Forecast Five: March 2019 revenue estimates
1. The General Fund budget outlook for 2019-20 is very similar to December estimates
Although the FY2019-20 budget will have less revenue than analysts thought when they made their December forecast – projections for General Fund revenue were reduced by $250 million because of slower economic activity – legislators will still have $1.22 billion more to budget or save this year compared to last year’s forecast. The reduction in revenue collections were offset by a reduction in the General Fund obligation to pay for TABOR rebates.
2. There will be a large reduction in TABOR rebates this year and no rebates next year
Legislative Council staff, which estimated in December that Colorado would return $380 million in TABOR rebates for FY2018-19, now believes there will only be $65 million in rebates for the current budget year. For FY2019-20 and 2020-21, analysts no longer forecast any TABOR rebates at all.
3. Slowing home price appreciation won’t hurt property tax collections as much as you might think
The Gallagher Amendment limits residential property tax collections (i.e. taxes for houses and condos) to roughly 45 percent of total property tax collections. That means when property values increase at a steady clip, as has been the case the last few years, Gallagher has the effect of actually reducing the rate used to determine the amount of a home’s property subject to tax. While the residential assessment rate is still projected to fall next year from 7.2% to 6.78%, it’s less than might have been the case if home prices continued to rise at the same historic rate. While this news isn’t as bad as it could have been, for fire districts and other local governments that rely on property tax revenue from homes, budget cuts forced by Gallagher will continue. That’s especially true for districts in areas where home price appreciation continues to lag the gains seen along the Front Range.
4. Internet sales tax is projected to be between $47-$72 million next year
Because of the US Supreme Court decision in Wayfair v. South Dakota,Colorado will see new sales tax revenue collected for online transactions. Legislators are already discussing what to do with the money, though it only reflects a small increase in the $15 billion General Fund. It’s important to remember this figure only reflects what the state expects to collect; sales tax collections are also expected to increase for local governments like towns, cities, and counties.
5. An increase in school property taxes frees up $100 million in the General Fund for other priorities
Local school property tax growth this year has generated enough money to cover the $100 million lawmakers budgeted last year for inflation and the annual increase in the number of students in the K-12 system. While there will be significant pressure to keep that money in the K-12 system, the Joint Budget Committee and their legislative colleagues will have the authority to use the freed up $100 million for priorities outside K-12 (e.g. investments in transportation or higher education) if they choose.
