DENVER — Friday, March 15, 2019 — The Governor’s Office of State Planning and Budgeting (OSPB) today released its quarterly economic forecast.
Colorado’s economy continues growing, but at a more moderate pace than in 2017 and 2018. A rapidly growing labor force is allowing job growth to continue despite a low unemployment rate. Inflation is mild. Housing price growth and rental rate increases slowed in the second half of 2018 but affordability remains a concern. Commercial lending standards tightened slightly.
Under the forecast, an additional $29.6 million becomes available in the General Fund above the Governor’s budget request for FY 2019-20.
“We want to lift up Coloradans and their families by ensuring that they have every opportunity to succeed,” said Governor Jared Polis. “Our economy remains strong and the legislature will have $29.6 million more than anticipated to invest. My administration is focused on supporting Colorado families by relieving them from financial stress and free full-day kindergarten and lowering health care costs do just that.”
Overall, the national economy is still in an expansion phase with strong employment and wage growth; however some sectors are beginning to show signs of slowing. The outlook has improved since the December forecast with equity markets stabilizing. This comes partly in response to the Federal Reserve’s signaling of a more patient and flexible monetary policy. In addition, trade tensions between the U.S. and China appear to be easing. The government shutdown in January had a negative impact on consumer confidence, but consumer sentiment showed some improvement in February. The forecast assumes the economy will continue to grow at a moderate pace.
General Fund revenue is projected to grow 4.7 percent in FY 2018-19 and 6.0 percent in FY 2019-20. The General Fund revenue forecast for FY 2018-19 was revised down $200.8 million, or 1.6 percent relative to the December forecast. The forecast for FY 2019-20 was reduced by $193.8 million, or 1.5 percent. Although state income tax collections from payroll withholding are rising, estimated tax payments were lower than expected through the first half of the fiscal year. This is likely a result of changes in taxpayer behavior due to the federal Tax Cuts and Jobs Act. The first year of implementation for the federal tax law has created uncertainty for taxpayers making estimated payments. The forecast assumes conservatively that these payments only partially rebound when returns are filed in April.
FY 2018-19 cash fund revenue is projected to grow 6.5 percent from the prior fiscal year, while FY 2019-20 cash fund revenue is forecast to decrease by 1.2 percent. Forecasted cash fund revenue for FY 2018-19 is $7.3 million or 0.3 percent lower than December projections. Cash fund revenue collections for FY 2019-20 are $34.4 million or 1.4 percent lower than December projections.
Revenue subject to TABOR is projected to be above the Referendum C cap by $167.7 million in FY 2018-19 and $283.2 million in FY 2019-20. TABOR refunds totaling $39.7 million will be paid out in FY 2018-19 through the homestead property tax exemption.
Under the Governor’s budget request, the General Fund reserve is projected to be $309.5 million above the required statutory reserve amount of 7.25 percent of appropriations in FY 2018-19. The Governor’s budget request raises the reserve requirement to 8.0 percent of appropriations, or $951 million, beginning in FY 2019-20.