As voters prepare to decide whether to approve a $950 million tax increase for K-12 schools, new revenue forecasts released by state economists Thursday project a large windfall for a supplemental fund for public schools.

Colorado CapitolThe State Education Fund (SEF), an account dedicated to K-12 spending, will receive a $1.1 billion infusion after the current budget year ends on June 30, according to both legislative and executive branch economists. That, combined with other revenue, means the fund will have a balance of $1.6 billion in the upcoming 2013-14 budget year.

A prominent supporter of the ballot measure that would increase K-12 funding says he’s not too concerned that voters will question a tax increase when the state has so much education cash in the bank.

“These are one-time funds,” said Sen. Rollie Heath, D-Boulder. “This is just the aberrations of the economy. … You can explain it that way very easily.”

The size of the SEF was an issue during legislative debates earlier this year over Senate Bill 13-213, co-sponsored by Heath and the brainchild of Sen. Mike Johnston, D-Denver. That new law proposes substantial changes in the state’s school funding system, including more money for preschool, kindergarten and at-risk students. But the new system won’t kick in unless voters approve a tax increase to pay for it.

State Education Fund chart
Click to open larger varsion.

As SB 13-213 was moving through the legislature, some Republicans argued that money from the growing SEF should be used to fund K-12 improvements before asking the voters for new revenue. Legislative Democrats supported Johnston’s plan, but some were unhappy that more SEF money wasn’t used to further increase school funding in the upcoming 2013-14 school year.

Legislative leaders, the Joint Budget Committee and the Hickenlooper administration successfully resisted those efforts, arguing that the SEF should be used as a cushion to supplement school spending over several years and to help avoid too much education pressure on the General Fund, the state’s main account.

Henry Sobanet, director of the Office of State Planning and Budgeting, made that point Thursday. He said that stockpiling money in the SEF “has solidified the financial situation for the whole state of Colorado in a significant way. … That policy decision I believe will pay dividends for many years into the future.”

Heath and state economists are correct in saying the SEF is volatile. The fund was below $600 million a year from 2007-08 until this year, and the balance is expected to drop to $827 million in 2014-15.

Concerned about the state of the SEF, the 2012 legislature decided that any excess state revenues at the end of 2012-13 budget year should be rolled into the fund. (Another, smaller rollover was ordered during the 2013 session.) Each of the five sets of revenue forecasts made since the 2012 session adjourned have shown growth in state revenues, meaning that the income to the SEF now is considerably larger than envisioned when the rollover plan was laid.

The fund also receives a mandated one-third of 1 percent of state income tax revenues, estimated at $484 million next year.

The economy’s improving, but …

Economists from Sobanet’s OSPB and from the staff of the Legislative Council make revenue forecasts to the budget committee every June, September, December and March, providing key baseline information to the governor and lawmakers at various steps in the annual budget cycle.

The two sets of forecasts often agree on overall trends but disagree on specific numbers. But in the latest documents both agreed that the SEF would receive the $1.1 billion rollover.

Natalie Mullis, chief legislative economist, told lawmakers, “We have seen the economy firm up better than we expected.” The revenue figure “was significantly higher than we expected it to be.”

But, Mullis warned, about half of the higher revenues were driven by capital gain taxes on taxpayers interested in taking gains before federal tax law changes kick in. “We don’t expect that to continue.”

Sobanet agreed with that analysis, and both forecasts expects state revenues to grow more slowly in 2013-14 than they did in 2012-13.

“Even though it feels like the economy is strong and moving forward, it’s still very fragile,” Mullis said.

Committee members had plenty of questions about the economy and other issues, but no one raised the matter of the SEF and future education spending.