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#1 — Are we headed towards a recession?
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After almost two years of quick recovery after the 2020 lockdowns and ensuing demand and supply disruptions, our economic output is slowing down. Due in no small part to the Federal Reserve’s response to high inflation, the first two quarters of 2022 saw a reduction of 1.6% and 0.6%. The current economic outlook is cloudy, and despite lots of available jobs and high demand, several indicators show a recession could be on the horizon. That uncertainty clouds all future budget and TABOR refund outlooks.
#2 — Inflation has hopefully peaked, but costs are still way up (and wages aren’t keeping pace)
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State economists are projecting an 8.2% inflation rate for Colorado in 2022, which is higher than the 7.9% rate projected for the nation. Historically, inflation has normally been closer to a 2-3% rate. Fortunately, it looks like inflation has probably peaked, but while energy costs have started to come down recently, they’re still way up since August 2021—along with the cost of food and transportation.. Housing, which accounts for about 40 percent of inflation, continues to rise as well. Colorado’s labor force participation is the 2nd highest of the states. Inflation is taking a toll on the money Coloradans are working hard for: Taking increased prices into account, the average worker’s wages in Colorado are down 2.7% since last year.
#3 — Not an optimistic outlook for next year’s budget
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The Fiscal Year 2023-24 budget our legislators will start work on when session convenes in January doesn’t look like it will have any additional room for spending compared to the current budget. At first glance, it looks like next year’s budget will have $1 billion more than this year’s, but that’s without accounting for growth in students, caseload growth, employee compensation, reservice requirements and capital maintenance. When factoring in those increases, it looks like there will be just $85 million more in next year’s budget for legislators to work with. This doesn’t even fully compensate for inflation, so the real number is actually a little lower still. Plus, this will only happen if we don’t slide into a recession.
#4 — Huge TABOR rebates will favor the wealthy
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The state will return $3.7 billion to Coloradans this year and $3.6 billion next year. Even with very little wiggle room in the budget in the event of an economic downturn, lawmakers are forbidden from allocating even one penny to schools, roads, or government workers’ salaries to compensate for high inflation. Despite the fact that rich people have seen some of the biggest increases in income over the past two years, the money the state will rebate will mostly go to wealthy people. Lawmakers made this year’s rebates fairer for working people by reducing the amount of money rich people would have gotten and putting it into the pockets of working Coloradans instead. Without more action from lawmakers, the money will go out in a way that can only be described as unfair.
#5 — The data has economists scratching their heads
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Normally, if a recession was on the horizon we might see fewer job openings, but right now, there are currently two job openings for every unemployed worker. Normally, General Fund revenue drops in years when GDP falls for the first two quarters, but revenue grew 23.7%, a historic increase. Normally, we say that TABOR rebates only happen during good economic times, but now state economists believe we may be entering a recession and the state is returning rebates that are four times larger than any in the past. The COVID-19 pandemic continues to pile up unprecedented economic consequences even two years in.
