Forecast Five: June 2019 Revenue Estimates
By Chris Stiffler
1. Significant Upswing Since March Estimates
In March, Legislative Council economists warned the Joint Budget Committee about an upside risk to their estimates and it turns out those upside risks were real. Revenue collections for the first three quarters of Fiscal Year 2019 came in much higher than projected. Much of the unanticipated revenue comes from shifting taxpayer behavior as they respond to recent federal tax policy changes and the intensifying global trade war.
2. Big TABOR Rebates Now
The large upward revision in revenue means much larger TABOR rebates, especially for the wealthiest people and corporations. In March, FY ’19 TABOR rebates were projected at $65 million. The June estimates set them more than half a billion dollars higher at $575 million. That rebate amount is large enough to trigger a temporary income tax rate reduction for tax year 2019. The drop in the state income tax rate from 4.63% to 4.5%, gives a tax cut, on average, of $557 to top-tier income earners and $9, on average, to the lowest tier income earners. March estimates had state revenue $70 million below the TABOR cap for FY ’20. As of this estimate, TABOR rebates for FY 20 are projected at $310 million.
3. Even during one of the strongest economic expansions on record, Colorado still can’t pay back our schools and fund our backlog in road repairs
Colorado’s economy is, by any typical measurement, firing on all cylinders. Average wages are at all-time high levels with very little inflation pressure. In July, the economy will have been expanding for 10 straight years, which marks the longest economic expansion in history. Colorado’s unemployment rate stands at a very strong 3.4%. Gross General Fund revenue, which grew at a white-hot pace of 14.1% in FY ’18 has grown by a still-robust 7.9% in the current year.
But even with ideal conditions, next year’s budget will barely keep up with caseload growth. That means there’s no room to pay back the negative factor for schools or permanent funding for the billions of dollars of backlogged road projects. The benefits of our strong economy don’t translate into budget flexibility since that revenue must be returned as TABOR rebates that benefit the wealthiest people, rather than being used for public investments that benefit everyone.
4. What does the forecast mean for Prop CC on the November ballot?
This November, Colorado voters will be asked whether they want to allow the state to keep and invest all the revenue it collects at current tax rates instead of receiving TABOR rebates. In March, when the idea was introduced, revenue estimates projected no TABOR rebates in 2020. However, due to the stronger-than-expected growth in tax collections, rebates are now expected to be about $310 million. Prop CC voters will choose between a rebate of about $35 to $40 for the average Colorado taxpayer (which they won’t receive until 2021, when they file their 2020 taxes) and an additional $310 million dedicated to roads and transit, schools, and higher education.
5. There’s extra uncertainty in the form downside risk
Uncertainty on a variety of levels is causing state economists to warn of significant downside risk of their estimate falling short of expectations. Corporate income tax collections are expected to decline following a Colorado Supreme Court ruling regarding separate cases involving tech companies Oracle and Agilent Technologies. Additionally, escalation of the trade war with China is still a real possibility. And we still don’t fully know how taxpayers are changing their behavior in response to the most recent federal tax code changes.
