March 24, 2026 · 9,589 words · 10 speakers · 43 segments
Council will come to order. Ms. Kurtz-Falen, please call the roll.
Senators and Representatives. Caldwell? Excused. Duran?
Here.
Rodriguez? Excused.
Simpson? Present.
Mr. President? Let's do this.
Madam Speaker? Here. We do have a quorum. Great to see everyone this morning. Sorry the room is so hot. You'd think it was May. Today on our agenda, we will be looking at the draft policy. for electronic participation in joint committees. We'll be reviewing that today. And then discussion about our most recent forecasts and status of our budget making from both our chief economist and the director of the Joint Budget Committee and any other businesses the executive committee sees fit. So Deputy Director Chase and Deputy Director Berger, take us away.
Good morning, Madam Speaker. members of the committee, Christy Chase, Office of Legislative Legal Services. We're here today with Ms. Berger to talk to you about a proposed update to your policy for electronic participation in joint committees. As you know, this committee sponsored House Bill 261068, which expands the executive committee's authority to address remote participation in joint committees of meetings during the legislative session. The current policy and the current law only addresses the ability of those members participating in meetings that occur during the interim. So the bill was signed and sent to the governor on March 17th, and he has till this Friday to act on that bill. In anticipation of a signature or allowing that bill to become law, we've presented to you an update to your policy to address the meetings of joint committees that occur. during the legislative session. I'll highlight for you how the policy is updated to accommodate for that. First and foremost is the applicability sections, which are facilitated through Section 1.3 and in the definition of Section 1.2. Essentially, the policy for joint committees meeting anytime during the year applies only to the committees that are composed of members from both chambers. with one exception to that, and the policy specifically excludes meetings of conference committees. Otherwise, for this committee, Joint Budget Committee, Capital Development Committee, Legislative Council, Committee on Legal Services, other committees like that, or let's say the bodies under a joint rule create a joint select committee, those committees would be subject to this policy. It makes no change with regard to committees of reference. Those are governed by each chamber's policies. So even if committees of reference from two different chambers are meeting, for example, for a smart act hearing, members of the House Education Committee for a joint education meeting would be governed by the House policies, and members of the Senate Education Committee would be governed by the Senate policies. Next, moving on, would be the requirements for that participation. Under the existing policy for meetings that occur during the interim, the policy is pretty permissive and allows members basically upon notice to participate in a meeting remotely The only restrictions on that are if there going to be any in witness testimony then at least one member has to be present at that meeting to conduct the meeting. But if there's no in-person witness testimony, that meeting could be entirely held remotely. The policy is different for a session, for joint committee meetings that would occur in session, And it aligns a little bit more closely with the policies that each chamber has with regard to remote participation in legislative proceedings. So first and foremost, there are conditions that need to be met in order to get permission to attend or participate remotely. And they're similar to the list of conditions in each of the House and Senate policies. Need to be home to care for a new child, caring for a sick individual, or you're sick yourself. Secondly, the permission needs to be granted through the committee chair. So unlike for the interim committee meetings, for meetings during the session, the individual member would need to request permission from the chair and demonstrate that they meet one of those criteria listed in the policy. The chair would have some discretion to go beyond that listed policy, but we've added a component that says for good cause they can grant that permission. There's a similar exception clause in the House policy, the Senate policy not so much. So this is kind of a little bit in between, creating a little bit more of a show good cause for needing to participate remotely than it is up to the chair to determine whether to grant that. Another difference is that if a member has already been granted permission by their chamber to participate remotely in legislative proceedings for a legislative day, then they would automatically have permission to participate in a joint committee meeting that's occurring on that same legislative day. Let's see what else. Similarly, I mean, the other things that remain unchanged are that if a member is participating remotely, they're marked as present, they're counted for a quorum, they're allowed to vote, they need to keep their camera on, and they use their microphone when they're voting. If for any reason they are away at the time of voting or their electronic connection drops or something like that, we'd share with them just marked them excused if a vote were to come up. We did, at the request of your partisan staff, update the terminology in the policy instead of referencing specifically the platform Zoom. In the event that the legislature at a future time chooses a different platform, we've been more generic. I do need to update a reference in one spot where we didn't catch the reference to Zoom, and that's on page 5 in section 4.1 in the last bullet. I think that about covers it.
I think so.
Have you answered any questions? Well, thank you both. Let the record show that Majority Leader Rodriguez has joined us this morning. Members, any questions?
Yes, Majority Leader Duran. Thank you. Thank you, Madam. If I miss this, I apologize. Is there a form they'll have to fill out so that you can keep track of who has put in for remote participation?
Deputy Director Chase.
Thank you, Madam Speaker. Thank you, Majority Leader Duran. The policy doesn address the form for how this request is made It certainly can None of the policies have a specific direction about the form in which you need to make that request It seems like it's something that could easily be developed. I'm not sure your policy needs to say that. It certainly can if you wanted to.
Madam Majority Leader.
Thank you. I think that's helpful because it's easier to keep track of who has asked for it, and you can always go back and look. If they say, well, I did verbally, but you didn't, I just think it's really helpful. Yeah, so I'd like to see that.
Any other questions or comments?
Director Chase, I think you referenced that we are waiting for the governor to take action on House Bill 1068. Is that correct?
The bill is pending with the governor. I didn't check this morning. As of yesterday, it was pending with the governor. It was sent to him on the 17th, so he has until this Friday to take action on it.
So I would assume that it makes sense our effective date could be next week at the point that the committee, the executive committee, votes on the policy.
Sure.
Both the update on the Zoom reference and an addition on a form, if that sounds right.
Great. Good. Well, seeing no other questions, thank you both for the good work. Glad we caught up with both the House and Senate on remote participation. Director Harper and Mr. Szevetsky, good morning. Excited to review our latest news on the economic forecast. Who would like to begin?
Mr. Sabetsky. Thank you very much, Madam Speaker, members of the Executive Committee. Greg Sabetsky, Chief Economist with Legislative Council staff. Madam Speaker and members, I think what we'll do this morning is a very brief summary of the economic revenue and budget outlook from me, and then an update from Director Harper on where the budget stands now, and then lots of time for questions as the committee would like to indulge them. To begin with our economic story, the summary that we provided to the JBC is to describe the economy as bifurcated. In particular, what we've observed is some stability or strength in many economic conditions, but weakness in particular in the labor market that's worrying to us. The slide that I've displayed shows the level of year-over-year growth in the Colorado and U.S. number of non-farm jobs. You can see year-over-year the United States had added just 0.1%, essentially no jobs, over the 12-month period ending in February. Colorado was showing a little bit of a better number, plus 0.8%. First, that's already low. Second, that number is probably overstated. There are annual revisions that occur. We expect that that number will be revised down. So this is really an economy that's not producing job gains At the moment which has some worrying consequences for sort of the trajectory of the economy Most notably is household finances And so when you imagine an economist briefing you on economic conditions you expect especially for the 30 million foot view that I'm giving you this morning focus on jobs inflation GDP I'm going to show you instead a slide about credit card debt, and the reason is because it's a pretty worrying signal. So what is shown here are delinquencies by loan type and it expressed as a percentage of those loans So the y there on the left is showing you those percentages And what you see is that credit card delinquencies of 90 days or more have risen above 12% of total credit card loans. That's the highest level since the comeback from the Great Recession. And it's rising still, right? And so this is indicative of household budgets that are strained in a way that they weren't even during COVID, after COVID, in the high inflation episode that we saw post-COVID. This is something different, and it seems to be persistent and rising. And I think it's related to both a loosening labor market, where we see those smaller level of job gains, and then also the fact that when you have a loosening labor market, there's also less sort of bidding up of wages across different firms. when they're seeking employees in that market. So that's a notable sign for us as well. Our forecast doesn't anticipate particularly high inflation for the current year. It is still elevated above the Federal Reserve's target. We have a 2.6% inflation forecast for the Denver-Aurora-Lakewood area, which is our proxy for the state. It's the only number that's produced within the state of Colorado for a geography, and then 3.0% for the U.S. But I did want to note a potential major upside risk to the inflation forecast, which is this oil price issue that I know that you've read so much about in the past couple of weeks. What we saw after the attack in Iran was an increase from $65 a barrel in oil prices to close February up to $98 a barrel as of last week. This is the West Texas intermediate price. You've seen some higher numbers reported if you're looking at prices in Europe. oil of course is an international market supply constraints that exist anywhere in the world are going to have an impact on prices in the United States our baseline forecast scenario is that prices begin to normalize in May and return to sort of a pre-attack normal level over the summer if that's not what happens if we see sustained elevation of oil prices there will be price pressures across the economy that result from that oil is an input into the price of pretty much anything that you buy that's not produced immediately where you're buying it and in many of those cases it still is and so for that reason yes explain the x-axis here yes sorry those are just years and they're labeled badly on the chart oh got it 26 25 thank you thank you so those are sort of the the narratives on the economy is that we have this this bifurcated situation in December I had told the JBC, hey, we could be in a recession right now. We don't know. We don't have any data because of the shutdown. I think it's very clear that we're not at the moment, that really at this point in time, the economy is growing. There are other slides that I included in the presentation to the JBC that show growth largely attributable to investment in AI. This is the points that I've chosen to highlight for all of you are some of the reasons why we've made downgrades to our revenue forecast, which, of course, is the more important piece of the puzzle for all of you right now. So to move on to the revenue forecast very quickly, we've revised down our revenue expectations for both the current fiscal year and next fiscal year. The most important driver of uncertainty is actually not the economy. It's how state revenues are responding to changes from the One Big Beautiful Bill Act. That's the OBA that was passed in Congress and signed into law on July 4th. That bill first affects taxable income for tax year 2025. So there are some advanced signals from wage withholding and estimated payments by taxpayers over the third and fourth quarters of 2025. But the most important piece of information that we'll have about the consequences of OBAA for revenue are final payments for 2025 taxes, which are what taxpayers are filing right now. As of the March forecast and now, we have data through February. That means we don't have data for March and April, which are when most of those returns come in. That February data point is important. It's the most important piece of information that we have, but it's also potentially misleading because it's not necessarily representative of the returns that will be brought in during the filing season. We know that taxpayers file earlier if they're getting larger refunds. We know that they wait longer if they owe more. And so for that reason, it's hard to look at one single piece of data and extrapolate the filing season when we know that data point isn't representative. There are tax credits that are triggered based on revenue expectations. We expect that the family affordability tax credit, the FATC and the Expanded Earned Income Tax Credit, the EITC, will be unavailable for tax years 2027 and 2028 based on our revenue expectations. The actual availability of those credits depends on future forecasts and not this one. For TABOR, we expect that state revenue will be below the TABOR limit by about $900 million in FY25-26. The consequence of that, and this is going to become very apparent when you look at the the budget outlook is that expectations for revenue have a dollar for dollar impact on the expectations for the budget. That's how it is in most states most of the time. Colorado has been in a position since COVID where we've been above the Tabor limit. And so revisions to our revenue forecast only affect the amount that's required to be refunded to taxpayers and don't actually affect the amount available for the JVC and for you all in terms of writing appropriations. When we're below the Tabor limit, that changes. And so our revenue forecast revisions result in changes to the amount of space that's available for appropriations. That's true under both our forecast and the OSPB forecast. It also means that the difference between the two forecasts is a revenue difference. It's an expectation for less revenue under the LCS forecast than under the OSPB forecast. We do expect a Tabor surplus next fiscal year of $276 million. I just want to highlight that is not a comfortable amount of money. future forecast revisions could very easily change our expectations such that we're below the table limit and in the similar situation next year to where we are this year in terms of revenue having a direct impact on the budget space this is our December forecast and I just want to show it to illustrate how small the differences feel when I click back and forth between these two slides between the December forecast and the March forecast this really isn't a wild change in revenue expectations in the big scheme of everything that we forecast. It does end up having a pretty significant consequence on the budget, again because we're below the Tabor limit in the current year. You'll also note, I think very obviously on the chart, is that we have this decrease year-over-year in FY2526 revenue. That's happening without a recession. The two causes of that year-over-year decrease that I think are most salient are number one, income tax credits that that exist at the state level that were primarily adopted by the General Assembly in 2024 to create the FATC and the expanded DITC. Those are triggered off for future years, but they are available for tax year 2025, and they're reducing revenue for tax year 2025, which affects collections for FY25-26. The second reason is the OBA. The OBA effectuates a significant tax cut in Colorado because we use taxable income at the federal level as our starting point for the computation of state taxes. So when Congress reduces the amount of federal taxable income, they also reducing the amount of Colorado taxable income in a way that affects our budget These are our downgrades to our revenue forecast from December The only number that really matters there right now is the FY2526 number because again that's that dollar for dollar impact on the budget. We expect to be below the Tabor limit in the current year. We expect to be just above the Tabor limit next year. I've already explained this. I'm going to move on for the sake of time. We can come back to it if you have questions later. So this slide is here really as providing caveats that I think are necessary to understand the next slide. I'm not going to walk through all of them. What we try and do as a shop when we're producing a forecast at this point in the calendar for the JBC is we take all of our expectations for revenue and the other things that are outside of the JBC's control. That means the Tabor limit, that means statutorily required rebates and expenditures that the the JBC doesn't get to appropriate and then transfers into the general fund and out of the general fund that are set under current law. So those are the things that we're forecasting. But we know the JBC has also made a bunch of budget decisions and we try and represent the forecast in light of those budget decisions. We're at a point though where the long bill isn't closed yet and so we have to make some assumptions about decisions that the JBC had not made. So what's on this slide is an explanation for JBC members of here's what we did and didn't include in the scenario I'm about to show you but the point that you all should take away from this is the budget is a work in progress, you'll hear more about that from Director Harper in a moment, as a result when I tell you hey you're this much below the reserve requirement that's relative to a budget that hasn't been finished yet. So what we do in terms of projecting the budget environment is we begin from an assumption of what if you spent the exact same amount of money next year as you have appropriated under current law this year. Current law in this case includes the long bill from last session and the supplemental package that you passed in the spring, excuse me, in a couple months ago. So we have that supplemental package built in here. We don't have any changes to appropriations because those are JBC decisions that I'm going to show on the slide. Under the LCS forecast, the budget, even if you just wrote the same level of appropriations without accounting for downstream actions would be $800 million below the 15% reserve requirement. The OSPB forecast, which is what the JBC selected for balancing, has a little bit more space. The difference between the two forecasts is $265 million. So if you started with the assumption of the same amount of appropriations next year under the OSPB forecast, you'd be $540 million below the reserve requirement. Now the difference between the LCS and OSPB forecasts are two things. Number one, current year revenue expectations, which I talked about, and number two, TABOR refund expectations for next year. OSPB expects more cash fund revenue subject to TABOR. Cash fund revenue subject to TABOR drives a general fund obligation for refunds. What we do to accomplish the budget scenario B is first we account for FY25-26 budget actions. These are things that the JBC had approved already before our forecast presentation, $122 million in transfers into the general fund. However that's offset by $73 million in long bill supplemental appropriations, so current year appropriations made through the long bill, and placeholder appropriations for other legislation. So on net, that's $40 million in shaving from the deficit to account for those actions. There are other actions that the JBC had not taken at the time of the forecast presentation. For example, there is a proposal that I think has been acted upon now on Prop 123, affordable housing. So there an additional million transfer in the current year from affordable housing that not in this chart so this actually should be plus 150 once you layer on that transfer Funds available this is changes to transfers in for next year 72 million dollars above our forecast baseline that the JBC had already approved. Those aren't current law so they're not in our scenario A but they are in our scenario B of here's what the JBC has acted upon and then a decrease of 37 million in the refund obligation 17 million of that is cuts to cash fund revenue 20 million of that is a JBC bill that will change the way that inflation is calculated for the purposes of the FY 2627 table limit the JBC had approved these appropriations in excess of current law appropriations at the point of our forecast there were other proposed cuts that hadn't been acted upon yet so this this is where we were at the time that the forecast was presented. And I'm not going to go into too much detail on that because you're going to hear more from Director Harper about the budgeting process. We also have included the CDC recommendation for capital transfers, the JTC recommendation for IT capital transfers, and a reduction of 10.5 million in transfers to the multimodal mitigations options fund. Because you're increasing appropriations, you'd also be increasing the reserve requirement. So under our scenario B, what I presented to the JBC last week was a $1.47 billion deficit relative to the 15% reserve requirement that's in current law. If you instead use the OSBB forecast, you'd be at a $1.21 billion deficit, which is still, of course, a huge amount of money. I also, because, so that's current law, that's a 15% reserve requirement. The governor proposed a 13% reserve requirement. If you went to that requirement, you'd have a $1.13 billion deficit under LCS or an $862 million deficit under OSPB. If you decided, we're not going to make any other cuts, we're going to just do what Greg showed in Scenario B and then cut the reserve in order to balance the budget, you'd be at a 6.5% reserve under LCS or an 8.0% reserve under OSPB. So that's the bad news that I gave to the JBC on Thursday. I just want to show you why I am probably wrong in some direction and by some amount of money. Most importantly is OVA. We don't have a full picture of OVA impacts. We just have a tiny window at this point. Because we're below the Tabor limit in FY2526, estimation error impacts the budget directly. We talked about that. The highest magnitude risk is of course the economy. If the economy enters a recession, then all of a sudden we're now talking about the same situation next year where every dollar that we cut to the forecast is a cut to the amount of revenue space. And that's definitely within the realm of possibility under both forecasts for FY26-27. Madam Speaker, that concludes my portion of the presentation. Director Harper has the next part.
Thank you, Mr. Sabetsky. Members, questions?
Yes, Minority Leader Simpson. Thank you, Madam Speaker. Mr. Sebecki, can you like, I would just characterize it as an after action report. Who's better at predicting revenue, OSDB or LCS historically than over the last five years?
Mr. Sebecki. Thank you, Madam Speaker. Thank you, Minority Leader Simpson for the question. So the thing that's challenging about answering that question is that we're predicting a target that then immediately moves in the sense that we're forecasting to current law, but we know that both the General Assembly and Congress can take actions that change what the law is in terms of what actual revenue receipts are next year Our forecast has kind of an impact on itself in the sense that when we tell the JBC or the General Assembly hey your budget is in a really precarious position the response of the General Assembly isn to do nothing and leave the budget in a precarious position It's to then enact new laws that change what our expectations would have been at the time. I'd say that over the past couple of years, the Joint Budget Committee has made a decision to budget to the OSPB forecast. and in the cases of these past few years the ospb forecast has had more available revenue space we've then ended up in positions where we've needed to make midstream cuts to the budget those midstream cuts though aren't just because of revenue forecast error they're also because of changes to appropriations that occur midstream and the number one issue there has been hick of the need to make additional appropriations for medicaid mid-year has caused the need for balancing actions that are difficult for the General Assembly.
Yes, Minority Leader Simpson. One other question. When we try to predict the likelihood of recession, are there one or two really big factors that drive that conversation when you're showing employment gains or lack of? What are the one or two factors that drive that prediction on recession?
Mr. Sabetsky. Thank you, Madam Speaker. Thank you, Leader Simpson, for a great question. The number one driver of an economic expansion, any economic expansion in the United States is consumer activity. Consumers drive the economy, that's always been the case in the United States, we are consumer driven economy. So that's why I'm showing the credit card debt slide, because household finances are a key element in the ability of the economy to maintain its growth engine. That said, there are I would say disparate impacts on households. So we know that household spending is driven by relatively high income households. That's not just the top 1%. I'm talking more about the top 50%. Households that are in a position where they're consuming everything that they're earning or they're taking on credit card debt are not on their own drivers of consumer activity across the economy, which is kind of uncomfortable to say. It's something that we really learned coming out of COVID, where the economy could put a huge portion of American households in a horrible financial position, but the economy writ large could continue chugging along because households at the high end of the distribution were still spending money. So we do see like constrained consumer spending across the board. We're still beating inflation, but that's what we're watching is sort of can we keep that balance where we have enough real growth in consumer activity to maintain an economic expansion? Our expectation is yes, to be clear, right? We are not forecasting a recession. I don't think it would be appropriate to do so at this stage, but that's where our attention is being paid. And that's why I'm presenting something like high oil prices as a risk, because once we see high inflation, that means that all of those income gains are just going to tread water and keep the economy on even footing as opposed to actually driving real growth. Appreciate that. I think OSPB said 40%
chance of a recession? Do you have a ballpark or a guesstimate, Mr. Szebetsky? Madam Speaker,
when I was asked by the JBC this question, I gave them the answer that I felt irresponsible kind of just ballparking something off the top of my head. We don't have one in our published forecast document. In December, I said 50%. And the reason I said 50% in December was because I thought there was a pretty good chance in December that the economy was actively receding at that time we just didn't have the the data to show how the economy was performing because of the shutdown my my near-term recession odds are lower than that because i know the economy is not receding so i'm certainly around the 40 where osb is this isn't scientific though right like we're ballparking here Your gut is telling you we're somewhere around there.
Other questions, members?
Minority Leader Caldwell. Thank you, Madam Speaker. If we, going with the forecast that JBC did decide to go with, if we're wrong about that, I mean, are we risking, like, a special session, again, having to come back here and address it if it comes in differently?
Mr. Sabetsky. Thank you, Madam Speaker. Minority Leader Caldwell, I appreciate the question. It's interesting to imagine whether we're risking a special session because, of course, that's really just up to the governor in terms of whether to call you all back in. What I would say is the most important difference between the two forecasts is expected, essentially what's going to happen in March and April, right? Expectations for current year collections for tax year 2025. In the June forecast, which is the next time that we present to the JBC, we'll know that. And what I was talking about with Director Harper yesterday is actually there's a chance that the forecast could sort of flip-flop in the sense that LCS is a lot lower on current year revenue than OSPB. If it turns out we're right about that, I would expect OSPB to downgrade their forecast potentially even lower than ours because they're higher on cash funds next year. If OSPB turns out to be right about current year revenue, I think we would upgrade our forecast probably even above OSPBs. And so there's what I'm trying to illustrate for both the JBC and for you all as leadership is the realm of possibility is actually wider than just the difference between the two forecasts. There is upside risk to the more optimistic OSPB forecast. There is downside risk to the more pessimistic LCS forecast. There's a lot of uncertainty, and the uncertainty is not just economic. It's driven by the policy changes that have happened. whether the right mechanism for accomplishing that uncertainty is to pull members back into write supplementals in a special session or to do emergency supplementals through the 1331 process or just to wait until the 2027 session that is a decision for policymakers that's not something
that I can thank you director Harper thank you madam speaker a good rule of thumb among staff is
you don't want to follow Mr. Sebecki. I'm breaking my rule, so here we go. My goal with this presentation, you have a memo in your packet from me to the JBC. Looks like this one. There's really only one visual, one chart in this thing, so I did not pull together a PowerPoint to show the one chart, and we'll get there in just a second. But my goal with this memo was it came the day after Mr. Sebecki and Director Perundino presented their respective revenue forecasts, and the task before the JBC on Friday was to select the forecast for balancing. This is for the purposes of the Joint Budget Committee, the General Assembly's budget process. this is the most consequential forecast that we receive all year because it is the one that the General Assembly balances to and it has following on Mr. Svetsky's statements when they select the forecast in March it actually is selecting the forecast for the current year and the next year so last year they selected the OSPB forecast and we balanced to the OSPB forecast for fiscal year for 24 and for 25 They selected OSPB again this year and we see that that has real consequences for making balancing the current year far easier To Minority Leader Caldwell question there is risk there because if Mr. Sebecki's forecast tends to be more accurate in the current year, then we will see a, we will have a real problem in terms of, we will go into next year with a significantly lower general fund balance than we're expecting based on the OSPB forecast. So the task before the committee on Friday was to select the forecast, and in order to help them do that, following on the two forecast presentations, the goal was to kind of show them what was at stake. And my memo flow, I think the flow was pretty good for the JBC's purposes. It's a little bit more awkward here, but if I stick to the order of the memo, So I think my goal for today was to give you a little bit of context for where they were in terms of the decision that they made, but more importantly, what you're going to see coming through the budget process. And if you have thoughts on the specifics that are in here, then I would obviously suggest engaging with your JBC members to share those thoughts sooner rather than later. because the fact is that with a gap the size that we have this year, under Mr. Zabetsky's forecast, it was, depending on whether you want to talk about a 13% or 15% reserve, over a billion-dollar shortfall. We're looking at about a $740 million shortfall next year below a 13% reserve under OSPB. It is a billion dollar shortfall for next year, below the 15% reserve. 15% is current law. When you have a shortfall of that magnitude, it becomes obvious quickly that you have to cut where the money is. So you all watched in special session. The General Assembly came in and took a lot of actions, both to raise revenue and cut expenditures. The Joint Budget Committee has been working since the session started to make, frankly, painful to watch and, in many cases, painful to participate in reductions across a number of programs. The public testimony on Medicaid this year packed a very powerful punch. These are very difficult decisions, but the fact is if you're trying to close a billion-dollar pool, you have to cut where the money is. We'll get later, we'll see how those decisions have played out to date across all state agencies, across all state departments. They've been making decisions to cut programs across every department. Grant programs in Department of Education have been cut very significantly. Department of Agriculture is a reduction year over year. We have seven departments actually that are showing a reduction in general fund from the current year to next year. But the fact is that the pressures on the budget most significantly from Medicaid are outweighing those efforts and we're sort of perpetually chasing that particular cost. So the bullets that start at the bottom of page one kind of outline the assumptions that were in my presentation. And I had one divergence for Mr. Sebecki based on just a slightly different assumption around the Prop 123 transfer. And we were aware of that at the time. So I think I tried to identify here the big rocks that one could think about that I was assuming where I was making an assumption in what I presented to the JBC. Starting from the top, my assumptions and Mr. Sabetsky's include $183 million in senior citizen property tax exemptions This is Homestead General Assembly has the ability to cut that The reason that that on the table and the General Assembly hasn really had this discussion as Mr. Svetsky pointed out, is that we've been above the Tabor cap, and when we are above the cap, Homestead is the first option for the Tabor refund. So if we have $200 million of surplus above the limit, then the first thing we do as a state is pay for Homestead. It's not on the table for balancing action at that point because it's already taken care of. As soon as we're below the cap, homestead becomes a general fund obligation. This puts the general assembly in a tough spot because this is obviously a large cost. It's off budget when we're above the cap. The second we fall below the cap, it falls on budget. And all of a sudden, in order to cover it, you have to find $200 million that you haven't been budgeting for in the previous years. So obviously an important variable. Second, governor's request included $50 million of general fund for school finance, still relying heavily on the state education fund to cover increased school finance costs. But the $50 million is there as kind of a placeholder from them. We are including it in the assumptions to date. Whether the JBC will be able to keep any of these amounts that I'm going through here is probably an open question. It is in there. When we get to the back, you'll see Department of Education is based on their actions through March 16th is showing about a $40 million increase in general fund. And that's because there's $50 million up in school finance, but then those grant program reductions for the most part are taking away general fund obligations. Next, there's $34 million baked in here in the Department of Corrections. You all may recall last year there was significant discussion about a Department of Corrections budget audit. The private auditor presented to the state auditor's office and made recommendations on how to improve the budget process for Department of Corrections. Justin Brackey, the JBC analyst for Department of Corrections, following on that audit, presented some staff-initiated recommendations to try and align with some of the practices that are in there. The big one, just because this does come up in the long bill context, is their recommendation is to increase what they call the shift relief factor in corrections, which means adding staffs to cover for people when they're out. As you know, one of the prime discussions in Department of Corrections over the last few months has been the fact that they've had to have a variety of nurses, social workers, et cetera, filling in as correctional officers because they don't have enough CO staff. So he has $34 million baked in to this particular scenario as a staff initiated recommendation. The committee has not taken action on that yet. Where they have not taken action, I generally assumed the staff recommendation, and that was what was in Mr. Svetsky's numbers. Total compensation, hot topic over the last several presentations that I've given to this group. We don't have a number yet. So what's included in the scenario is fully funding the WINS agreement as requested. I do expect that that's a number that's likely to change, but I didn't have anything to substitute in. So similar to our discussions within the executive committee, you all erred on the no increase side. Because of our process with the JBC, my assumption was we're erring on the side of the request until they do otherwise. So that's the difference there. Medicaid is has driven much of the discussion of the committee this year. I've included every Medicaid decision that the committee has made. That includes Medicaid forecast adjustments that came in February Every forecast we getting from Medicaid is a higher cost than the one before it including for the current year and the budget year That was no exception in this case. The committee has taken a number of reductions in Medicaid. You all have probably been hearing about a number of them. Even with those reductions, we're ending up with year-over-year increases of $300 million. So, flat funding for higher education, this tends to be a hot topic on the JBC when revenues are tight. Generally speaking, when the state goes into a recession, higher education ends up taking a cut because it is the one place in state government that they have a tuition option to keep themselves harmless. at this point we are assuming based on the committee's action that higher education funding for the institutions would remain flat. What I have not included here is first a cut. The governor has proposed a 3.6% across the board provider rate decrease in Medicaid. That equates to about $150 million. The committee has not taken action on that yet. If they did, then that would improve our balancing position by about $150 million if they approved that. That is not included here because there is no decision, and in that case, the staff recommendation was to wait on that action until we were ready to actually balance. It does not include $400 million from Pinnacle. The governor has two very large balancing options. It's the last two bullets here that are included in the request and really instrumental to the way that the governor balanced the budget in the request. The first is assuming the conversion of Pinnacle from being a special purpose authority under the state to a private enterprise with the assumption that Pinnacle would pay the state $400 million. The second is, and if you have questions on this one, I'll tag team it with Mr. Sebecki. The second large proposal in there is the governor's request asserts that the state has over-refunded TABOR revenues from fiscal year 24-25.
The rate refund as certified in December, final refund?
January, but yeah. January is about $306 million. And the governor's office is asserting that that is an over-refund, as evidenced by the fact that the HR1, the federal legislation, or the OBAA is affecting all of tax year 2025. That means that it has an impact across the entire tax year. because it was signed in July and not before the end of the fiscal year, our process as a state is to account for that impact in 2526 and not 2425. The revenues actually collected in 2425 put us $300 million in change above the Tabor cap, and that money is going out as a refund based on the certification. The governor's office is asserting that that is an over-refund as evidenced by the fact that now we find ourselves potentially a billion dollars below the TABOR cap in the current year. And if we could allocate the impact of that bill across all of 2025, then the TABOR refund would go away. That's a topic for separate legislation. The committee has discussed it, and we'll see where the General Assembly goes with it. But their goal with the request was to spread that $300 million over two years. So it reduced the TABOR refund in 26, 27 by roughly $150 million and in 27, 28 by the same amount. For 26-27 specifically, the governor is assuming $400 million from Pinnacle and $150 million from the Tabor over-refund proposal. That's $550 million to close a gap that, as we'll see, is somewhere between $740 million and $1 billion under the OSPB forecast. So just doing that one, those two, would get you a significant chunk of the way there. If the General Assembly decides to do it, I will note that neither of those proposals is without risk in terms of legal considerations. For this memo, I chose to focus largely on the 13% reserve threshold. Frankly, that's a deviation practice for GBC staff because 15% is the current law threshold. You will have to amend the law to reduce the reserve requirement from 15 to some other number. But given that we had shortfalls below the governor's proposed 13% amount and in particularly in 26-27 those shortfalls are very significant, I went ahead and tailored it to the 13% level. If you want to think about the shortfall relative to 15%, the difference is about $340 million. So that's where we end up. The take home message for the JBC and for you all is that we're dealing with a persistent shortfall. This is frustrating for the General Assembly because you balanced the budget last year. When we published the Appropriations Report, which was based on the March forecast, we expected 25-26 to have a slight surplus above the 15% reserve requirement. And now if you look at the charts at the bottom of page two, you can see where we are under both forecasts. Figure one on the left is the reserve in 25-26. You can see under the LCS forecast, my estimations and Mr. Sebecki's have us about $863 million below the reserve in the current year. So that from March last year to March this year, we've seen that big of a drop. And that is after accounting. And to emphasize this again, that's after accounting for all of the action that you all took in the special session and through the supplemental process to both raise revenues and cut expenditures. So, $863 million below the 15% reserve, which is the top line, $527 million below the governor's proposed 13% reserve. You can see the story is significantly different under the OSPB forecast. My $53 million number there is hiding, but OSPB is on the right. if you just took the JBC's actions as they are to date for the current year, we'd be about $53 million short of the 13% reserve. We would still need to close $389 million below the 15% reserve. The thing that I'll note here and the point that I emphasize to the JBC, and I think it's very important to Minority Leader Caldwell's question, and frankly Minority Leader Simpsons as well, is what the current year has illustrated again is that cutting mid-year in large amounts is just extremely difficult. If you find yourself in a very deep hole in the current year, the ability to make the reductions at scale that you need to close that gap, if you think about where the money is, you're cutting Medicaid eligibility. In Medicaid, you have a couple of levers. You have eligibility and you have utilization and you have provider rates Those are your three levers that you can pull Those are three blunt instruments Changing those things at mid can be difficult If you think about the second largest use of general fund it school finance And that's school districts have budgeted to an amount for the school year. If the General Assembly comes in in January and says, sorry, that number is going to change dramatically, that can wreak havoc. It's been done. It was done in 2009 going into the Great Procession, but the short story here is that it's very difficult and the pain that the General Assembly has gone through between the special session and supplemental process to make reductions has illustrated that and even with all of that, we're still facing this significant shortfall. So I will say that my concern as the JBC staff director is if, to your question, Minority Leader, Mr. Sebecki's forecast is more accurate and we end up finishing this year, let's say we target the 13% reserve as requested by the governor, I'll say up front that I don't think 15% is a very viable target in the current year. I'll also say that I think the year that we've had this year where unexpected revenue drop of this magnitude is in fact what the reserve is for. This revenue change is acting a lot like a recession. It's not something that you anticipated. If we had anticipated it, we would have balanced to it, and this would be a different story. The reserve is there for this kind of purpose. That said, if we close the budget for 26-27, and again, we're finalizing for 25-26, and then we get through the fiscal year and we're $530 million below that 13% reserve, Mr. Spetsky gave the numbers, that's a low reserve level. We're going into next year in a far worse position than we expected. If revenues come in low again, then our ability to cut at mid-year is we're just going to watch this movie until the reserve is gone, I think is my fear. 26-27 is the forecast, the difference narrows, as Chief Economist Sovetsky pointed out. 26-27 is on the right. You can see the $1.4 billion shortfall below the 15% reserve, and it's just over a billion with my estimations in below the 13% reserve in 26-27. For OSPB, $740 million below the 13% reserve, and it's a billion below the 15%. The remainder of this memo focuses a lot on the things that I wanted them to consider relative to the forecast. I'll note a couple of those because I think it was an interesting discussion. I think what the Joint Budget Committee and the General Assembly is weighing here is this forecast selection was a hard choice because it's going to drive the discussion of the budget as you see the long bill come before you in the next couple of weeks. And the trade-off here when you've got forecasts that are this far apart, we had one JBC member noting that if the state cuts services, again, we're not talking about sort of trimming around the edges and haircuts across small programs. We're talking about eliminating a lot of small programs and significant cuts to big expenditures. If we take the more pessimistic forecast as the state and we cut to that level and revenues come in higher then one can certainly argue that we have those services are providing important services to people And particularly with the focus on Medicaid this year you talking about health care services So if we overcut, to use kind of the easy term for it, and we end up slashing health care services, and it turns out revenues come in much higher than we thought, then we've had an impact that the state didn't actually need to have to balance its budget. So that's on the one hand. And the counter to that is obviously if we assume a more optimistic forecast and the revenues come in lower or in line with the lower forecast, then we find ourselves in the situation that we're in this year, not driven by forecast differences last March because the forecasts were different, but they weren't a billion dollars different. We find ourselves back in the same situation where, to the question about the special session, how large that gap needs to be is a question for you all and the governor to come back into a special session. But we were there in the fall that the gap was large enough that you were called back. And then even if you do come back, the ability to make those cuts is difficult. So that's the context for the forecast selection and for the budget that you're going to have in front of you. There's a lot of tables here that are very much in the weeds for the JBC's purposes. I'm happy to walk through them if people would like, but I thought the more useful overview might be to jump to page 8. Mr. Harper, we are down to five minutes.
Make sure we leave some room for questions.
Thank you, Madam Speaker. I can do this in two. Page 8, the table here shows the adjustments to the current year appropriation that are approved to go into the 26-27 long bill. So you've already approved all the supplementals, the appropriations after those actions are in the left column here. So general fund appropriations are at 17.1 billion after all the actions and supplementals. That was a net increase of about $160 million in the supplemental package. There were cuts across a lot of agencies, a big increase in Medicaid. You can see in the middle column that what the JBC has approved to go into the long bill is an increase of $72 million. $68 million of that increase is Medicaid. So the driver in supplemental process was Medicaid appropriations. The driver for the amounts added to the long bill is $72 million. dollars. And current year appropriations are going up from 17.1 to 17.2 with rounding with that increase of 70 million dollars. Page nine is more on point for the budget process itself. This is showing the 2526 or current year appropriation as adjusted on page eight. As you can see, that 17.2 billion dollar number is at the bottom of the table there in the current year. The dollar change by department is the middle column. You can see there are actually seven that are showing a reduction. In percentage terms, somewhat laughably, state is leading the way because we're eliminating their $4,200 general fund appropriation, so it's a 100% reduction. But there are year-over-year reductions spread across seven agencies. I noted Department of Agriculture earlier. You can see they're actually taking a 6% reduction year over year and that before any decisions to reduce total compensation So in the cases where you seeing a reduction in general fund they actually cut enough to override that total compensation increase However everyone else is going up and you can see there are four agencies that are actually accounting for more than 90 of the increase Those four are corrections. I do expect that number to change. That includes Mr. Brackey's staff-initiated amount. It also includes total compensation, which is very important for corrections. education is about 40 million, healthcare policy and finance leading the way again at 301 million, and then judicial has a 59 million dollar increase. Those four account for 90% of the change. If you adjust total comp significantly, you will definitely move corrections and judicial education and HICPA for different animals. Those are not state employee heavy departments. Those are, for those two, you're really thinking about school finance and Medicaid. So in order to move those two numbers, those are most likely the two variables that you're looking at. That's what you have coming in the next week to two weeks. Questions?
Yes, minority leaders.
Madam Speaker, Director, in the bullet points, a reference to the include total compensation appropriations for the wins agreement. Just trying to understand the magnitude. Is that $10 million increase, or I'm trying to get an appreciation for the magnitude. Mr. Harper.
Thank you, Madam Speaker. Minority Leader, you've got two major components there between salary and health life dental, which obviously was a hot topic here. You're well into the tens of millions between those two. depending on how you change it. And obviously, Executive Committee, we would, we have talked about following JBC's lead for the legislative branch, but that is an option. We certainly will have discussions. It is my understanding JBC voted unanimously for the OSPB forecast. Timing-wise, I know that our goal was to introduce the long bill in the House on Monday.
Let me say in advance of that, Director Harper, thank you to you and your staff. I know the next week will be extraordinarily busy, and if any of you get sleep, that will be, I guess, the win of the day, even if it's only two hours or three. I appreciate the conversation today. I do think it was important for Executive Committee to get a bit of a preview on what is coming in the long bill. Obviously, big decisions ahead and a tough budget to pass this year. Mr. Harper, I assume I can offer that if any of us have additional questions or follow-up, given that we've run out of time today, you or your team would be available for a deeper dive. Anything else for the good of the group, members? Okay, seeing no further business, the Executive Committee of the Legislative Council is adjourned. Great job, Jim. Thank you.