Five Important Takeaways from the June Revenue Forecast
The Joint Budget Committee this week heard the latest revenue estimates from the Colorado Legislative Council and the Office of State Planning and Budgeting. Here are five essential takeaways.
By Chris Stiffler
CFI Economist
1. No TABOR rebates projected for this year or next
The state will be able to use all the money anticipated to be collected through 2017. The reduced expectation for General Fund Revenue has reduced the amount that must be given back in TABOR rebates. In the March forecast, Colorado was projected to have no rebates for tax year 2016 and return $59.3 million in tax year 2017. Now the projections show zero TABOR rebates for both 2016 and 2017. The state is projected to have to give back $143 million in TABOR rebates in 2018.
2. Economic growth continues even though the oil and gas industry retreat is significant
Corporate income tax revenue this year (FY 2015-16) is expected to decline by 7.5 percent and fall by another 5.3 percent next year. The decline reflects the impact of lower oil prices on energy industry earnings. Even so, Colorado is still outpacing other top oil and gas states in economic growth.
3. Oil and gas court ruling will cost Colorado
Early this year, the Colorado Supreme Court ruled in favor of BP Energy over the contention that oil and gas companies could deduct the cost of capital from revenue. This interpretation of the tax code means the state owes money to oil and gas companies, which means less money to use for schools, colleges and other priorities. The ruling won’t impact the FY 2015-16 budget (the budget that ends at the end of the June) because of action by the 2016 legislature, but it’s costing schools and other priorities an estimated $51.4 million for the FY 2016-17.
4. Slowing sales tax collections is a big reason why revenue expectations have been lowered
Expectations for sales tax revenue were lowered by $67.5 million for the FY 2015-16 budget and $156.9 million for the FY 2016-17 budget. Several factors contributed to the reduction, including subdued consumer activity, reduced spending because of the downturn in the oil and gas industry and weaker stock market gains. Amazon tax collections are also lower than anticipated. As of Feb. 1, Amazon began collecting state sales tax on certain online purchases. From the first three months of collections we’ve learned that the boost in sales tax collections as a result of a change in Amazon’s policy isn’t nearly as significant as anticipated. One contributing factor is that sales tax is collected on items purchased directly from Amazon and not collected on the third party transactions through Amazon’s system.
5. Slower growth means a smaller savings account
Because of the slowdown in tax collections, General Fund revenue is expected to be $268 million, or 2.6 percent, lower than the amount budgeted to be spent or retained in the reserve in FY 2016-17. This leaves the General Fund with a 3.7 percent reserve that is much lower than the 6.5 percent reserve currently in statute. A 12 percent to 15 percent reserve is needed to weather an economic downturn without having to make significant cuts. Colorado’s savings account is running low.
