Colorado Revenue Forecast Shows Increase for Current, Next Fiscal Years

DENVER — Tuesday March 18, 2014 — The state’s general fund budget forecast for the current budget year (FY 2013-14) will be $93 million higher than forecast in December and $61 million higher in FY 2014-15, roughly a 1 percent increase.

“Colorado’s economy continues to show sustained economic momentum with many indicators showing that the state has among the best-performing economies in the nation,” the Office of State Planning and Budgeting reported today. “As with the nation, however, economic progress across the state is uneven. In general, places with greater clustering of skilled workers, entrepreneurs, and diverse industries are generating more opportunities.”

The state’s General Fund reserve now is projected to be $88.2 million above its required amount for FY 2013-14 with spending under current law. Most of this excess reserve is transferred to the Colorado Water Conservation Board Fund and State Education Fund.

Under the Governor’s budget request for FY 2014-15, this forecast shows that the General Fund will have $75.8 million above the proposed 6.5 percent reserve requirement.

After today, the General Assembly will make final decisions on the overall budget and other bills that have spending attached to them. In addition, the decisions of what to do with earmarked money from new marijuana-related taxes will happen in early April.

Expectations for economic conditions, and thus tax revenue, have not changed materially from recent forecasts, indicating that the economy has grown more stable. General Fund revenue is expected to grow 3.2 percent in the current fiscal year and 7.3 percent in FY 2014-15. Modest revenue growth this year is mostly from an expected decline in income taxes on investment income. The factors slowing revenue growth this year will not affect FY 2014-15.

The State Education Fund is supporting a larger share of education spending than it has historically, which will draw down its fund balance. The State Education Fund plays an important role in the state’s General Fund budget as the level of spending from the fund affects the amount of General Fund spending for education. Thus, decisions on the mix of funding between the two funds have budgetary implications in the future.

Although the state and national economies now appear to be more durable, downside risks should be considered. Adverse shocks and unexpected events could cause a widespread pullback in economic activity, which would simultaneously reduce tax revenue to the state and increase budgetary pressures.

Overall cash fund revenue subject to TABOR is expected to post modest growth over the forecast period. Severance tax revenue, transportation-related cash funds, and a broad group of miscellaneous cash funds are expected to grow this fiscal year and in FY 2014-15. These increases will be partly offset by declines in revenue from the hospital provider fee and from taxes and fees on limited stakes gaming.

This forecast does not project that the state will reach its TABOR revenue cap through FY 2015-16.  The state is within 4 percent of reaching its TABOR revenue cap in FY 2013-14 and within 3 percent in FY 2014-15.  It is possible that better-than-expected economic and revenue growth would cause the state to reach the cap. If that were to happen, the state would need to refund excess revenue to taxpayers or ask for permission to retain it.