Forecast Five: December 2019 revenue forecast
By: Christ Stiffler, senior economist
1. Slower growth on the horizon
Do you want the good news or the bad news first?
The good news is unemployment is still very low at 2.6 percent and workers are still seeing some wage gains. The bad news? They’re continuing to predict a tight labor market will cause Colorado’s economy to grow at a slower pace next year.
Some of our state’s low unemployment is due to retirees who dropped out of the workforce during the Great Recession deciding to get back in again. Unfortunately, some retirees are returning to the workforce because their retirement savings aren’t allowing them to keep up with increases in the cost of living.
2. Local governments tied to the global oil market? Huh?
Unlike some past years, there won’t be a huge change in the residential assessment rate used to calculate the property tax bills of homeowners under Colorado’s Gallagher Amendment. That’s because we’ve had balanced growth in both residential and non-residential property. Still, the residential assessment rate is expected to drop slightly from 7.15 percent to 7.13 percent in 2020.
There is one wrinkle in this projection: Because much of the non-residential property value growth of the past few years was due to an increase in the value of oil and gas facilities, and recent declines in the price of oil and natural gas could result in a higher-than-expected drop. Since many special districts rely solely on property taxes for funding, public services like fire departments and libraries are tied to the global oil market.
Elsewhere, with few affordable options in the Metro Area, many families are relocating to the Colorado Springs region, which is expected to see a growth in assessed value of 12.2 percent from 2020-2021. Families are also heading to the Eastern Plains, trading a longer commute for more affordable homes. The Metro Area is still expected to see fairly strong assessed value growth at 9.1 percent.
3. Lawmakers will have less to work with than they did last year—despite a great economy
Colorado’s economy has been expanding every year since the Great Recession, and though (as noted above) growth is expected to slow soon, the economy is about as strong as it can get. Unfortunately, due to the tax code we’ve locked into our state constitution, we can’t use all the benefits of that strong economy to invest in things like K-12 education and transportation.
Although the state budget is expected to have $832 million more this year than when appropriated last year, because of inflation and the growth in the number of K-12 students and Medicaid patients, we’ll only have $55.5 million more to spend on next year’s budget.
Even during what many economists see as the best possible economy over the past few years, we still can’t pay down the negative factor or invest enough to solve our transportation needs.
While there will be a tax rebate for tax year 2019 in the form of a temporary reduction in the state income tax from 4.63 percent to 4.50 percent, forecasters do not predict the state will have enough revenue coming in to keep the rate at 4.50 percent in 2020. There will, however, be enough to trigger the six-tier sales tax rebate in addition to funding the homestead tax exemption for older Coloradans and veterans with disabilities.
4. More kindergarteners (but fewer babies)
The new law allowing every child over the age of five to enroll in full-day kindergarten is expected to boost enrollment for the 2019-20 school year by 3.6 percent, which is higher than normal and driven by expansion of Kindergarten from the full day kindergarten bill passed last session.
At the local level, families seeking the cheaper housing mentioned above are leading to significant growth in enrollment for Colorado Springs-area school districts, while a lack of affordable housing in the Denver area is hurting enrollment growth for districts like DPS.
Despite the bump in enrollment expected for this coming school year, a decline in the state’s birth rate during the Great Recession is will mean fewer school-age students expected to enroll in future years.
5. Double TABOR craters
As described above, the constitution doesn’t allow us to capture the benefit of real economic growth, which we could use to save in reserve or use to fund capital construction projects like new schools or other buildings. But it hits Colorado’s budget twice because, in addition to not allowing us to invest all the money we collect, Colorado’s strong economy means we don’t get as much from the federal government. That’s because formulas the US government uses to distribute money to the states is based on the idea that richer states can generate more revenue to pay for public investments, but our constitution restricts Colorado’s budget from benefiting from economic growth.
That means we don’t get as much money from the federal government, but we also can’t use all the revenue we take in—money the federal formulas assume we have—to pay for schools and Medicaid either.
