Colorado’s Revenue Projections and Economy Continue to Grow

State of Colorado Seal Wide

DENVER — Monday, Dec. 22, 2014 The latest projections for the state’s General Fund revenue for FY 2014-15 are 1.3 percent, or $127.0 million, higher compared with the September 2014 forecast.  Projections for FY 2015-16 are 0.5 percent, or $53.6 million, higher compared with September.

Strong growth in income taxes from wage withholdings and sales tax collections this fiscal year reflect solid broad-based economic growth.  General Fund revenue is expected to grow 8.8 percent in FY 2014-15 and 5.6 percent in FY 2015-16.  

“Colorado’s economy overall continues to show momentum and we expect growth to continue at its recent pace,” the Office of State Planning and Budget (OSPB) reported. “Unemployment dropped markedly in 2014.  In many areas of the state, particularly along the northern Front Range, unemployment rates have fallen to near their lowest levels during the last expansion.”

“Still, unemployment remains elevated in other areas where job growth is slower. The national economy’s expansion continues to show more momentum and on a more widespread basis. Improvements in the labor market are particularly noteworthy.  Many parts of the global economy continue to struggle, however.”

Under the governor’s Nov. 3, 2014 budget request, the state’s General Fund reserve is projected to be $28.3 million above its required amount for FY 2014-15 and $72.7 million below the required amount for FY 2015-16.   The OSPB will submit balancing measures to address the shortage on January 2, 2015.

TABOR revenue is projected to exceed the cap by $196.8 million in FY 2014-15, $186.5 million in FY 2015-16, and $269.2 million in FY 2016-17, meaning that a refund to taxpayers will occur for each of those years under this forecast, unless voters allow the State to retain the revenue.  The prior forecast had rebates starting in FY 2015-16.  Meanwhile, under current law, as a result of the TABOR refunds in FY 2015-16 and FY 2016-17, General Fund support for transportation under SB 09-228 will be reduced by half.

Under this forecast and current law, in FY 2014-15, revenue above the Referendum C cap will be refunded through the State Earned Income Tax Credit to qualified taxpayers and the sales tax refund to all taxpayers.  In FY 2015-16, revenue above the Referendum C cap will be refunded through the sales tax refund.  In FY 2016-17, the refund will occur through a temporary income tax rate reduction and the sales tax refund.  

Many indicators point to a continued economic expansion.  A broad economic slowdown that negatively impacts state tax revenue could occur if a combination of unexpected adverse events and unfavorable forces come together that weaken confidence and expectations for future growth.  Economic conditions for many of the world’s largest economies continue to be sluggish, and geopolitical tensions pose a risk.  Additionally, a wider and more abrupt pull back in activities associated with oil production than currently expected could weaken the state’s economy. It is also important to note that even relatively small changes in the projected growth rate of revenue can materially impact the budget outlook.

Cash fund revenue subject to TABOR in FY 2014-15 will grow 4.2 percent due to sustained solid growth in transportation-related revenue as well as severance tax revenue.  Cash fund revenue subject to TABOR is forecast to increase slightly in FY 2015-16 when a 29.3 percent increase in Hospital Provider Fee revenue will offset a 47.0 percent decline in severance tax revenue.

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