DENVER — Friday, Sept. 20, 2013 — The state’s economy remains on a solid foundation for growth with many state economic indicators outperforming national averages and declining unemployment levels. The national economy, though growing, is sluggish and an unexpected shock would probably affect Colorado. Moreover, it is too early to quantify the impact of the devastating floods, the Governor’s Office of State Planning and Budgeting (OSPB) announced today.
The announcement came at the same time OSPB told the General Assembly’s Joint Budget Committee that state General Fund revenue forecast for the current budget year (FY 2013-14) as well as for FY 2014-15 is essentially unchanged from the June forecast as expectations for jobs, income, business activity and spending in Colorado have not changed appreciably.
The strong growth in FY 2012-13 revenue resulted in a General Fund surplus ¿ the amount of money above the required statutory reserve amount ¿ of $1.1 billion. For that year, all of this money is transferred to the State Education Fund. Despite the modest revenue growth expected in this fiscal year, General Fund revenue will still be $162.9 million above the required reserve with the current level of authorized spending.
As a result of 2013 legislation, $30 million of this excess General Fund reserve amount is transferred to the Colorado Water Conservation Board Construction Fund and 75 percent of the remainder, or a projected $99.6 million, is transferred to the State Education Fund. The remaining amount after these transfers, a projected $33.2 million under this forecast, becomes part of the beginning reserve and funds available in FY 2014-15.
With respect to paying for the unexpected costs to remediate flood damage, the State has several options in the coming months. These include excess money in the current year and the existing general fund and emergency reserve accounts. In most cases, this money will match emergency funds from the federal government or local partners.
After posting a robust increase of 10.6 percent in FY 2012-13, revenue growth will slow to 1.0 percent in FY 2013-14 in large part due to an expected moderation in corporate income tax revenue and a drop in capital gains income. However, capital gains income is volatile and can be difficult to predict and this forecast could change in coming quarters. The factors slowing General Fund revenue growth in this fiscal year will diminish for FY 2014-15 when continued economic growth is expected to generate a revenue increase of 7.1 percent.
Cash fund revenue subject to TABOR will grow 3.6 percent to $2.63 billion in FY 2013-14, led by an $80 million increase in severance tax revenue resulting from higher natural gas prices and continued growth in oil and gas production. While hospital provider fee revenue will decline, most other main categories of cash funds will increase, reflecting continued economic growth in the state. Cash fund revenue will decrease modestly in FY 2014-15 to $2.61 billion. Continued growth in most of the larger cash fund sources will be offset by a decline of $53.5 million in hospital provider fee revenue.
This forecast does not expect that the State will reach its TABOR revenue cap through FY 2015-16. However, the State is within 5.1 percent of reaching the cap in FY 2013-14 and within 4.0 percent of the cap in FY 2014-15 and FY 2015-16. If revenue exceeds the limit due to higher-than-expected revenue growth, the State would need to refund the excess revenue or ask voters to retain it.
Click here for the full forecast report from OSPB.
About the State Education Fund
Article IX, Section 17, of the Colorado Constitution, enacted by the voters at the November 2000 election as Amendment 23, creates the State Education Fund. It diverts an amount equal to one-third of 1 percent of Colorado taxable income to the fund. It also required the General Assembly to increase the statewide base per pupil funding amount under the school finance act and total state funding for categorical programs by at least the rate of inflation plus one percentage point through FY 2010-11, and by at least the rate of inflation thereafter in the current budget year and beyond. Money in the State Education Fund may be used to meet these minimum education funding requirements. In addition, the General Assembly may appropriate money from the State Education Fund for a variety of other education-related purposes as specified in the state Constitution. However, Amendment 23 no longer imposes a “maintenance of effort” spending requirement from the General Fund, under which appropriations have to grow by at least 5 percent if certain conditions are met. This requirement expired after FY 2010-11.