State revenue forecast shows solid performance
DENVER — Monday, June 20, 2016 — The Governor’s Office of State Planning and Budgeting (OSPB) released its quarterly economic forecast today. State general fund revenue is projected to increase 1.6 percent in FY 2015-16 and 6.0 percent in FY 2016-17. The FY 2016-17 forecast is lower relative to March’s projections by $58 million, or 0.6 percent.
“Colorado’s economy continues to perform solidly overall, especially considering the persistent challenges faced by the oil and gas industry and the sluggish global economy,” said Gov. John Hickenlooper. “Colorado’s favorable economic attributes have helped the state perform much better than the other leading oil and gas producing states.”
Despite continued solid economic growth in Colorado, several factors combined to limit revenue growth this fiscal year, including the large drop in spending and income due to the downturn in the oil and gas sector; weaker stock market gains; and the sluggish global economic activity and strong appreciation in the dollar that reduced corporate profits. These factors will place less downward pressure on General Fund revenue in FY 2016-17 when projections show revenue growth of 6.0 percent. Continued increases in overall economic activity across most sectors will support this revenue growth.
With the FY 2016-17 enacted budget and the new forecast, the General Fund reserve will be $10.5 million below the required amount of 6.5 percent of appropriations. This forecast incorporates a projected diversion of $44 million in income tax revenue in FY 2016-17 to a severance tax reserve fund. These diversions occur under Senate Bill 16-218 to help cover refunds associated with the April 2016 Colorado Supreme Court’s decision in BP America v. Colorado Department of Revenue that allowed severance taxpayers to claim additional severance tax deductions.
Under this forecast and current law, General Fund appropriations subject to the limit in FY 2017-18 can grow 3.7 percent. Total General Fund and State Education Fund expenditures combined can grow 3.4 percent in FY 2017-18, assuming that the negative factor in the School Finance Act is maintained at its current level.
Cash fund revenue subject to TABOR in FY 2015-16 is projected to be $133.9 million, or 4.8 percent, higher than FY 2014-15, primarily as a result of growth in revenue from the Hospital Provider Fee and miscellaneous cash funds. This growth will offset a sharp decline in revenue from severance taxes. Cash fund revenue will decrease 5.3 percent in FY 2016-17. The forecast for FY 2016-17 is $137.5 million, or 4.8 percent, lower compared with projections in March. This decrease is due mostly to the reduction in Hospital Provider Fee revenue per House Bill 16-1405 (the Long Bill), as well as the shifting forward of the transfer from the Unclaimed Property Fund to the Adult Dental Fund pursuant to House Bill 16-1409.
TABOR revenue is projected to come in $80.7 million below the cap in FY 2015-16 and $46.0 million under the cap in FY 2016-17. TABOR revenue is expected to be above the cap in FY 2017-18 by $257.5 million. For FY 2017-18, the total projected TABOR refund amount of $277.1 million includes the projected $257.5 million exceeding the Referendum C cap plus $19.6 million that needs to be refunded from FY 2014-15 due to the reclassification of the revenue transferred to the Adult Dental Fund from the Unclaimed Property Fund.
The state had the 7th lowest unemployment rate in the country in May and demand for workers among Colorado businesses remains strong. However, tight labor market conditions are making it more difficult for businesses to grow, acting as a constraint on the state’s economy.
Areas tied to agriculture and dependent on minerals extraction continue to experience weaker economic activity. Economic growth for the nation overall continues to be softer than in previous expansions. Subdued business investment, new business formation, and productivity growth are main factors in the slower growth. Nonetheless, the U.S. economy is performing better than most other developed country economies.
Although there are no clear indications of an economic downturn in the United States, the global economy continues to show signs of weakness as growth remains slow and vulnerable to downside risks, which could threaten the current expansion. The forecast notes the following items of concern: The path of China’s slowing economy is particularly uncertain; the June 23 referendum in the United Kingdom on staying in the European Union has affected the economic outlook in Europe; and in the U.S., job growth has slowed and business investment remains soft.
Click here for the full forecast report from the Governor’s Office of State Planning and Budgeting.