Posted 02.18.2010

Without the Recovery Act, things could be worse—much worse

It has touched the lives of every Coloradan

By The Colorado Fiscal Policy Institute

This report, written by the Colorado Fiscal Policy Institute, was released by a coalition including the Institute, Colorado Common Cause, 9to5 National Association of Working Women, FRESC: Good Jobs, Strong Communities, and ProgressNow Colorado Education to mark the one-year anniversary of the Recovery Act. Read the Recovery Act Fact Sheet here.

The tremendous budget challenge facing Colorado lawmakers would be much worse without the help of $2.8 billion to Colorado from the American Recovery and Reinvestment Act, more commonly known as The Recovery Act.

The Recovery Act provided a remarkable influx of cash to help offset the brutal combination of declining state revenues and rising demand for state services. More than half of the Recovery Act money coming to Colorado, $1.5 billion, is being used to mitigate budget shortfalls over three fiscal years ending in June 2011. More than half of that --$813.7 million-- is helping state lawmakers this week as they balance the budget for fiscal year 2009-10.

Most of that money has gone to Medicaid and colleges and universities, and as a result, cuts have been minimized in other areas of the budget. The $813.7 million Recovery Act funds used to fill the shortfall is more than the General Fund contribution to all departments in Colorado government except education and health care. The Recovery Act money this year is greater than the combined general fund spending on 14 of the 19 state departments that get general fund money.

Without the Recovery Act money, any number of state services, or entire agencies, would have been either eliminated or dramatically scaled backed. Lawmakers began making changes to the 2009-10 budget this week to close a shortfall Gov. Bill Ritter pegged at a $2.04 billion in November.

Later this month, the General Assembly will begin tinkering with Gov. Ritter’s $19.3 billion budget proposal for 2010- 11, which opens with a projected $1.02 billion General Fund shortfall, according to a Nov. 10, 2009, report from the Governor’s Office of State Planning and Budgeting. The $1.5 billion in flexible funding from The Recovery Act has helped state lawmakers decide how to balance three consecutive budgets as state sales and income taxes failed to generate enough revenue to meet spending demands.

The flexible spending portion of the Recovery Act came to the state in three chunks of money: an Enhanced Federal Medical Assistance Percentage (FMAP) rate for Medicaid, a so-called State Fiscal Stabilization Fund for education, and another stabilization fund for any other purpose, which has largely been used for corrections.

The Enhanced FMAP provides a larger than usual federal match for state spending on Medicaid. The Enhanced FMAP rate is based on unemployment, assuming that as unemployment rises the number of people seeking health care through Medicaid will also rise. The number of people enrolled in Medicaid is indeed growing. But if the state’s unemployment rate drops lower than has been projected, then the state could receive less money through the Enhanced FMAP program than currently anticipated.

The Enhanced FMAP provided money to cover Medicaid expenses retroactively to October 2008 and will run through September 2010, with the follow totals for each year: • $239.7 in 2008-09 • $371.7 in 2009-10 • $185.9 in 2010-11 Congress is considering extending the Enhanced FMAP rate beyond fall 2010 so the amount the state gets in 2010-11 could grow.

Even as the federal government is providing $748.5 million to help cover the rising cost of Medicaid, the state is still making cuts to portions of the entitlement program that the state controls. For example, the General Assembly is again considering reducing provider rates and delaying June payments to providers until July, which marks the start of the next fiscal year. That would save $188 million in the upcoming fiscal year but cause the Medicaid budget to start the next fiscal year out of balance.

Unlike most other states, Gov. Bill Ritter and state legislators plan to use all of the education stabilization money on higher education, deciding not to spend any on public schools even as the state is cutting K-12. The state plans to spend: • $151 million 2008-09. • $377 million in 2009-10. • $95 million in 2010-11. In order to qualify for the money, the state is obligated to spend at least $555 million on higher education in 2010-11, which will require the state to spend $226 million, or 41 percent, more on higher education than it will this year.

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