Stop us if you’ve heard this one before: The Colorado economy’s doing great. And — finally — workers are starting to reap the benefits.
For the typical Coloradan, this was perhaps the single best piece of news from a Thursday budget briefing where lawmakers were presented a state revenue forecast chock-full of encouraging economic signs: Average wages in the state grew faster than inflation for four consecutive quarters, the first time that’s happened since midway through 2016. And with an increasingly tight labor market, that trend is expected to continue for years to come.
Meanwhile, the ongoing economic expansion has left the state flush with cash — so flush that not only is the state likely to owe taxpayer refunds, it could blow so far past the revenue cap that it would trigger a temporary cut to the state’s income tax rate.
So what do the numbers mean for taxpayers and the state budget? Here are our key takeaways:
Wages grew by 4.6 percent
That’s 1.2 percentage points faster than inflation in the Denver-Boulder Greeley area, and Colorado Legislative Council economists expect that growth to accelerate over the coming years to as much as 6.1 percent. Metro area inflation, meanwhile, is expected to fall from 3.2 percent to as low as 2.7 percent over the next three years.
This is welcome news for workers, and forecasters expect the trend to continue thanks to an increasingly tight labor market. There simply aren’t enough workers to fill all the jobs that companies have, and that should put continued upward pressure on salaries.
We’re No. 4
Colorado’s economy grew by 3 percent in the first quarter of 2018, the fourth fastest clip in the country. Colorado’s unemployment rate (2.8 percent) and underemployment rate (6.1 percent) are both better than the national average. And 69 percent of Coloradans are now participating in the workforce. That’s still not quite pre-recession levels — and with the Baby Boomers retiring, it might not get up to that level for some time — but it is better than the 62.1 percent rate nationally. Colorado’s fastest growing sector? Information technology.
A $600 million surplus
That’s what Colorado had in the bank when it closed out the 2017-18 fiscal year, according to Legislative Council estimates — and that doesn’t even include the $674 million it’s required to keep in its reserves. The governor’s office’s math is slightly lower, projecting a $556 million surplus. Regardless, this makes the fourth straight quarter that revenue collections have exceeded the state’s already rosy expectations.
The immediate future looks equally bright. The Legislative Council forecast calls for the state’s general fund to grow by $1.16 billion next fiscal year, which starts in July 2019. That’s a 9.2 percent increase from this year’s budget, but still less than last year’s torrid 14.8 percent growth clip. The governor’s forecast is more conservative, projecting 5.6 percent growth.
One small factor: A recent Supreme Court case, South Dakota v. Wayfair, which for the first time has found that states can require online sellers from out of state to collect sales taxes. That could generate up to $40 million in new sales tax revenue in Colorado starting next year — and as much as $110 million a year in the future, as more retailers come into compliance.
$113 million in refunds
Both forecasts show the state exceeding its spending cap last fiscal year by $16 million, money that will flow to local governments to reimburse them the cost of a property tax exemption for seniors. But starting this fiscal year, the state is projected to go so far over the cap that the roughly $150 million homestead exemption won’t be the only refunds owed to taxpayers.
Under the governor’s forecast, taxpayers would be owed $113 million in sales tax rebates in 2018-19, and $225 million the year after that — that’s an average refund of $32 and $64 per taxpayer, respectively. In the 2020-21 fiscal year, the state would be so far over the cap it could trigger a temporary income tax cut, dropping the rate to 4.5 percent from 4.63.
The Legislative Council forecast is more conservative, projecting sales tax refunds of $60 million this year, $20 million next year, and none in 2020-21.
But there’s a big hitch
The risks of dipping into a recession are rising, with financial giant Vanguard recently telling investors there’s as much as a 40 percent chance of a downturn by late 2020. And while Colorado forecasters aren’t predicting a recession, they do expect the growth to slow. The state’s agriculture industry is at risk from President Donald Trump’s escalating trade war with China and others. And the tight labor market, while good for wages, could put a lid on how much more Colorado’s companies can grow.