Thursday, April 3, 2008

Budget needs a solid reserve

The Denver Post
Article Last Updated: 04/03/2008 10:18:34 PM MDT

The term "tempest in a teapot" well describes the partisan spat in the Colorado Senate on Thursday about whether to divert a mere $30 million in a $17.6 billion state budget to strengthen reserve funds that guard against a future economic downturn.

Unfortunately, the Post only pays attention to the tempests in teapots. That keeps people who read the paper from knowing what really happens in the legislature. It apparently keeps the editorial writers from knowing too, or they would realize that $17.6 billion is the total state budget, including federal money and cash funds. We can't use the federal money or fees for a rainy day fund, so it's misleading to use that number here.

After enough fulsome rhetoric to fill Folsom Field, the Senate voted 21-14 to reject the proposed spending cuts. Majority Democrats, some of whom initially supported the cuts, closed ranks after Gov. Bill Ritter said an upcoming bill earmarking federal mineral leasing revenues would provide a more substantial reserve.

In our view, that mineral leasing bill is a fine idea — but no substitute for a responsible fiscal reserve. Here's why:

• The budget passed for the fiscal year that begins July 1 is the fourth prepared under the five-year timeout from the Taxpayer's Bill of Rights that voters approved in 2005. By law, that budget now contains just a 4 percent reserve, $300.8 million. That's woefully inadequate to guard against the kind of severe budget cuts triggered by the 2001-03 recession. The state urgently needs to at least double its reserve to the 8 percent level that would have been phased in by a bill that passed the House 64-1 last year only to die in the Senate.


So we should cut $300 million out of the budget this year to avoid possibly having to cut $300 million out of the budget in some future year? It's good to have money in reserve, but hard cut our already-bare-bones budget and watch people suffer for it.

And the severe budget cuts in 2003 and 2004 were more the result of the permanent tax cuts the state made in 1999 and 2000 than from the recession.

• Against those budgetary goals, the proposed $30 million in additional reserves was more useful for its symbolism than its effect. That sum is a piffling 0.4 percent of the current general fund obligations facing the state, which total $7.8 billion. Far from protecting citizens from a "rainy day," such a Lilliputian reserve would dissolve with the morning dew.

So they do understand the difference between the $17.6 billion total budget and the $7.8 billion general fund. I guess the accurate number wasn't dramatic enough for the lead paragraph.


I didn't like the Senate's $30 million plan, but notice how the editorialists play with the numbers here. Their "piffling 0.4%" is Lilliputian compared to the general fund, but they don't mention that it would have been added to the existing $300 million reserve which is 4% of the GF by itself.

Then there's the state education fund. It's solvent today because we fixed a law last year that had been bankrupting it. That means during the next recession the increases in school spending required by Amendment 23 won't have the same devastating affect on the general fund that they did during the last recession.

Back then, the ed fund was broke because the Republicans running the legislature spent it dry, despite opposing Amendment 23 when it was on the ballot.

• The Post has editorialized repeatedly in favor of the bill by Rep. Bernie Buescher, D-Grand Junction, Sen. Gail Schwartz, D-Snowmass Village, Sen. Josh Penry, R-Grand Junction, and Rep. David Balmer, R-Centennial, to create a permanent endowment fund for higher education from an upcoming windfall from federal mineral leases. But that endowment fund won't generate much in earnings in its early years — and raiding the principal to support highways, health care or other needs would defeat the purpose of an endowment for higher education.

If the fund does rise to, say, $500 million by 2020, it may be possible to borrow from it to cushion against future recessions. But to avoid raiding the fund for pork-barrel spending, it should require a 60 percent legislative majority to tap the permanent fund — and all money borrowed should be repaid with interest within no more than five years.

While we will continue to campaign for a more responsible budget reserve for future years, we also understand that the six-member Joint Budget Committee that crafted the upcoming budget must work within the existing laws.

On balance, Sens. Moe Keller, Steve Johnson and John Morse and Reps. Bernie Buescher, Jack Pommer and Al White worked hard and wisely to write a responsible blueprint for Colorado's future.


OK, so it's a nice complement. Should I take back everything I set about the editorial? No. The last sentence or two doesn't make up for the rest. They admitted they were reacting to a "tempest in a teapot." They know the whole tempest was nothing more than a Dick Wadhams-written script to make Democrats look bad and set the stage for his scorched-earth campaign against us in the fall.

If the Post really wanted to write something sensible about the budget and a reserve, they could have asked us what our plan is. We could have debated the realistic scenarios for a drop in revenue. We could have discussed what parts of the budget really need protecting. We could have explained what we would cut and where we would fund money in a downturn.

They didn't do that. They never do. It's much easier for them to take the script Dick Wadhams writes for them, add some of their own words to it, and put it in print.

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