Five Things to Know About the June State Revenue Forecast
By Chris Stiffler
CFI Economist
On Friday, state economists released quarterly estimates about how much the state is expected to collect in fees and taxes in the upcoming years. Two forecasts were released; one by Legislative Council and one by the governor’s Office of State Planning and Budgeting (OSPB). Legislative Council made some large changes relative to its predictions in March by increasing revenue predictions for Fiscal Year 2014-15, which ends in June 30, and decreasing estimates for FY 2015-16, which begins July 1.
OSPB’s forecast didn’t change much from its March figures. Both forecasts agree that TABOR rebates will be triggered by revenue growth in the current fiscal year, but disagree about whether there will be TABOR rebates in the 2015-16 fiscal year that begins July 1.
Here’s a quick overview of the changes since the March revenue estimates and how these changes affect money returned to taxpayers, money available for roads and money available for the rest of the state budget.
EITC takes effect a year earlier: TABOR rebates will be large enough to trigger on the state Earned Income Tax Credit (EITC) in the current 2014-15 fiscal year, which means low- and moderate-income Colorado families can take advantage of the state credit on their 2015 taxes. This is one year earlier than predicted in the March Legislative Councilestimates. Once triggered on, the EITC becomes permanent. So the size of future TABOR rebates doesn’t matter; this tax credit will still be available and help augment the wages of over 350,000 low- and moderate-income working families.
More money to transportation and capital construction: Full transfers to roads and capital construction under Senate Bill 09-228 are expected in Fiscal Year 2015-16. This is a change from the March revenue estimate when transfers of only 50 percent were predicted for 2015-16. This means, if current estimates hold, $50.5 million will get transferred to the Capital Construction Fund and $201.8 to the Highway Users Tax Fund in FY 2015-16.
Increase in TABOR rebate amounts in the current fiscal year: Legislative Council, whose forecast state legislators used when creating the FY 2015-16 budget, estimates that TABOR rebates for the 2015 tax year will increase by $151.2 million to $220.9 million from what was estimated in March. This has doubled the amount the average taxpayer should receive in 2015 from TABOR rebates, with the average rebate of around $40 instead of the $20 estimated in March. Taxpayers who are eligible for an EITC will see an even bigger increase since the TABOR rebates are large enough to trigger on the state EITC. The average EITC recipients, many of whom are the same workers who have seen their inflation-adjusted wages fall by 8 percent since 2000 and still haven’t fully felt the benefits of the economic recovery, are expected to see an extra $244 on their 2015 tax return now.
Budget shortfall on the horizon: Revenue for the FY 2015-16 budget, (which begins on July 1, 2015) is currently estimated to be between $69 million and $180.7 million short of what was budgeted to be spent or held in reserves. (Legislative Council, which predicts the $180.7 million figure, estimates slower tax growth next year and thus projects a higher budget shortfall than OSPB’s $69 million figure). Several factors are causing the shortfall. First, the June revenue estimates for FY 15-16 are below what was estimated when the budget was created, and full transfers to transportation and capital construction are now expected instead of the half transfers that were predicted in March.
Growing economy doesn’t mean increased state budget flexibility: When the state is in a TABOR rebate situation, increases in revenue don’t translate into more dollars available to fund things like K-12 education, it means more money gets returned through TABOR rebates.
