appropriations" increases from 2005-06 to 2007-08. There is a kink in 2006-7, even though "funds available" increase, mostly because of the reserve issue. But aren't legislators smart enough to figure out how to resolve this kink, which the legislature created?

Recall that Sobanet's rationale for "Referenda C and D" was to prevent "substantial budget reductions" that are supposedly "inevitable next year" (italics mine).

Well, next year, according to Sobanet, there will be a $207.8 million cut to "General Fund Appropriations." Yet, according to Sobanet's own document, the TABOR refund for 2006-07 is $498.3 million. (Legislative Council estimates $618.7 million.) So, according to Sobanet's estimate, Referendum C would bring in more than double the money needed to fix the "problem" that Sobanet describes.

And Referendum C, of course, is not merely a one-year fix. Instead, it totally wipes out all TABOR-related refunds for five years, and then sets a higher rate of spending for every year after that.

So Sobanet's claims about the alleged need for Referendums C and D are complete nonsense, not to mention irresponsible for a tax-funded bureaucrat who supposedly works for the public.

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