With coronavirus vaccinations picking up pace and a $1.9 trillion federal relief package approved, Colorado’s economy continues to perform dramatically better than what the state’s economists predicted when COVID-19 arrived last year.
That’s according to two financial forecasts presented to state lawmakers Friday by nonpartisan legislative staffers and Gov. Jared Polis’ office.
The legislature will now have to determine what to do with the tax-revenue windfall, which is expected to provide lawmakers with $5.3 billion more to spend in the next fiscal year, which begins in July, than what was budgeted for the current fiscal year.
“The worst of the recession appears to be behind us,” Greg Sobetski, an economist for the Colorado General Assembly, said Friday as he presented the tax revenue forecast to lawmakers.
Some top lawmakers have already advocated for putting the money toward a one-time stimulus package, aimed at propelling Colorado out of the coronavirus crisis. Polis’ budget director, Lauren Larson, on Friday proposed splitting the extra money between stimulus spending and setting it aside to pay for the state’s long-term deficit, which is expected to grow.
“Colorado was one of the first states to successfully reopen in a safe way, and this new data shows we are moving towards a strong economic recovery,” Polis said in a written statement Friday. “Coloradans have persevered through dark days, and now we’re beginning to see the sun. This larger-than-expected amount of one-time funds due to better than expected economic growth allows us to make important investments.”
The outlook is so rosy that lawmakers may even be forced to return money to Coloradans in the coming years because of government growth restrictions imposed by the Taxpayer’s Bill of Rights. State Sen. Dominick Moreno, a Commerce City Democrat and chair of the legislature’s Joint Budget Committee, said “things have changed pretty rapidly.”
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“It’s really about: Now are we going to be in a place where we hit the TABOR cap?” Moreno said.
Economists credited decreasing coronavirus cases, increasing vaccination rates, and a multibillion-dollar infusion of money from the federal American Rescue Plan — equivalent to nearly a tenth of Colorado’s gross domestic product — for the projected growth.
Still, despite the rosier-than-expected forecast, low-wage jobs, especially in the retail and tourism industries, that were slashed have been slow to return. While the percentage of employed high-income workers has slightly increased since February 2020, the number of employed middle-income workers has decreased by 10% and by 30.3% for low-wage workers over the same period.
“We anticipate different speeds of recovery for different parts of the economy,” Sobetski said, “and that’s normally the case during any economic recovery. But I think that those differences are exacerbated this time due to the unusual nature of the pandemic recession.”
Here are four charts presented to state lawmakers on Friday that explain the economic situation and outlook:
The tax revenue outlook has gotten better every quarter
When COVID-19 first arrived in Colorado, state budget writers were expecting a dismal revenue stream for the 2021-22 fiscal year, which begins in July. But every quarterly tax revenue forecast since June 2020 has painted an increasingly positive economic picture.
In June 2020, state lawmakers were only expecting to have $1.34 billion more to spend in the next fiscal year over the current one. That number is now $5.29 billion — and it could rise even higher.
It’s important to note that the reason there is so much more money available to spend in the next fiscal year versus the current fiscal year is because lawmakers slashed the budget in anticipation of the pandemic.
Moreno said state budget writers soon will know how much money that hasn’t already been set aside for state departments and programs is available to allocate.
“I think that the key piece that the committee will have to be aware of is how much through the budget setting process have we already committed ourselves to,” he said. “We will get that answer on Tuesday, when we get the general fund overview.”
Too much money?
State tax revenues are expected to rise so sharply in the coming years that they could hit the government growth-and-spending cap mandated by TABOR.
When the cap — set by inflation plus population growth — is exceeded, the legislature is forced to find ways to return money to Coloradans or ask voters if the General Assembly can keep it.
Kate Watkins, the legislature’s chief economist, said there’s a “strong possibility” the cap could be exceeded in the 2021-22 fiscal year.
“We could very much exceed the cap by hundreds of millions of dollars,” she said.
Not everyone is faring so well
The widening economic inequality of the coronavirus pandemic is also reflected in an uneven recovery.
“While our state finances are looking up, too many people in our communities are still unemployed and struggling to pay for basic needs,” state Rep. Julie McCluskie, a Dillon Democrat and vice chair of the JBC, said in a written statement.
While high-income workers have largely been able to work remotely and have bolstered their personal savings, low-wage workers and those in retail, hospitality, food service and tourism industries are still severely impacted by shutdown measures and have seen jobs return at a slower rate. As the state lifts business capacity restrictions and other shutdown measures, those jobs are expected to return.
Across the state’s economy, 57% of the jobs lost in April 2020 were regained by January.
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An economic recovery tracker, set up by Harvard University, Brown University and the Bill & Melinda Gates Foundation, found that in Colorado, the share of employed Coloradans who are high-income (people making more than $60,000 a year) increased slightly since February 2020. But the share of employed middle-income workers (those making $27,000 to $60,000 a year) has decreased by 10% and by 30.3% for low-wage workers (those making less than $27,000 a year) over the same time frame.
Lawmakers are also hoping the federal coronavirus relief package, which includes extended unemployment relief, housing assistance and an unprecedented expansion of a tax credit for children with families, will help boost families who have borne the brunt of the pandemic’s impact.
“I do think there’s a conversation for what we can do at the state level to also help with that dynamic,” said Moreno. “I’m not sure what those solutions are. But I know we should be committed to making sure that the recovery is equitable across all income classes.”
The unemployment trust fund is still in bad shape
State lawmakers have known for months that the unemployment trust fund was going to be in the red because of the pandemic. It had $412 million in July and is expected to end the fiscal year with a deficit of about $950 million.
Right now, Colorado is borrowing money from the federal government to make up the difference. And the improving economic outlook means the hole won’t be as bad as it was expected to be.
But it’s still about $1 billion bad.
Businesses will be forced to pay a solvency surcharge to help get the trust fund back into the black. Lawmakers could decide to help the fund out by directing taxpayer money to the fund, though that’s not currently being discussed.
“That was not done during the last recession and we have a path to solvency over the next five to six years,” said Sen. Chris Hansen, a Denver Democrat and state budget writer. “So (it’s) not clear that it is needed.”