December 2024 Forecast Five: Taking Back the House
It’s time for another Forecast Five, where CFI gets down in the details so you don’t have to. Check out our top five takeaways from the Legislative Council’s presentation on the economic and fiscal outlook for Colorado.
1. Economic Outlook: Expecting a “Slowing Expansion”
The economy just narrowly navigated a challenging period and, quite remarkably, managed to evade a recession. Nonetheless, we anticipate a slowdown in growth over the next several years; but the silver lining is consumer spending remains strong. The FED has cut rates three times this year. The unemployment rate in Colorado is ticking up lately, from 3.4% at the beginning of the year to 4.1% now. That’s slightly lower than the US average of 4.2%. Household debt levels are consistent with a healthy economy.
2. What Does This Mean for the Budget Shortfall?
In September we learned that next year’s state budget is going to be $921 million dollars short of keeping up with caseload growth and inflation. The December forecast gave some marginally good news. Thanks to some upward revisions in income tax collections since September and some changes to cash fund collections (when cash fund fees go down, the TABOR refund obligations that are paid from the General Fund also decrease), the General Fund on net has $249 million more budget flexibility than we originally thought. So we are looking at a $672 million budget shortfall instead.
3. School Enrollment and School Finance
Hold onto your backpacks! This year, Colorado’s schools welcomed 91 new students, marking a whopping 0.01% increase—more than we thought we’d get! Just a year ago, we were bracing for a dip of around 4,800 students. But fear not! New kiddos moving to Colorado are swooping in. Now, there are some roadblocks that could hit the brakes on the new school finance formula, which promises to sprinkle an extra $100 million into the education pot. But guess what? With those recent property tax numbers, it looks like we’re full steam ahead.
4. Assessed Valuation (Property Taxes)
Assessed property valuations took a 2.8% nosedive from 2023 to 2024. While residential values took a 7% plunge, they were balanced out by a 1.7% bump in non-residential valuations. Remember when home prices peaked in May 2022 in the Denver area? Some regions where property taxes are heavily dependent on oil and gas saw year-over-year declines. In 2025, get ready for a property tax shakeup—homes will be assessed at two different rates, one for schools and another for local governments. The rise in property taxes has been like a golden ticket for education funding and local budgets, but that party’s winding down as recent tax cuts have slowed the momentum.
5. TABOR Rebate Forecast Well Within Error
TABOR surpluses are expected through the forecast period, but they’re small compared to past years. We are looking at a modest $365 million in TABOR rebates this year, a far cry from the whopping $1.6 billion surplus last year. A $365 million surplus is only 1.8% of TABOR revenue—which is practically a rounding error in the grand scheme of things. Even if the economy stays sunny, we might still slide under the TABOR cap. So wave goodbye to the budget cushion we had in the past when TABOR surpluses were much larger. Under current law, those TABOR rebate amounts will trigger an income tax rate reduction that disproportionately benefits upper income taxpayers.
Here’s a new twist you don’t want to miss: Revenue becomes subject to TABOR when an enterprise buys services from another department that isn’t an enterprise. So every dollar an enterprise collects isn’t 100% TABOR exempt; it depends what those dollars buy.
