JBC chair Keller's rosy predictions fail to materialize

Face The State Staff Report

Eight months after a leading Senate Democrat ignored warnings of a recession and supported more state spending based on "excellent" budget projections, new forecasts are expected to show dramatic funding shortfalls.

KellerState of Colo.

Audio from April 3 uncovered by Face The State reveals Sen. Moe Keller, a Wheat Ridge Democrat and chairwoman of the Joint Budget Committee, optimistically arguing that Colorado’s economic future is a bright one, even though Federal Reserve Chairman Ben Bernanke predicted on that same day the country was headed into a recession. "We do not have a projection from our economists that we are going into a fiscal train wreck," she said.

Keller’s comments were made during the Senate’s debate of the 2008 budget, better known as the “Long Bill” because of its length. At the time, she praised the budget, calling it “excellent” and highlighting areas where the JBC found savings. (MP3) It is traditional for members of the JBC to defend the budget and always vote in favor of it.

Five months after Keller's comments, the economy took a turn for the worst and the non-partisan Legislative Council, which is responsible for the state’s quarterly revenue projections, reported the state is facing a $100 million budget shortfall. When contacted by Face The State, Keller defended her April comments saying revenue forecasts until September were “great,” but she admits the economic picture has changed dramatically since then. "We know that we are not immune to what is going on nationally," she said.

Fellow JBC member, Sen. Al White, R-Hayden, is sympathetic to Keller’s perspective. “The whole national economy has changed significantly since April,” he said. “All economic projections looked much brighter than they do now.”

Legislative Council is releasing the latest round of revenue forecasts Friday. Keller and White said the rumor is Colorado will be faced with an additional $100 million shortfall on top of September’s projection. White also points out the revenue deficit will result in massive cuts next legislative session. Typically, budget cuts come in the form of bills that, if passed, are amendments to the current year’s budget. The 2008 fiscal year ends June 30, which means all necessary cuts will have to be made before then.

“It’s more difficult to spread $100 million to $200 million [in] cuts over a six month budget than a 12 month budget,” said White.

But at least one Republican was not surprised by the economic downturn. During the April 3 Long Bill debate, Sen. Josh Penry, a Grand Junction Republican and the newly elected minority leader, insisted April’s revenue projections were overly optimistic, and he urged Keller to rely on information sources outside of Legislative Council. “You are wrong when you say there is no economist who says that we are in a recession or facing bad times,” he said to Keller during the April 3 debate. (MP3) “If you turn on the TV or open the newspaper...look at today’s Denver Post and what the fed chief says.”

Penry proceeded to open the April 3 issue of The Denver Post and read a report where Bernanke acknowledged, for the first time, the country could be in a recession and projected the economy could shrink during the first half of the year. “The reality is we are on the cusp, at a minimum, of a slowdown and very likely a recession. And in any event, it seems to me, we ought to have the discipline to prepare ourselves for that reality.”

Sen. Mike Kopp, R-Littleton, maintains too may economists were predicting tough economic times to justify Keller’s comments. He said her remarks reminded him of Rep. Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee, who in 2003, said “Fannie Mae and Freddie Mac are not facing any kind of financial crisis,” despite early warning signs the mortgage giants were headed for a collapse.

“I think Democrats make their analysis bend to their spendthrift desires,” said Kopp, who also pointed a finger of blame at Democrat Gov. Bill Ritter for pulling the plug on a bi-partisan deal that would have created a rainy-day fund for the state.