Budget Update April 26th, 2009

For the first time since I have been at the Capitol, the General Assembly passed a budget that wasn’t balanced.

It is a work of fiction or prayer and since the folks in charge don’t seem to be the prayerful type if you know what I mean, it must be fiction.

The Pinnacol seizure fell through. There aren’t many significant cuts to anything except higher education, and the budget is still a couple hundred million dollars out of balance.

The plan is to pass a whole passel of bill that raise taxes, institute some transfer gimmicks and use some of the stimulus money to fill in the $200 million gap.

The tax increases, besides the senior homestead property tax exemption, are elimination of sales tax exemptions that are in place for cigarettes and vending machine sales.

The cigarette tax is expected to yield $30 million and the vending machine tax $8.7 million.

I doubt that the cigarette tax increase will result in the full $30 million being collected because the Feds also raised cigarette taxes and they have reached level where people will either cut back or buy on the “gray” market – cigarettes from places with low or no taxes. People make rational choices like that all the time.

The vending machine tax will likely be eaten by the folks who have those machines as it is hard to increase a vending machine coke by three cents, or maybe they will raise the price by a quarter and see if the market will bear it.

No matter what, this saga is far from finished as the fiscal year is just starting. I expect further bad news and our reserves are too low to withstand another $200 million reduction in state revenue.

Can you say special session?