Revenues continue to grow in Colorado, but lawmakers will have their hands full balancing the state’s budget.
On Friday, economists from the governor’s office and the Legislative Council staff briefed the Joint Budget Committee (JBC) on the amount of revenue expected for the current year and the next two fiscal years. This estimate will guide lawmakers as they develop the state budget for next year. While you might have been celebrating St. Patrick’s Day or watching how your March Madness brackets were doing, we attended the briefing, read the reports, double checked the numbers and summarized the key points just for you. You’re welcome.
- General Fund revenues are growing modestly.
Economists from both the governor’s office and the legislature expect the state to generate about $11 billion in General Fund revenues next fiscal year. This is a 5.9 percent increase over last year according to the Legislative Council staff and provides lawmakers with funds to meet some of the state’s growing needs. However, when adjusted for inflation and population growth, the state has less money to spend than it did a decade ago, in FY 2006-07. The fact that revenues aren’t keeping pace with growth explains the difficulty lawmakers are having balancing the budget.
- Lawmakers face a $696.4 million funding gap for next fiscal year that will require difficult choices.
The governor’s economists calculate that the state faces a $696.4 million gap between the available General Fund revenues and what it costs to maintain current operations and put aside 6.5 percent into the reserve fund. This forecast includes covering an estimated $135 million in TABOR rebates and $163.7 million in transfers to pay for transportation and capital construction costs. The legislature’s economists did not calculate a funding gap but instead showed that lawmakers will have about $254 million in General Fund revenues after accounting for $264 million in estimated TABOR rebates, putting aside 6.5 percent in the reserve fund and making the transfers to transportation and capital construction costs. This estimate is 2.4 percent over the amount budgeted for this fiscal year, a smaller increase than in most years when the state’s economy was growing. To put these numbers into perspective, the legislature’s economists estimate it will cost $385 million just to keep K-12 funding where it is this year, including about $800 million in reductions due to the negative factor. This is the factor that is used to reduce the amount spent on K-12 education to balance the budget while meeting the requirements of Amendment 23.
- Colorado’s constitutional requirements make the budget problems worse.
The Gallagher Amendment’s requirement that residential property tax valuation not exceed 45 percent of total property tax valuation forces residential assessment rates on property to be reduced for 2017 and 2018. The Department of Local Affairs estimates that they will drop from the current 7.96 percent to 6.56 percent. This reduces the amount of school funding that comes from local sources and increase the amount of state funding needed to maintain the status quo. Henry Sobanet, Gov. Hickenlooper’s budget director, told the JBC that the big difference in the funding gap between the December and March estimates is the reduction in local share for K-12 education.
The TABOR Amendment limits the state from retaining and using the revenues generated by a growing economy. The state must send back between $135 and $287 million in revenues next fiscal year even though there are documented needs in K-12 education, transportation and health care. Using the Legislative Council staff’s higher estimates, Coloradans with adjusted gross incomes of $130,000 or less will get a maximum rebate of $108. Even those with incomes over $222,000 will get maximum rebates of $544 for single filers and $575 for joint filers. The average rebate for all Coloradans is estimated to be about $50.
- Colorado’s economy remains strong, but the need for workers and high housing costs are holding back growth.
The U.S. and Colorado economies are projected to grow in 2017 and 2018, even though we’re more than seven years into the current expansion. The downturn in Colorado’s oil and gas industry appears to be over. Colorado’s unemployment rate of 2.9 percent in January 2017 was the third lowest in the U.S. As the economy approaches “full employment,” it is getting harder for employers to find skilled workers to fill their job openings. This is helping to push wages up a bit higher and encourage people to come back into the workforce. The high cost of housing in Colorado is also limiting economic growth as it is harder for people who want to move here to find affordable housing, thus limiting in-migration and economic expansion. Colorado’s economy also faces a head wind from our aging population. As the increasing number of Baby Boomers retire, participation in the labor force declines and income and consumption growth also slows.