Forecast Five: June 2018 Revenue Estimates
1. TABOR rebates are back
Projections for TABOR rebates rose due to rising severance tax revenue and stronger-than-projected corporate income tax collections (corporate income tax revenue was increased by $100 million from the March forecast due to already higher-than-estimated collections this year). In FY2018-19, TABOR rebates will be $147.5 million, which includes $21 million in adjustments from the last rebate in 2015. These rebates, however, will not go directly to all taxpayers, but will instead be used to fund the senior homestead and disabled veterans property tax exemptions in FY2020-21.
2. We may be experiencing the longest economic expansion on record
The current expansion has lasted 109 months, which ranks second to the 120-month expansion during the 1990s. This isn’t just a historically good recovery, either: Colorado’s economy is outpacing the nation’s current growth as well, with only the state of Washington growing faster than Colorado during 2017. Additionally, an upswing in energy prices is boosting Colorado’s high-powered oil and gas industry, and the tax cuts passed by Congress late last year are strengthening business activity beyond what we’d normally expect during this state in a business cycle. One downside of the booming economy: we may see a slow-down in housing as the Fed raises interests rates—the effects of which are already being seen in the recent rise in 30-year mortgage rates.
3. What about Trump’s tariffs on Colorado?
Tariffs, the name for taxes on imports between two countries, tend to benefit domestic suppliers at the cost to consumers through higher prices. The U.S. recently imposed tariffs on steel and aluminum as well as $50 billion in tariffs on Chinese exports which prompted China, Canada, and Mexico to announce retaliatory tariffs on the U.S. The Colorado steel industry stands to benefit, while higher prices for things like construction, transportation, and machinery industries may have negative effects on those industries. We’ve already seen an uptick in the cost of aluminum cans which impacts our beer industry. The retaliatory tariffs from the trading partners mentioned earlier likely means more difficulty for Colorado’s agricultural industry (which is already dealing with problems stemming from drought conditions, especially in Southern Colorado).
4. $1 billion more for next year’s budget
Similar to the budget process in the 2019 legislative session, the new General Assembly set to be elected in November will have $1.01 billion, or about 8.1 percent, more to spend than what is budgeted for in the FY2018-19 budget. This also means more was saved in the FY2017-18 budget. That means the legislature will have more opportunities to make critical public investments in areas such as education and transportation.
5. The Tobacco Master Settlement Agreement settlement is buoying the General Fund
Despite the strong economy, recurring General Fund revenue sources were actually lower by about $80 million, as compared to the forecast in March. However, due to the one-time payment of $110.7 million from a settlement reached with tobacco companies, overall General Fund revenue forecast for this fiscal year’s budget is higher than originally anticipated by $30.3 million.
