Forecast Five: March 2021 Revenue Estimates
By Chris Stiffler, senior economist
#1: The COVID recession’s hit to the General Fund was smaller than initially feared
For FY2020-21 revenue is expected to fall by only 1.1 percent compared to the prior year. These revenue estimates have been revised upwards substantially (by $571 million) from the December forecast, driven by strong revenue collections data and upgrades from economic outlook caused by vaccine distribution and another federal stimulus.
#2: A very rosy General Fund outlook for next year’s budget (FY2021-22)
To put that drastic upward revision into perspective, in May 2020 we thought the FY2021-22 budget would have $10.3 billion in revenue, now the state economists believe it will be closer to $14.9 billion. That means there will be $5.29 billion more to spend on next year’s budget compared to the current budget. While there were significant cuts in the current budget that need to be restored and lawmakers will need to build the General Fund Reserve back up, there remains a lot for legislators to work with when writing next year’s budget.
#3: Low-wage workers are still dealing with big job losses
Broad-based economic measures look strong: national GDP has almost recovered and retail sales (along with sale tax revenue) are already back above pre-pandemic levels. As of January 2021, Colorado has regained 57 percent of the jobs we lost since the pandemic. The jobs that haven’t yet bounced back are in sectors that have lots of low-wage jobs. For example, the number of jobs paying less than $27,000 a year are still down 30 percent, while there are currently more jobs that pay above $60,000 a year than there were before the pandemic began. Not surprisingly, the Accommodations and Food Service industry still remains the hardest hit by COVID.
#4: Federal stimulus had a huge effect
Unlike The federal stimulus in the wake of the pandemic was much greater this time around than during the Great Recession. US personal income is up a whopping 13 percent between January 2020 and January 2021. To put that in context, two years after the Great Recession personal income was still below pre-recession. The size of the two federal stimulus packages, which totaled roughly $41 billion for Colorado, were about 10 percent of state GDP.
#5: Despite structural deficits, TABOR rebates could be back very soon
Revenue is bouncing back more quickly than economists expected this time last year. In fact, forecasters pointed out that were it not for our constitutionally mandated revenue cap, we would be able to take advantage of this quicker-than-expected growth and pay and pay for the still-rising cost of providing services for our growing population. Instead, we will be looking for ways to cut back our community investments.
In a typical economic downturn, it takes a few years for revenue to recover. During the Great Recession, once revenue subject to TABOR fell, it took seven years to catch back to the Referendum C cap. State economists are currently predicting it might only take two years following the COVID recession. Next’s year’s budget (FY2021-22) will be $329 million below the cap. With a cloudy crystal ball about what tax returns will look like for 2020, there’s a potential that we could be back into a TABOR rebate situation as early as next year.
