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. TABOR Cap means the budget can’t keep up.

We can’t stay even budgeting to the Referendum C cap. The General Fund is projected to have $938 million available to spend relative to what was budgeted in FY2023-24 — but we can’t use it for anything new. When we account for caseload growth, inflation, and other budgetary pressures, we actually need an extra $1.2 billion to keep up with operational costs. In fact, we’ll need to find the $262 million difference somewhere. Legislators are proposing to lower our 15% reserve — our rainy day fund — to 13.3% to keep us even.

2. Higher cash funds and slower population growth means a tighter General Fund.

Back in December, the TABOR Cap was expected to grow 6.1%. Now the inflation and population growth rates are finalized, the TABOR cap will only grow 5.8%. This impacts how much revenue the state is allowed to keep and spend. A lower growth of the cap means $54 million fewer dollars the state has to spend relative to what we thought in December. 

Severance tax, transportation fees, and other cash funds also impact how much revenue the state can use. When cash funds go up, it means higher TABOR rebates must be paid out of the General Fund. Transportation cash funds are up because new road usage fees fully came online this year and some other transportation fees, which were lowered in the past two years, are back to their full level. This combination means higher TABOR rebates, but fewer dollars to spend on roads and schools.

3. Inflation is easing while unemployment ticks up.

After the dip from the pandemic and a short, unsteady recovery, economic growth has returned to normal — and actually exceeded expectations. Consumer spending has picked back up after the come-down from the pandemic spike, and inflation is slowly, but surely, coming back down. After the labor market raged from mid-2021 onwards — Colorado added 18,600 jobs from June 2021 to January of this year — our employment gains are slowing, and our unemployment rate is ticking back up. Though we are still below the national average of 3.9%, we are anticipating a 3.7% rate over the course of 2024. 

4. The economy avoided a blow-out loss.

As the Federal Reserve has pursued aggressive monetary policy — raising interest rates — to tamp down inflation, many feared it would trigger an economic slow down.  But the GDP growth at the end of 2023 and 2024 was surprisingly strong. Growth of the economy is comparable to moderate economic expansion. Seems we’ve tamed inflation without a recession. Consumer spending is strong although there is some weakening in the retail and food service sectors, which could signal that consumer spending may be strained in the future. Another positive has been the real wage growth in the past several months. As inflation is dropping, nominal wages are outpacing price increases. This means real wage growth.

5. Housing is still the biggest foul on Colorado consumers.

Although inflation is slowing, some components are changing faster than others. At the height of the pandemic, soaring transportation costs made up the bulk of the state’s cost of living increases — but starting in 2022, and stubbornly sticking around until now, housing inflation has contributed the most to the headline inflation rate. Transportation, food, and beverage inflation have all come down significantly in the last two years, and housing inflation is persistent, floating between three and four percent for the past 24 months. With households spending a greater share of their budgets on housing, they are saving less. The national savings rate, currently sitting at 3.8%, is below the historic average of 5.7%.

Last summer, the U.S. Department of the Interior proposed new rules to modernize the Bureau of Land Management’s (BLM) oil and gas leasing program on federal lands. The goal is to ensure taxpayers receive their fair return, balance environmental protections, and discourage speculation. Key proposed changes include:

• Increasing bonding requirements for leases to $150,000 minimum and $500,000 statewide to better cover potential cleanup costs if companies default. This updates outdated 1960s-era bonding levels.
• Steering leases away from wildlife habitat and cultural sites toward lands with existing infrastructure.
• Raising onshore royalty rates to 16.67% minimum, better aligning with offshore and state rates. Rates hadn’t changed in over 100 years prior.
• Codifying an increase in minimum bid price per acre from $2 to $10, with inflation adjustments thereafter.
• Increasing annual rental rates per acre to new minimums of $3 for the first 2 years and $5 for the next 6 years before reaching $15 thereafter.
• Adding a 5% per acre fee for expressions of interest in pieces. 

The proposed rules codify recent legislative changes and aim to modernize the BLM oil and gas leasing program with fiscal reforms to increase public returns, enhance protections, and reduce speculation.

Oil and gas leases continue to be issued in Colorado without these modernized rules, and we the public bear the negative consequences. Outdated policies mean lower returns for taxpayers and inadequate protections for wildlife, habitats, and cultural sites in our state. Weak bonding requirements also mean oil and gas operators can walk away without cleaning up their wells and infrastructure, leaving the cleanup costs to fall on the public.

That’s why it is urgent for this proposed federal rule to be finalized as soon as possible. Once implemented for Colorado BLM leases, the $150,000 minimum lease bonds and $500,000 statewide bonds will give these operators much greater incentive to fulfill their obligations. Steering leases away from sensitive areas will limit habitat destruction. We’ll see fairer royalty rates better aligned with state and offshore levels – rates that haven’t changed at the federal level in over a century.

Most critically, we need assurance that oil and gas operators will clean up after themselves on our public BLM lands. the proposed increases to outdated, 1960s-era bond levels will help avoid situations where reclamation costs fall to taxpayers. Taxpayers for Common Sense estimates that outdated leasing terms have cost Coloradans an estimated $838 million in lost potential revenue. Taxpayers additionally face up to $371 million in likely reclamation expenses down the road. Higher bonds paired with reforms to rental rates and speculation disincentives will shift accountability firmly onto lease holding companies. 

Finalizing these modernized rules quickly is imperative and urgent for Colorado’s lands, wildlife, resources and people. The longer outdated policies govern BLM’s onshore oil and gas leasing here, the more ripple effects our communities must bear from unfair returns, insufficient protections and reclamation liabilities. We must bring accountability and balance to this program now.

Why EITC Awareness Day?

Colorado Fiscal Institute advocates for tax and budget policies that make economic prosperity for every Coloradan a reality. In this pursuit, we back targeted, common-sense policies that invest in and help build power for Coloradans who earn middle and low incomes. The Earned Income Tax Credit (EITC) is a prime example of a targeted tax policy promoting equity, and has long been among CFI’s top priorities.

The EITC is a refundable, cash-back tax credit for families who earn low incomes. This means families could get money back even if they owe $0 in taxes in a given tax year. Originally enacted at the federal level in the 1970s, the policy has a history of bipartisan support, and its efficacy is backed by decades of research. Children in families who claim the EITC have better outcomes at birth, improved education outcomes, and increased lifetime earnings. Colorado should do all we can to ensure families are able to find and claim this and other refundable credits (i.e. the Child Tax Credit) they qualify for.

Friday, January 26, 2024 is EITC Awareness Day. Each year, CFI collaborates with partners, legislators, and supporters in the effort to uplift the EITC, and spread awareness of its importance as a policy. EITC Awareness Day is a national effort CFI is proud to take part in. This year, in honor of the largest EITC in our state’s history, the Governor has issued a proclamation honoring the day. We have written a brief overview of where the state EITC stands today, outlined some points for continued improvement, and compiled an index of resources on all things EITC.

Expansions to the Colorado EITC

Since 1999, CFI, along with advocates, community members, and legislative champions, has been at the forefront of advocating for the implementation of, expansion to, and outreach efforts for the EITC — and we’ve won. In 2013, Senate Bill 001 made the state EITC permanent and set the credit amount at 10% of the federal. In 2020, we made the credit available to people who file taxes using an ITIN and in 2021 we doubled the credit amount to 20%. Most recently in 2023, Colorado increased the state credit to a 50% match of the federal EITC. These expansions of the EITC in the last several years have helped make Colorado’s tax code more fair.

Successes in our state have been part of a national trend toward recognizing the impact and importance of direct cash to families. As described in one of our fall blogs, federal relief efforts during the COVID-19 pandemic — including a temporary expansion of the federal EITC and CTC — helped produce the lowest child poverty rate on record. Expiration of these temporary expansions have left families without the support they need and deserve in their endeavors to thrive. Whether at the federal or state level, EITC expansions, Child Tax Credit (CTC) expansions (like the one currently on the table in D.C.), and like investments in the people who keep our economy going will make our country, state, and communities more equipped to prosper during the good times, and endure during bad.

Uptake and Future of the EITC

However, even with all of this progress, there is much work to be done, in particular during the 2024 legislative session. Expansions to the EITC are set to expire in the next two years. Without legislative action, Colorado’s EITC will be cut by more than half, declining to 20% by 2026. In order to maintain and further the progress Colorado has made in our tax code, these expansions must be made permanent.

Additionally, Colorado needs more outreach and policy intended to increase the uptake rate of the state EITC; in 2020 in Colorado, more than one quarter (28%) of those eligible for the EITC did not claim the credit. We know people are working extra hard to make ends meet, and Colorado must do more to ensure families don’t leave money on the table because they don’t know about the tools available to them.

Resource Index

To continue building on all of the EITC policy wins, CFI has compiled an index of tools for organizations interested in helping their supporters and members access resources, or for individuals looking for information about the EITC and other refundable tax credits they may be eligible for.

For Individuals

• Tax Help Colorado – Tax Help Colorado provides free tax preparation services, helping you receive the refund you are owed. 
• Get Ahead Colorado – Get Ahead Colorado is a public information campaign encouraging tax filing from the Colorado Department of Public Health and Environment (CDPHE). 
• Get It Back Campaign – The Get It Back Campaign helps eligible individuals claim tax credits and use free tax filing assistance to maximize tax time.
• IRS EITC Information – Check if you qualify and learn how to claim the credit.

For Organizations and Partners

• CFI’s EITC Day 2024 Digital Toolkit
  • CFI EITC Infographic
• Get Ahead Colorado
  
  • EITC Awareness Day Messaging
  • Partner Toolkit
• Get It Back Campaign
  • Outreach Resources
  • Refundable Credits Flyers
• Prosperity Now EITC Awareness Day Resources
  • PN CO factsheet
• IRS EITC Awareness Day Tool Kit
  • EITC Awareness Day Messaging
  • Partner Toolkit

New year, new legislative session — same old blind spots about income taxes. We shared our thoughts with CO Politics about Gov. Jared Polis’ plans to cut taxes in his 2024 State of the State (watch). In a word: counterproductive. 

“Tax relief is the best mechanism to relieve cost of living pressure and spur economic growth for everyone in our state.” – Gov. Jared Polis

Tax dollars are key if we’re going to reach moonshot goals like remedying Colorado’s crumbling public education system, lack of affordable housing and environmental crisis. 

As Gov. Polis said, we can accomplish anything if we work together. Let’s work together to reform tax policy, so that when our state turns 150 in 2026, we can touch the stars. 

Continue reading for three fiscal facts about taxes in Colorado everyone should know, no matter their side of the aisle.

1. Slowing Inflation Points to Lowering Interest Rates in 2024

Tight monetary policy throughout 2023 (i.e. raising interest rates) had its intended effect of curtailing headline inflation. After an 8% inflation rate last year, we are looking at a 5.2% rate in 2023, then getting closer to what we’ve been used to at 3.5% the following year. Still, inflation in November in Colorado was higher than the rest of the U.S. Inflation was 4.5% in Colorado compared to 3.1% in the U.S. Higher housing and medical care costs in Colorado are driving that difference. With inflation abating, the forecast predicts that interest rates will be cut in 2024.  Inflation is one of the reasons households are saving less. Household savings, which were bolstered during the pandemic (particularly among households that were able to keep working), have fallen below historic averages. Households are currently saving 3.8% of income compared to the historical average of 5.7%. This indicates that households may start to spend less, which could increase recession risk in the future.

2. Jobs Forecast Consistent with Long-Run Expansion

Colorado’s unemployment rate of 3.3% is below the national rate of 3.7%, but it has ticked up from 2.9% back in July. The economic slowdown has impacted employment in some sectors more than others — while job gains were made in government, leisure and hospitality, and education and health services, the trade, transportation and utilities, construction, and financial activity sectors all saw overall job losses. Colorado’s economy is expected to grow 2.5% in 2023 thanks largely to a big third quarter. Despite an uptick in unemployment, there’s signs that real wages are growing.

3. General Fund Outlook for Next Year’s Budget: Not Quite Staying Even

There’s expected to be $1.15 billion more revenue to spend in next year’s budget (FY2024/25) compared to this year’s budget — but once you account for things like caseload growth and inflation, that all essentially disappears.  In fact, if you assume the governor’s recommendations for next year’s budget, we will be $84 million short of the 15% statutory general fund reserve requirement. This means there isn’t any new money for new public investments — we just maintain.

4. TABOR Rebates Still on Horizon but Smaller than Last Two Years

Don’t get used to $3 billion plus TABOR surpluses. Each tax filer will get $800 back from the state when they file their income taxes for tax year 2023 (they aren’t mailing checks like last August). The past two years with over $3 billion in TABOR rebates had a lot to do with historic corporate income tax collections, which are expected to come back down to earth.  After a 50.9% increase in 2022 following big increases in 2021, the forecast expects a 16.5% decline in corporate income taxes this year. Declining corporate income taxes collections means less revenue above the Ref. C cap, which means less revenue in TABOR rebates

5. Schools: Enrollment Declines, Uncertainty about Local Share, Zero BS Factor?

The special session added uncertainty to this year’s school finance projections. Policies set during the session will impact property taxes, so the extent to which local property taxes will fund schools isn’t 100% clear yet.  But, rising property tax collections have boosted the odds of finally zeroing out the annual shortfall in school funding known as the budget stabilization factor — though the balance in the State Education Fund will decline over the next several years to achieve that goal. Student enrollment continues to decline as a result of lower birth rates. The biggest decline in students occurred in the Denver area while areas of the state with relatively cheaper housing costs, like Colorado Springs, have seen growth in students.

On November 9th, Governor Polis called a special session to address property tax relief, the high cost of living, and support for working families and their children. In his call, he included property tax relief, local government backfill, TABOR refund mechanisms, rental assistance, the Earned Income Tax Credit, and the Summer EBT program as policies to be crafted and debated during the special session. 

The Colorado Fiscal Institute (CFI) and the Helping Colorado Families Get Ahead (HCFGA) Coalition jumped at the opportunity to advocate for longtime policy priorities, increasing the EITC and flattening TABOR rebates. And our hard work paid off — as of Monday, November 20th, bills to increase the state EITC (HB23B-1002) and give everyone identical TABOR rebates (SB23B-003) are on their way to the Governor’s desk to be signed into law.

HB23B-1002 will increase the state match of the federal EITC from 25% to 50% for tax year 2023 (to be received in 2024) and SB23B-003 will direct TABOR refunds to be distributed through a flat amount to qualifying taxpayers, instead of through the six-tier sales tax refund mechanism, for tax year 2023. The EITC expansion increased the average credit from $500 to $1,000, and the rebate flattening increased the refund for Coloradans making under $100,000 by as much as $450. The average EITC filer who makes under $50,000 could receive as much as an extra $950 with their combined increased credit and rebate. CFI led the advocacy charge on both of these critical bills.

Rental and food assistance expansions passed as well. Housing advocates and sponsors pushed hard for a $30 million grant program to provide emergency rental assistance to renters with less than 80% Area Median Income (AMI) through HB23B-1001 that passed out of the Senate on Monday morning. Summer Electronic Benefits Transfer (EBT) also passed, via  SB23B-002. The bill provides food benefits to low-income student households over the summer, when students are not in school. 

SB23B-001 provided property tax relief by lowering the statewide assessment rate from 6.765% to 6.7% and increasing the valuation exemption from $15,000 to $50,000 for the 2023 property tax year. This means that homeowners in Colorado will see a lower property tax bill by taking $50,000 off the assessed value of their home, and lowering the overall portion of their home’s value that is taxable. The average Colorado homeowner will save $215 on their property tax bill. 

The Special Session was quick and high-stakes — many of the bills that passed had to be done before the end of the year to be able to apply to the 2023 tax year and provide immediate relief. Property owners, EITC recipients, and TABOR rebate recipients will see these changes as early as January 2024, when they can file their 2023 taxes. 

CFI is grateful to our sponsors, fellow advocates, and staff. This Special Session was a unique opportunity, one that our legislative champions, partners, ambassadors, and supporters were ready to seize. CFI is excited to continue this work alongside them when legislators reconvene in January for the 2024 session.

Watch our 2-minute video for further explanations of our priority bills!

2023 November Session Fact Sheets:

SB23B-003 Identical TABOR Refund Testimony

HB23B-1002 Fact Sheet

EITC Recipients by House District

EITC Recipients by Senate District

Governor Polis released his proposed budget for 2024 on November 1st. The legislature can pick and choose which of the Governor’s suggestions they accept. They could choose to throw out the budget entirely, but the legislature’s budget usually resembles the Governor’s relatively closely, so it serves as an indication of policy and budgetary priorities for the upcoming legislative session. Governor Polis will present his budget plan later in the month, on the 16th. Here are our top five takeaways from the release…

Creative Budget Moves to Address Affordable Housing

The budget proposes several creative ways to fund the  “More Housing Now” initiative. The biggest change is a restructuring of the Housing Development Grant Fund (HDGF) to a tax credit. The HDGF provides funding through a competitive grant program for the acquisition, rehabilitation, and new construction of affordable housing in Colorado. By restructuring part of the HDGF into tax credits, instead of grants, the Governor would be able to use the TABOR surplus to pay for the credits, and allow further investments from the freed up budget space into housing — to the score of $35 million. The Governor’s budget also uses marijuana dollars to support accessory dwelling unit (ADU) construction. The budget request would move $18 million of Marijuana Tax Cash Fund (MTCF) money to subsidize local fees associated with ADU construction. The MTCF is funded in part by the 15% special sales tax on recreational marijuana and the 2.9% sales tax on medical marijuana. 

Help with Transit-Oriented Upfront Costs

One of the Polis Administration’s goals is to increase transit-oriented development — housing units close to job centers and high-quality transit corridors. The Governor’s budget request invests $65 million into upfront pre-construction costs regarding water and sewer access, as well as boosts Colorado’s Affordable Housing Tax Credit in order to increase affordable housing creation near transit. The budget request would spend $16.4 million to build new workforce housing for around 50 corrections staff in the Buena Vista area.

Free Transit Fares, Cracking Down on Emission Standards, and Electrifying Energy Use

The budget requests $14 million to maintain the Zero Fare for Better Air program and Zero Fare for Youth program. It requests $4.5 million to increase enforcement and compliance efforts against environmental risks in vulnerable communities. The budget also increases compliance and permitting staff to enforce refinery regulation, oil and gas emission standards, and conduct analyses of cumulative impacts in disproportionately impacted communities. There’s $10 million for a refundable income tax credit to implement sustainable agricultural practices, and money for rural communities’ electric grids and rebates for households to electrify their homes. 

Finally Paying Down the School Funding Shortfall (Budget Stabilization Factor) to Zero

The proposed budget allows schools to catch up to inflation and student growth, something Colorado hasn’t been doing since 2009. This annual shortfall—called the budget stabilization factor—represents the difference between actual school funding and the minimum voters set with Amendment 23 in 2000. That annual gap reached the billions of dollars in several of the last 14 years. That shortfall has been shrinking in the past two years, going from $321 million last year to $141 million this year. If the Budget Stabilization Factor is at zero, that means Colorado is fully funding schools at Amendment 23 levels. Recent growth in property taxes, with which comes increased local dollars to fund schools, has certainly helped the state fully fund its K-12. Depending on what happens at the ballot in the next couple years, property tax cuts could impact the local dollars that fund schools. The proposed budget suggests taxing short-term rental properties at a higher rate as another revenue option should the state need it.

Other Budget Maneuvers 

For years, Colorado’s budget has had a meager General Fund reserve, which is a savings cushion so legislators don’t have to make cuts when the economy slows down. The proposed budget maintains a strong 15% reserve, which is enough to weather a recession without making cuts like the state did during the 2010 recession. The proposal also identified $32 million in cigarette and gaming money that is being counted toward TABOR’s revenue limit. The proposed budget argues this money is collected for local governments and therefore shouldn’t be counted as money subject to the state’s TABOR cap. If it were not subject to the revenue cap, it would leave 32 million more General Fund dollars to spend. 

Severance tax is also subject to the state’s TABOR cap, and record high collections ($374 million last year) means bigger TABOR rebates paid from the General Fund. Because severance tax doesn’t go to the General Fund, but does count toward the TABOR cap, it impacts the available cash in the General Fund. The proposed budget asks to transfer $50 million of severance tax collections to the General Fund to boost spending, since the increased revenue is impacting the General Fund regardless.

The COVID pandemic and Colorado’s economic recovery may appear to be in the rear view mirror, but an uneven recovery and end to many critical federal supports for working families has left some of our state’s children and families behind.

Our federal and state policy response to the pandemic provides a key lesson for Colorado’s elected officials: poverty is a policy choice. We must choose to continue to use policy tools like refundable tax credits to give families the tools they need to thrive. 

In particular, elected leaders can learn from the expansion of the federal Child Tax Credit (CTC) and the historic reduction in child poverty that resulted. The fact that child poverty fell to its lowest level on record in 2021, despite the impact of the pandemic, is a testament to the power of this policy. 

We must build our economy from the middle out and the bottom up; low-income and middle class families drive Colorado’s economy, and the government’s job is to provide working families with tools and resources like the CTC to ensure these families have the opportunity to thrive.

Federal lawmakers have failed to rise to that challenge, and have chosen to let common sense policies like the improvements to the CTC lapse- which is already having real, harmful impacts across Colorado and across the nation. But Colorado has recently implemented its own reforms to ensure this program benefits the families who need it most, and now is the time to hold steady on those commitments. 

Child Poverty “Bounced Back” Up after the CTC Expansion Led to a Historic Reduction

In 2022, the overall national poverty rate rose by the largest amount on record in more than 50 years, and national child poverty rates doubled from the year prior, according to new US Census data released in September. Child poverty skyrocketed across the nation from a historic low of 5.2% in 2021 to 12.4% in 2022. This was due almost entirely to the expiration of pandemic policy measures like the CTC enhancements. Congress chose to force 2.1 million kids into the hardship and trauma of living in poverty in America.

Pandemic policies helped ease economic pressures and lift people out of poverty right here in Colorado, and the American Rescue Plan’s expanded Child Tax Credit has been credited in lifting children out of poverty in states across the nation. One new analysis from Brookings found that the CTC caused substantial reductions in poverty in varying state economic contexts; the report found that even high cost of living and low poverty states, such as Colorado, experienced a 40% reduction in child poverty. 

The Case in Colorado: Aiming to be the Exception, Not the Rule

Between 2019 and 2021, the number of children in poverty in Colorado climbed by 10,00. However, by 2022, the state was back down to its initial child poverty rate of 11%. Relative to the national trend, Colorado kept its child poverty rate fairly steady over the pandemic. Colorado also managed well through the recovery, avoiding the national trend of a drop and ensuing 2022 spike. 

Still, in the richest nation on earth, and a state with a strong economy and an abundance of economic opportunity to be shared, even going back to the status quo is unacceptable. It is unacceptable that in 2022, 133,463 children in our state worry about having a stable roof over their head, or enough food on their table. Moreover, the overall rate of child poverty across the state masks huge disparities.

Persistent inequities in available resources to communities across the state leave children of color behind. Black, Latine, and Native American children and families were 1.5, 2, and 3 times more likely to experience poverty in 2022 than white families in Colorado, with nearly 30% of Native households earning incomes at or under the poverty line last year. 

Child poverty rates are also much higher in certain regions in the state. For example, Costilla county’s child poverty rate was 36% in 2022. That is one in three children across the county. Policy choices produce and prolong these discrepancies and hold our state back from reaching its full potential for shared economic growth and thriving communities. 

As more recent 2023 data comes in, Colorado may see a spike once again as the federal CTC expansion has sunset.

However, this data may support the claim that Colorado was able to counter the harms of federal inaction to extend the CTC through expanding state-level tax credits like the EITC early in the pandemic and expanding the CTC this past session. 

Colorado is on track to be an exception to this concerning national trend, and can continue to be a leader in ensuring prosperity and opportunity for all children by sustaining these critical policies. Prosperity, too, is a policy choice. And we should make the right choice here in Colorado.

Coloradans will vote on Proposition HH this November to address large increases in their property taxes. Prop HH cuts property taxes in a responsible way, while also preserving funding for the critical government services that rely on property tax revenue, like our schools. Watch our 2 videos to learn how the measure would affect property taxes, TABOR rebate, and what it means for you and your community!

Proposition HH Explained

Proposition HH: Property Tax Cuts and TABOR Rebates