Forecast Five: June 2017 Revenue Estimates
Chris Stiffler- CFI Economist
1. The Complexity of SB17-267 on the State Budget
The comprehensive bill that made the Hospital Provider Fee an “enterprise” under TABOR, provided money for transportation projects, changed the automatic transfers to roads and capital construction and adjusted the marijuana taxes (among other things) created more General Fund flexibility this year and next. Without SB17-267 Colorado would be giving $214 million in rebates in FY2018-19. Because of SB17-267, Colorado is $430 million below the TABOR cap in FY2017-18 and $420 million below the cap in FY2018-19. In other words, because of SB17-267, there are no TABOR rebates in the forecast period.
2. Greatest Job Market Ever, Ever!
Colorado is currently in the 3rd longest economic expansion since 1900. The Colorado economy has been growing since 2009. The unemployment rate in Colorado is 2.3%, well below the national rate of 4.3%. It is also the lowest since the unemployment series began in 1976 and the lowest in the county. The tight labor market is finally translating to wage growth. Colorado has also been able to weather the downturn in the oil and gas industry.
3. Struggling to Save
The state’s General Fund Reserve (rainy day fund) is below the 6.5 percent rate required in statute. The FY2016-17 budget will finish with a 4.6 percent reserve. The FY2017-18 budget is expected to end with a 4.8 percent reserve, which is $172 million below the 6.5 percent target. Normally, Colorado should be saving for the next economic downturn when the state is experiencing rapid economic growth, not reducing our statutory reserve level.
4. Still Can’t Recover from Cuts Made During Great Recession
Even with the best economy in the country and the budget flexibility provided by SB17-267, the state isn’t able to make up for the cuts it made during the Great Recession. The state is still $830 million below the level of school funding required by Amendment 23. The General Assembly will have $510 million more to spend in next year’s budget (FY2018-19) than what was budgeted for in FY2017-18. This sounds like a lot until we account for the increase in caseload of students and Medicaid enrollees every year. Last year the state had to pay an additional $200 million to schools just to keep up with per pupil growth and inflation. In other words, the “Negative Factor” (henceforth “Budget Adjustment”) isn’t going away any time soon under our current tax code.
5. Waiting for the World (of Federal Tax Policy) to Change
There was a slight reduction in General Fund Revenue expectations compared to the March forecast. The downward revision was made because of some unexpected surprises on income tax returns in March and April. It seems that taxpayers are delaying the sale of certain assets and delaying reporting certain income in hopes of seeing lower tax rates at the federal level in the future.
