Myth of the $365 Million Cut

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Myth of the $365 Million Cut

by Ari Armstrong, October 3, 2005

When the governor's economists issued economic forecasts in June, the numbers were used as the basis of the false claim that the budget faces a $400 million "cut" next year, a claim I described as a myth. Now that the September forecasts are out, the new myth is that next year's budget faces a $365 million "cut." For example, Lynn Bartels writes for the September 21 Rocky Mountain News, "...Owens' chief budget officer, Henry Sobanet, said Tuesday... [that] bigger woes emerge the next fiscal year, from July 1, 2006, to June 30, 2007, when the state will have to cut $365 million in programs."

But, as with the previous claim of $400 million, the newly alleged "cut" is mostly the result of increases in parts of the budget.

The September 20 memorandum, "September 2005 Revenue Forecast," issued by Sobantet's office, shows on page 6 that "total funds available" increase next year from $6,904,300,000 to $6,978,200,000. That's an increase of $73.9 million. However, the TABOR Refund also increases (according to the predictions) by $64.2 million, and the Homestead Exemption tax credit increases from zero to $65.8 million. When those two items are subtracted out, the report shows a cut of $56.1 million.

However, the report also shows that "General Fund Appropriations (Long Bill)" decreasing from $6,178,300,000 to $6,013,300, a decrease of $165 million. The other piece of the puzzle is that spending for "Year-end General Fund Reserve" is shown increasing from $130 million to $240.5 million.

So even the $165 million claim depends mostly on budgetary increases. Where does the rest of the $365 million claim come from? A one-page summary states, "[T]he required growth in K-12 education and Medicaid (approximately $200 million) will have to be funded-- absent a recurring source of new revenue -- from cuts to other programs."

I have already addressed Sobanet's claims about K-12 and Medicaid. The broader point is that increased spending ought not be counted as a "cut," as it is in Bartels's article.

The larger problem with Sobanet's documents is that they imply Referendum C is the solution to the "cut" for next year. There are two basic problems with using the forecasts for next year to promote Referendum C.

The first problem is that Sobanet's documents show a TABOR refund for 2006-07 of $504.6 million, an amount significantly higher even than the $365 million figure. The tax hike would bring in about nine times as much money as the $56.1 million figure.

The second problem is that Sobanet advocates wiping out all TABOR-related refunds for five years, even though his numbers show only a one-year dip in "General Fund Appropriations (Long Bill)." Starting in 2007-08, that category is shown increasing to record highs every year. By 2010-11, that category is shown at $7,431,200,000. That's budgetary growth, under current rules, without Referendum C, of nearly $1.3 billion, or a 20 percent increase, relative to this year.

Using Legislative Council's blue-book estimate that Referendum C would increase state spending by $3.743 billion over the first five years, that's an amount far greater than what Sobanet anticipates in cuts next year. Even if we use the figure of $165 million in one-time cuts, Referendum C would raise net taxes over 20 times that amount.

(Interestingly, while Legislative Council predicts that cash funds will increase, Sobanet's office predicts on page 5 of its report that they will decrease.)

Sobanet's office shows less than a one-percent cut in a portion of the state budget for a single year. For that, Sobanet wants to raise taxes by hundreds of millions of dollars every year, forever.

The Colorado Freedom Report--www.FreeColorado.com