The economic decline resulting from the coronavirus pandemic is projected to put a significant hole in the state budget, a new reality that forces Colorado lawmakers to rethink the entire $32 billion spending plan.
A forecast released Monday suggests a $1.5 billion decline in state tax revenue over the next three years as a result of the anticipated economic contraction in Colorado, in part from closures at restaurants, shops, ski areas and oil fields.
The downward turn in consumer and business activity is projected to lead to deficits that will force the General Assembly to eliminate spending on new programs such as expanded preschool seats and possibly cut into current priorities, such as education, road construction and health care.
The need to trim spending comes despite the fact Colorado is refunding $428.3 million this year after exceeding the revenue caps Taxpayer’s Bill of Rights a year ago. The TABOR refunds projected for the next two years, however, vanished with the lower economic projections.
For the budget year that starts July 1, the anticipated revenue is $426 million short of what is needed to cover the cost of inflation and population growth from the current spending levels. The available dollars for discretionary spending fell by $750 million from the legislative projection three months ago to just $27.3 million in new money.
The forecast came after the Joint Budget Committee had largely finished crafting next year’s budget and just days before it planned to finish its work. Now it’s back to the drawing board.
“It feels like the rug got pulled out from under us because we had these expectations, we had these plans going forward and now all of that … needs to be revisited,” said Sen. Dominick Moreno, a Commerce City Democrat and the vice-chairman of the legislative budget committee.
The March forecasts — one from legislative economists and another from the governor’s office — are crucial because the numbers serve as the foundation for the annual state budget. The budget committee typically accepts the more conservative outlook, which this year came from legislative fiscal analysts showing the larger deficits. The governor’s office is more optimistic, predicting a $1 billion decline in revenue in the next three years.
From the start, the economists acknowledged the extraordinary difficulty in forecasting what happens next in a national public health emergency that shifts by the hour.
Larson Silbaugh, a legislative economist, said no hard economic data is available to project what happens next. His forecast assumes the social distancing practices being put in place are successful at containing the outbreak, allowing the economy to reboot later this year.
“We know this is an inflection point, we can feel the trajectory of the economy changing in real time and everyone is trying to understand how far and how deep the downturn will be,” Silbaugh said. Compared to prior economic declines, he added, “this time is different because the speed this current crisis is developing is shocking.”
The analysts in the governor’s office told lawmakers that it’s too soon to know if the current crisis will trigger a recession, and Gov. Jared Polis, a Democrat, later dismissed his own administration’s outlook because the situation is too in flux. “I wouldn’t put any stock in economic forecasts,” he said.
Moments after the forecast, Colorado announced an additional 29 positive cases of COVID-19, bringing the state’s total to 160.
The administration told state budget writers it is deploying about $5 million in existing dollars to help address the crisis and can tap as much as $100 million more in disaster funding. If Congress approves federal disaster response and stimulus legislation, it expects to get as much as $400 million more.
“There is no immediate concern about available funds to respond to the coronavirus crisis,” said Lauren Larson, the governor’s budget director. “Yes we are approaching an economic decline but no, that does not mean we are constrained in our immediate coronavirus response.”
The budget committee plans to continue meeting, despite the fact that the state legislature shut down Saturday for a two-week period. The budget writers hope to finalize their plan before the General Assembly returns March 30.
Staff writer Jesse Paul contributed to this report.