General Economic Outlook
The nationwide economy continues to see modest growth which is primarily being sustained by personal (household) consumption. Personal consumption has been growing due to an increasingly strong labor market with decreased unemployment rates. Wages and salaries in Colorado are growing at a rate stronger than the national average and indicate that overall, employers are investing more in their workforce than on themselves. Meanwhile, the global economy continues to be sluggish with low trade and business investment. Analysts predict that moderate improvements will occur and sustain moderate national growth but warn that a prolonged lapse in the international economy could trigger a recession. Additionally in Colorado, lower expectations from corporate sales, use and income tax are being projected for the state, including the recent downturn in the formerly prosperous oil and gas industry.
Colorado Budget Overview
The budget story is challenging as the economy and tax revenues continue to recover, but at a slower pace. The budget for FY2015-16 (ended on June 30, 2016, but the books not yet “closed”), ended with a $9.5 million surplus, above the required reserve. But, with revenue projections down since the last quarter from both offices, the budget for FY2016-17 is expected to be short, with budget cuts needed during this current fiscal year. The Legislative Council estimates that cuts of $329.6 million will be needed and OSPB estimates $226.5 million.
The Governor is required to make mid-year cuts while the legislature is not in session when the ending balance is projected to be under half of its required amount. Under OSPB’s estimate, this threshold has not been met, so the Governor will not be making cuts unless the December revenue projections show the threshold has been met and he is required to do so. That means that the legislature will likely have budget cuts to make in the current fiscal year when they return in January, with more than half of the budget year already over. Of course, the December revenue projections could also improve, requiring no action from the Governor and leaving less for the legislature to cut.
The process for the FY2017-18 budget will begin with the Governor’s proposed budget request that is due to the Joint Budget Committee on November 1, 2016. Based on this latest revenue forecast, the level of general fund appropriations is anticipated to be able to grow by only 0.6% (Leg. Council) or 1.2% (OSPB). This compares to a growth of 5.9% in FY2015-16.
If current projections hold true, it looks like cuts in the FY2016-17 budget are highly likely. However, there will be two rounds of revenue projections (12/20/16 and 3/20/17) before the budget is balanced, so these numbers could change.
information provided by the Tourism Industry Association of Colorado