DENVER — Friday, June 20, 2014 — A new forecast shows the state’s General Fund revenue is expected to increase by $96.4 million in the current fiscal year and by $127.6 million in the next fiscal year, which starts July 1.
“Colorado’s economy continues to expand faster than many other states,” the Office of State Planning and Budgeting reported today. “The state has ingredients that are producing growth in today’s high-tech and complex economy, including a skilled workforce, entrepreneurial energy and innovation, diverse industries, and a rich ecosystem that connects ideas and resources. Growth is not uniform in all regions of the state, however. There continue to be areas affected by out-migration, drought, or the loss of key employers.”
Compared with the March 2014 forecast, projections for General Fund revenue are 1.1 percent higher for FY 2013-14 and 1.3 percent higher for FY 2014-15.
The State’s General Fund reserve is projected to be $145.6 million above its required amount for FY 2013-14. All but $25 million of this money, which remains in the General Fund, is allocated under current law to various cash funds or projects. Under the adopted budget for FY 2014-15, this forecast shows that the General Fund will have $150.6 million above the 6.5 percent reserve requirement.
Expectations for economic conditions, and thus tax revenue, have not changed materially from recent forecasts. After growing 4.4 percent this fiscal year, General Fund revenue is expected to grow 7.5 percent in FY 2014-15. As was expected in previous OSPB forecasts, the slowdown in General Fund revenue growth in FY 2013-14 was mostly from a one-time decline in income taxes on investment income. Continued economic growth will generate higher General Fund revenue growth in FY 2014-15.
The State Education Fund (SEF) is supporting a larger share of education funding than it has historically, which will draw down the fund balance. The SEF plays an important role in the State’s General Fund budget because the level of spending from the SEF affects the amount of General Fund spending necessary for education. Decisions on the mix of spending between the General Fund and the SEF have budgetary implications for the future.
“The economy appears to have a foundation for further steady growth,” the OSPB forecast says. “Nevertheless, adverse circumstances that could cause a downturn are often hard to identify and can sometimes materialize quickly. Such an event would reduce tax revenue to the state and increase budgetary pressures.”
Notable visible risks include geopolitical tensions, such as those in Russia and the Middle East, which could cause a material increase in energy prices. In addition, adverse shocks in the financial system similar to those that have preceded previous slowdowns, such as a fall in asset values and decline in the flow of credit, are difficult to predict and pose a risk.
Cash fund revenue subject to TABOR is forecast to remain roughly flat over the forecast period, growing less than .5 percent in FY 2014-15 and falling slightly in FY 2015-16. For FY 2014-15, growth in severance tax revenue and miscellaneous cash funds will be offset by a decline in Hospital Provider Fee revenue and a moderate decrease in transportation-related cash funds.
This forecast does not project that the State will reach its Referendum C revenue cap through FY 2015-16.