After hearing so much wailing and gnashing of teeth for years while covering the Colorado state budget, I enjoy the sound of the dueling banjos now vying to make the most optimistic economic forecasts.
In the left corner, wearing the rose-colored trunks, is Mike Mauer, chief economist for the Colorado Legislative Council. In December, Mauer’s quarterly economic forecast predicted the state would collect about $49.8 billion over the next five years. That forecast was up by 5.4 percent over the Council’s original 2005 prediction, which guessed that $47.1 billion would come into the state’s coffers over that same five years.
Given the fact that all of that hoped-for extra money comes from the state’s share of an expanding Colorado economy, not higher taxes, it should have been roundly hailed as good news. Indeed, in most quarters it was. But in the fever swamps of the far right, Mauer’s forecast prompted bitter jibes at the voters who in 2005 approved Referendum C.
The problem, in the eyes of the Golden-based Whining Institute – or whatever they call that hardy band of Colorado bashers that uses tax-deductible contributions to bite the hand that subsidizes them – is that a recovering state economy increases the projected yield from Ref. C. The higher forecast from Mauer translates into a $5.7 billion five-year yield from the budget reform, rather than the $3.7 billion originally predicted by the Legislative Council in 2005.
Griping that the state may collect $2 billion more than originally anticipated is a strange complaint. If the Denver Newspaper Agency promises an advertising sales person a 10 percent commission for bringing in new business, we might expect her to earn $100,000. If she actually earns $1 million, we celebrate – she’s brought in $10 million in new business.
Thus it is that the state income tax is a flat 4.63 percent of taxable income and the state sales tax a fixed 2.9 percent. If both figures rise more than expected, it’s because more people have jobs and they’re earning and spending more than originally predicted.
If this is truly what is happening in the wake of Referendum C, it only confirms the wisdom of the business and community groups that worked so hard to craft a fiscal recovery.
But while a horse laugh at the expense of anti-government activists is always in order, don’t break out the champagne just yet. We also need to look in the right corner at the rival forecast issued last month by Henry Sobanet, then head of the governor’s Office of State Budget and Planning.
Sobanet is wearing the black- and-blue trunks. He is also forecasting a solid revenue gain in the wake of Referendum C, but he thinks the economy will be a bit less robust than Mauer does. Sobanet’s Dec. 20 five-year forecast now predicts about $48.2 billion in state revenue over the next five years, meaning Referendum C would yield a total of $4.1 billion by the time it expires in 2010. That’s $1.6 billion less than Mauer’s latest prediction and only a bit more than the $3.7 billion Mauer predicted in 2005.
Which economist is right? Probably neither. The only thing we really know about any economic forecast is that it will likely be wrong. We just don’t know if it will be high or low.
As an unabashed Colorado booster, I’m hoping Mauer is closest to the truth. That extra $2 billion would help pay for the highway projects that would have been built by the $1.2 billion in bonds that Referendum D – C’s narrowly defeated companion – would have authorized.
Obviously, you can’t spend a prediction and we need to collect the money before we start patching potholes. But one thing you can be sure of is that none of that $2 billion would go to new government programs. That’s because Referendum C didn’t change a 1992 law, known as the Bird-Arveschoug amendment, that limits the state general fund to a 6 percent annual increase. Money above that 6 percent automatically goes into two funds. The first, created by Senate Bill 1 of 1997, earmarks money for transportation, 90 percent for highways and 10 percent for transit.
State Treasurer Cary Kennedy told me Friday that fund will swallow $241 million next year and would consume about $1 billion by 2010 – if the extra cash indeed materializes.
After the Senate Bill 1 pot is filled,House Bill 1310 of 2002 gets anything left over. Two-thirds of that money also goes to highways and the other third is allocated to other state capital construction needs. Kennedy estimates HB 1310 will generate another $502 million for highways and $251 million for other capital needs by 2010. She also anticipates transferring $81.4 billion to the state’s sadly depleted controlled maintenance trust fund.
If Sobanet’s less optimistic forecast comes true, the shortfall will undercut our ability to repair our roads and crumbling college campuses. So here’s hoping Mauer called it right.
Bob Ewegen (bewegen@denverpost.com) is deputy editorial page editor of The Denver Post.
