Colorado taxpayers will be refunded as much as $2.8 billion in tax revenue collected over the three fiscal years because the state’s economic recovery from the coronavirus crisis has been so swift and strong and because of growth limits under the Taxpayer’s Bill of Rights.
That’s according to two tax-revenue forecasts — one from nonpartisan legislative staffers and another from Gov. Jared Polis’ office — presented to the legislature’s Joint Budget Committee on Friday.
The state’s TABOR cap is calculated through population growth and inflation. When the cap is exceeded, the legislature is required to refund the excess, most often through a future tax break, such as an income tax reduction. Lawmakers can seek voter approval to retain the revenue as well, but that appears unlikely to happen in the near future.
Nonpartisan fiscal analysts and the governor’s office forecast that the cap will be exceeded in the current fiscal year, the 2021-22 fiscal year, which begins in July, and the 2022-23 fiscal year, which begins in July 2022.
“The past quarter’s growth has been truly remarkable and unexpected,” Lauren Larson, director of the Governor’s Office of State Budgeting and Planning, told the JBC.
The news given to state lawmakers on Friday continues a year-long trend of rosier-than-expected economic activity. Billions of dollars in state budget cuts made last year as the pandemic arrived in Colorado were later determined to be mostly unwarranted.
In the past four months alone, nonpartisan legislative staffers have revised their revenue forecast to project the state will bring in $1.6 billion more than they anticipated in March.
Nonpartisan legislative staff say the TABOR cap will be exceeded by $551 million in the current fiscal year, which ends on June 30. The governor’s office thinks the cap will be exceeded by an even larger margin, projecting nearly $700 million in excess in the current fiscal year.
The governor’s office believes the cap also will be exceeded by $1 billion in the 2021-22 fiscal year, and by $1.1 billion in the 2022-23 fiscal year.
The forecast from nonpartisan staff projects the cap being exceeded by $658 million in the 2021-22 fiscal year, and by $908 million in the 2022-23 fiscal year.
Polis, in a brief interview with The Colorado Sun on Friday, said he was ecstatic that Coloradans would see a tax reduction, a message echoed in a written statement he also released on Friday.
“The actual economic results so far this year are well above expectations. As long as this year finishes out strong, there is some terrific news on the horizon: Not only will Coloradans get another income tax cut next year, but every Colorado taxpayer will also get a tax refund,” Polis said in the statement. “While some Coloradans are still facing challenges created by the global pandemic, today’s figures show that the Colorado comeback is well underway. I look forward to formally announcing the expected tax cut and tax refunds this fall.”
TABOR requires voter approval for any new tax increases. It also limits how fast government can grow, requiring refunds if tax-generated revenue growth outpaces inflation and population increases.
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State lawmakers have the ability to ask voters to let the legislature keep the excess revenue. That’s what happened in 2019 with Proposition CC, which voters overwhelmingly rejected. To refund the excess, Colorado’s income tax rate was temporarily reduced to 4.5% from 4.63%.
Polis’ statement lauding upcoming tax cuts suggests he doesn’t support the legislature trying to hold onto the revenue.
State Sen. Dominick Moreno, a Commerce City Democrat who chairs the Joint Budget Committee, asked legislative staff Friday whether there’s still time for lawmakers to try to keep some of the excess revenue. TABOR requires the legislature to refund dollars the fiscal year after the cap is triggered.
Kate Watkins, a chief legislative economist, said the answer is “No,” barring a special legislative session in the coming months. Lawmakers could try to address future refunds in the 2022 legislative session, which begins in January.
“I’m encouraged to see the strong economic revenue and positive revenue outlook,” Moreno told The Sun. “However, TABOR prevents the legislature from responding to increasing demands for government services and I look forward to exploring ways that TABOR refunds can be distributed more equitably.”
One option that may be explored by legislative Democrats is providing a larger tax reduction to lower income Coloradans.
While the state’s coffers have recovered, economic activity is growing and employment is steadily recovering, budget analysts cautioned that the economy is still in uncharted territory.
Legislative analysts pointed to a number of factors:
- A steadily improving, but still uncertain, coronavirus pandemic
- Unemployment remains high, but employers in some sectors are reporting difficulty finding workers
- Housing inventory is low and the cost of housing continues to skyrocket
- Supply-chain bottlenecks are causing problems for manufacturing and construction, and energy and transportation costs are surging
It’s also not yet clear the extent to which the pandemic has triggered longer-term changes in the economy, Watkins said.
“We’re also waiting to see what happens when the stimulus wears off,” Watkins, said. “The extent of economic damage, the scarring effects of the pandemic — some of the stimulus is masking what’s happening under the surface.”
Budget analysts also pointed to persisting disparities in the economic recovery. Job recovery for Colorado’s low-income workers (people making $27,000 or less) continues to lag behind their higher-income peers (people making $60,000 or more), although that gap has narrowed in recent months.
Unemployment is also disproportionately high for Black and Hispanic people relative to their share of the population, with Black Americans accounting for 20% of the nation’s unemployed and Latinos accounting for 22.9%. By comparison, Black people make up 12.9% of the total population and Hispanics make up 17.1% of the population.