For the most part, Colorado’s economy rebounded quickly from the pandemic-induced recession in March 2020. State coffers are expected to continue growing next year, albeit at a slower pace.
On Tuesday, non-partisan staff at the Legislative Council and tax analysts in the governor’s office of state planning and budgeting presented their respective economic forecasts for Colorado to state lawmakers on the Joint Budget Committee.
According to forecasts from Legislative Council staff, general fund revenues for the fiscal year that began July 1 are expected to increase 6.1 percent from last year. Analysts at the State Planning and Budget Office, or OSPB, forecast slightly higher revenue growth of 7.3 percent from the previous year to the current year.
Since their respective June forecast, Legislative Council, or LCS, and OSPB staff have improved their outlook for the current 2021-2022 fiscal year. Both forecasts have also revised their revenue forecasts downwards for fiscal year 2020-2021.
Last year’s general fund income – mainly comprising income and sales taxes – rose 10.7% from the previous year, according to preliminary figures.
“Today’s forecast is promising news for our state, and the progress we have made in rebounding is something we can be proud of, but we cannot let go,” said Senator Dominick Moreno, the Commerce City Democrat who chairs the joint budget committee, said in a statement Tuesday. “Far too many low-income Coloradans and small businesses are still struggling, and it is imperative that we focus our attention on helping them. “
The state ended the last fiscal year with a general fund reserve balance about $ 2.8 billion higher than what the law requires, according to LCS. Based on what is currently budgeted for this year, LCS and OSPB project that the state will have more than $ 1.8 billion in reserve funds more than needed.
LCS and OSPB forecasts predict that this year Colorado will generate more than $ 1 billion in more revenue than is allowed under the Taxpayer’s Bill of Rights, a constitutional amendment approved by voters. and a subsequent voting measure known as the C referendum. The surplus could trigger an income tax cut and a sales tax refund for Coloradans – who are already enjoying an alleged TABOR refund and ‘an income tax cut due to the high revenue last year.
“We could see things get worse than expected, so it’s not certain that we’ll be in a TABOR surplus situation,” Kate Watkins, chief staff economist at the Legislative Council, told lawmakers on Tuesday.
Next year, LCS predicts that Colorado’s income will continue to grow as the economy grows. Based on the current year’s budget, LCS predicts that lawmakers will have an additional $ 3.3 billion to spend or save next year.
LCS predicts that general fund revenues will increase by 5% in the next fiscal year, while OSPB predicts a 3.9% increase in revenues.
The LCS forecast indicates that revenues could be higher than expected for this fiscal year and next year, given that this has happened in the past year and a half. The general state fund rebounded from an economic recession faster than analysts expected due to the uneven effects of the pandemic on different groups of people.
Middle and upper income earners – who pay more income and sales taxes – have generally not been as affected as lower income earners, and have seen their net worth increase several times over the rate of the downs. income.
However, the new wave of COVID-19 infections, driven by the delta variant, could hurt the state’s economy.
“The high number of COVID cases is limiting global supply chains, raising inflation expectations,” OSPB tax analysts noted in their own September report.
The lasting economic damage from the pandemic could also prove to be more severe than expected once the effects of federal economic stimulus wear off, LCS predicts. And despite a fairly optimistic overall outlook, many uncertainties remain as the state’s economic recovery continues.
“Many households and businesses still bear the brunt of persistent distress, while others have come out unscathed or even better off,” the LCS report says. “Spending and employment in sectors related to in-person services are still lagging behind their pre-pandemic levels and remain sensitive to the growth and decline of the virus.”
The economic forecast does not include details of the $ 3.8 billion sent by Congress to Colorado through the American Rescue Plan Act, passed this spring. Lawmakers have chosen to deposit the money into coronavirus recovery funds they created for the purpose of spending the federal money.
Many households and businesses still bear the brunt of persistent distress, while others have come out unscathed or even better off.
– September forecast by Legislative Council staff
But limited information on school funding is included in the LCS forecast. LCS predicts that the state will spend at least $ 154 million more on K-12 education next school year than this year. Based on land values assessed in December of last year, the financial responsibility of local governments for public education is expected to increase by $ 122 million from this year to next year.
However, temporarily reduced assessment rates for certain types of properties – due to legislation designed to provide a buffer in case voters approve a property tax cut in November – could mean that the local share of the funding of schools is a little lower. LCS’s next December economic forecast will contain more comprehensive information on school funding, the September report notes.
LCS also predicts that cash fund revenues will rebound this year, increasing 7.2% from last year, even as disruptions in the crude oil market, reduced travel, and reduced casino capacity. continue to limit the collection of severance pay, transportation income and gaming income. The OSPB forecast calls for a 10.4% larger increase in cash fund income this year.
Meanwhile, things are still not looking good for the state Unemployment Insurance Trust Fund, which was hit hard when the pandemic put millions of people out of work. The fund became insolvent last August, when benefits exceeded available funds, and is not expected to return to solvency until 2023, according to LCS. This means that employers will pay higher premiums into the fund next year.
Unemployment, activity rate above average
Colorado’s unemployment rate of 5.9% is higher than the national average of 5.2%, but OSPB says this is in part due to the above-state average labor force participation rate , which means that in Colorado, a higher proportion of people who do not have a job are actively looking for work.
“While the recovery in employment in the tourism, leisure and hospitality sectors continues to lag behind other sectors, Colorado has seen a significant recovery in demand for these services,” adds the OSPB report.
Since April, the number of job openings in the United States has exceeded the number of unemployed, according to Bureau of Labor Statistics data cited in the OSPB report. However, despite higher unemployment today than before the pandemic, businesses in all states and industries are reporting difficulties finding skilled workers.
One potential explanation, according to the September OSPB report, is “the mismatch in wage and skill expectations between the unemployed and the employers who hire,” as well as “the changing preferences of the unemployed from traditional low-cost jobs. salary towards other alternatives due to concerns about the risks of COVID-19 and the buffer of accumulated savings. “
Lack of access to childcare services may be another contributing factor to hiring problems, notes the OSPB report, given that the labor market participation of women without a university degree who have children is “particularly low ”since the start of the pandemic.