1. The devil is in the details

The budget that legislators will begin writing this January (FY2018-19) is projected to be $666 million (or 6 percent) larger than this year’s budget (FY2017-19).  Not all the increased revenue is from economic growth, as $116 million comes from accounting adjustments in this year’s budget, resulting in more money in carryover from FY 16-17.  About $350 million of the increase will be needed to keep pace with growth in students and growth in mandated Medicaid expenses.

2. SB17-267 created some flexibility for the General Fund

SB17-267, which exempted the Hospital Provider Fee revenue from the TABOR revenue cap, reduced the FY 2018-19 TABOR rebate obligation by $180 million making that money available for General Fund investments. With the passage of SB17-267, there are no TABOR rebates projected though FY2019-20.

3. Colorado’s tax code is amplifying the urban-rural divide

Many rural areas in Colorado aren’t benefiting from the same rapid growth happening in the Front Range. Rural districts have a harder time funding local governments and schools because their property value isn’t growing like it is in the metro area. The Gallagher amendment, a constitutional component of our tax code, aggravated the problem by requiring an automatic drop in the state residential assessment rate (the portion of housing property that is subject to property tax) from 7.96% to the 7.2%.  The rapid growth in property value around Denver is constraining local governments whose area hasn’t seen the same growth.

4. Colorado’s economy is booming, but wage growth hasn’t kept up

Unemployment in Colorado is 2.4 percent—2 percent lower than the national average and a clear sign of our state’s strong labor market. Colorado workers are in high demand, but salaries and wages aren’t growing as expected. Employers have not yet started to increase wages, despite huge gains in profit. Corporate profits in the U.S. are at historic highs while employee compensation as a portion of the economy is at a historic low. Jobs are more readily available than ever in the Front Range, but a high cost of living and stagnant wages mean making ends meet is still a challenge for many Coloradans.

5. The aging population continues to have a larger and larger impact on the state budget

As more Baby Boomers continue to age and leave the workforce, Colorado’s budgetary and employment landscapes change. The Medicaid caseload increases, which means more spending just to maintain current levels of service. Costs associated with an aging population mean more state revenue is spoken for, and that $666 million shrinks. The cost of Colorado’s homestead property tax exemption alone, a property tax break to seniors, is growing at 8.5% from FY 17-18 to FY 18-19, creating a General Fund obligation of $145 million for next year. Aging demographics may also explain some of the sluggish wage growth in Colorado. Older, higher-paid employees are leaving the workforce and being replaced by an influx of younger, lower-wage workers. This trend can contribute to lower average wages and constrain growth.