Colorado’s March revenue forecasts: Here are the big takeaways

State projected to end fiscal year with $2.95 billion extra in reserve funds

Dominick Moreno
Sen. Dominick Moreno, who chairs the Joint Budget Committee, speaks at a press conference March 22, 2021. (Faith Miller/Colorado Newsline)

Colorado lawmakers have a lot more money to work with than they thought last spring, according to the March 2021 forecasts from Legislative Council Staff and the governor’s Office of State Planning and Budgeting.

Last year, legislators on the Joint Budget Committee anticipated a budget shortfall of $3.3 billion for the 2020-2021 fiscal year, which runs from July to June. But the state’s coffers were refilled much faster than anyone could have predicted at the start of a once-in-a-century pandemic.

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Legislative staff now expects any pandemic shortfall to be “more than offset by higher than expected revenue” and budget cuts the JBC made in June 2020, anticipating a lasting economic downturn.

Each quarter, nonpartisan Legislative Council Staff and the governor’s Office of State Planning and Budgeting prepare separate forecasts. They normally differ more than they did this March: Sen. Dominick Moreno, who as chair of the Joint Budget Committee is responsible for leading efforts to balance the state budget, said at a March 22 news conference that the similarities were “shocking.”

“That was the first time I’ve seen two different economists from two different agencies agreeing on the positive outlook for the Colorado economy,” Moreno said, calling the new revenue projections “huge for this state.”

Below are some of the most important takeaways from the latest economic forecasts.

The state will end the fiscal year with billions extra in reserve funds. Colorado’s economic outlook has steadily improved in each quarterly economic forecast since May of 2020. Legislative staff’s March forecast predicts that Colorado will have $2.95 billion more than it’s required to have in reserve funds when the fiscal year ends June 30. Staff attributed this windfall in part to the two federal economic stimulus packages Congress passed since December, sending checks to most Americans and providing wide-ranging relief for families and businesses.

Because of the extra reserve funds, staff predicts that lawmakers in the Colorado General Assembly will have $5.29 billion more general fund revenue to spend or save in 2021-2022 compared with the current fiscal year.

Colorado’s recovery was buoyed by strong income and sales tax collections even as an estimated 160,000 Coloradans remain unemployed. This dual reality is a product of the pandemic’s disproportionate effects on low-income people, many of whom were working in industries such as food service and entertainment that took the worst hits from COVID-19. Meanwhile, higher-wage industries, such as finance and insurance, saw modest job growth — and workers in those areas paid state income and sales taxes.

“While these aggregate indicators I think are fairly optimistic, that’s not necessarily the story that many individuals within our economy are experiencing,” Greg Sobetski, an economist with Legislative Council Staff, said in a March 19 presentation to the Joint Budget Committee.

The number of people enrolled in Colorado’s Medicaid program has grown 18% in the last year, to more than 1.4 million, OSPB’s forecast notes. In order to qualify for Medicaid, an individual can earn no more than $16,980. A four-person household must earn less than $34,850 to qualify.

The state’s general fund is looking pretty good, thanks to prospects for more spending as the world opens back up. Legislative Council Staff predict that the state will see a small decline in general fund revenue — around 1.1% — for the current fiscal year, which ends June 30, as compared with the 2019-2020 fiscal year. Meanwhile, the OSPB forecast projected a 0.3% increase in general fund revenue for fiscal year 2020-2021.

Last year, general fund revenue totaled $12.9 billion. The state’s general fund revenue is budgeted at $12.7 billion for the current fiscal year and legislative staff estimates it will amount to $13.8 billion next year.

Three rounds of federal economic stimulus checks to many Americans — the latest being $1,400 from the American Rescue Plan — are helping, Sobetski said. As coronavirus restrictions relax, economists expect that middle- and high-income people have more opportunities to spend the government cash than they did a year ago.

“Personal savings have been up above their pre-pandemic levels for every month so far that we have data for, and wages and salaries have now recovered to their pre-pandemic levels,” said Luke Teater, deputy director of OSPB. “Our estimates are that there is now more than $1.7 trillion in excess savings that households have accumulated (nationwide) since the pandemic began.”

State cash funds took a hit, but the outlook is rosier. Cash fund revenue — which comes in large part from oil and gas severance taxes, the state’s share of gaming revenue, and transportation-related taxes — declined 8.3% in 2019-2020 from the prior fiscal year as those three items in particular were affected by people traveling less during the pandemic. Severance taxes from oil and gas saw the greatest decline.

Legislative staff predicts that cash fund revenue will decline another 4.2% in the current fiscal year and then grow 5.5% in fiscal year 2021-2022. OSPB predicts cash fund revenue will start increasing earlier, by 1.2% in 2020-2021, and by 6.3% the following year.

Taxpayers could see a TABOR refund in the next couple of years. The Legislative Council Staff forecast doesn’t predict that state revenue will exceed a limit known as the TABOR cap, or Referendum C cap, in the near future. Under the Colorado Taxpayer’s Bill of Rights, the state has to issue refunds to taxpayers once it hits this constitutional limit.

However, legislative staff says that is certainly a possibility. For fiscal year 2020-2021, revenue is projected to fall $941 million short of the Referendum C cap, which is determined annually through a formula based on inflation and population growth. In the following two years, staff predicts the state will edge closer to the revenue amount that would trigger a refund as the state’s economy recovers.

“We could very much exceed the cap by hundreds of millions of dollars” next year, Kate Watkins, the legislative council staff’s chief economist, told lawmakers on the Joint Budget Committee during a March 19 presentation. She noted that level of uncertainty would be normal even during less-volatile, non-pandemic times.

OSPB does predict that the state will exceed the Referendum C cap, but not until fiscal year 2022-2023.

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