Forecast Five: 21 bucks, but they come with cuts
By Chris Stiffler
CFI Economist
- Bad moon on the rise?
Both the unemployment rate and the underemployment rate are back to pre-recession levels. The Colorado economy is expected to be driven largely by household spending in the next few years, however a slight pullback in business investment and lower exports from a weak global economy leading forecasts to have a subdued outlook for economic growth. Also, weak agriculture prices are another contributor to tepid sales tax collections. The risk of a recession is now higher than at early points since the last recession ended.
- Brace for collision.
The new growth in general fund revenue projected for FY 17-18 isn’t enough to cover the Senate Bill 228 transfers obligation to capital construction and transportation, TABOR rebates and refilling the general fund reserve that was cut in the previous two budgets. This means tough decisions for budget makers this year — not great news for schools.
- Enterprise to the rescue?
A projected rebound for Hospital Provider Fee revenue next year is a large contributor to why the state will have to issue TABOR rebates to taxpayers in FY 2017-18 despite having to make cuts in other parts of the budget. In FY 2016-17, Hospital Provider Fee revenue was $656.8 million and in FY 2017-18 it is anticipated to jump to $865.3 million. Remember that both taxes and cash funds count toward the state’s cap on revenue collections, but rebates must be paid out of the General Fund. This makes the decision to not make the Hospital Provider Fee an “enterprise” under TABOR (and therefore not counted toward the TABOR revenue cap) much more important. Taxpayers can expect a $21 refund in 2018 while budget writers will be forced to cut roads, schools and colleges.
- Raiders of the lost savings account.
The state budget’s savings account (General Fund Reserve) has been tapped into the last two years to avoid making cuts to colleges and schools. This shows the importance of having a cushion to weather unexpected events like the most recent drop in severance tax collections or the Colorado Supreme Court ruling early this year that said the state owes money to oil and gas companies. With the increasing risks of an economic downturn coming and the state savings account running especially low, budget-writers are facing cuts next year.
- House rent blues.
The appreciation in the cheapest third of houses and condominiums has outpaced appreciation in middle and upper tier properties. A lot of the new income from a tight labor market is going to rent and housing instead of retail purchases which is contributing to the reduced expectations for sales and use tax revenue over the next two years.
