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#1 — $400 checks looking like $750 now
Sizable revenue collections this past spring have grown General Fund revenue by 21.8 percent. This increase pushed the TABOR surplus – the amount that is expected to be collected above the Ref C cap – to $3.56 billion from the previously anticipated $2 billion. The expected sizes of TABOR rebates are now $750 for single filers and $1,500 for joint filers, almost doubling from initial predictions at the end of May of $400 for single filers and $800 for joint filers.
The legislature took action this year, creating a fairer way to distribute these one-time rebates, putting more money in the pockets of our workers and families. Through SB22-233, a temporary rebate mechanism was created to give every eligible Coloradan an identical amount of TABOR rebates, no matter their income or filing status. Rebate checks of $750 ($1500 joint) will be distributed in advance of filing your 2022 taxes and are expected to hit mailboxes this summer. Without the legislators acting, we would have seen a vast majority of the $3.56 billion go through an outdated six-tier sales tax refund, which gives the highest refunds to the highest earners and the lowest refunds to the lowest earners.
Though these advanced rebate checks are an improvement to an otherwise unfair system that takes dollars away from better funding public services, they will only occur this year. Legislators will face a similar choice next year when SB22-233 expires and TABOR surplus predictions continue to be in the $3 billion range for FY 22-23.
#2 — Colorado job growth outpaces the Nation
Due to significant influxes of cash from COVID-19 federal relief at the state and local levels, job growth and retention in Colorado continues to remain robust. Our unemployment rate is at 3.5 percent, which is slightly under the national average of 3.6 percent. Colorado added 35,800 more jobs than pre-pandemic levels with the majority added this year. Though the positive labor market outlook is broad-based, certain sectors and geographical areas are still struggling to fully recover. Employment in the local and state government, mining and logging, accommodation and food services, and health care and social assistance sectors remains below pre-pandemic levels. Despite employment reaching pre-pandemic levels in metro Denver, Colorado Springs, and the state as a whole, Northern Colorado and metro Pueblo remain below pre-pandemic employment levels.
#3 — Inflationary pressures continue to rise
Despite strong labor market performance, inflation continues to outmatch wage growth hindering the market’s recovery. The March 2022 forecast updated its December inflation predictions from 3.4 percent to 7 percent. Headline inflation is now at 8.5 percent and core inflation (with energy factors taken out) is at 6 percent. The largest contributors to headline inflation are housing, transportation, and food. While transportation inflation is expected to level-off as geopolitical factors subside, price pressure in housing will likely continue into 2023. Inflation is outpacing wage gain, effectively lowering take-home wages and hurting predominantly lower- and moderate-income households.
#4 — TABOR Rebates in subsequent years
The Referendum C cap is calculated using the Denver-Aurora-Lakewood Consumer Price Index (CPI) and population. Because of current inflation, the Ref C cap will be adjusted to be higher. However, because there is a lag in the calculation of the cap, Colorado’s budget will not see high inflation from calendar year 2022 calculated into its cap until FY 23-24. Since inflation’s effect on the cap is delayed, the TABOR surplus for next year is still expected to just exceed $3 billion. By FY 23-24, the TABOR surplus will drop to $1.57 billion. As inflation continues to be factored into future Ref C caps, the TABOR surplus in years beyond FY 23-24 could be zeroed out.
#5 — Recession watch
Growing inflation, aggressive monetary policy response by the Federal Reserve, and the housing shortage are contributing to elevated recession risk. Though retail sales started off strong in 2022, Coloradans are beginning to tighten their wallets, and buying is expected to moderate in the next half of the year— especially as purchasing power shrinks with inflation. Though TABOR rebates can absorb a slight economic downturn in the immediate future, a mid-term economic contraction could lead to budget pressure in subsequent years.
