The December forecast released Friday by economists with the General Assembly and the Governor’s office both said refunds to taxpayers under the Taxpayer’s Bill of Rights will be higher, but at the same time, less robust economic growth means the state budget in 2020-21 might be a little tighter.

Among the good news: Legislative Council economists tamped down expectations of a recession any time in the next year.

Lauren Larson, director of the Governor’s Office of State Planning and Budgeting, told the Joint Budget Committee on Friday that their revenue forecast dropped by about $100 million compared to the one in September. (Those forecasts are released quarterly.)

She attributed the drop to “troubling data” in payroll withholdings. Economists from both departments also said manufacturing in Colorado is weak, due to pressure from the labor shortage — the state’s unemployment rate, at 2.6%, is almost a full percentage point below the national average — and because of higher wages. Larson said wage growth is at 4.2%, well above the rate of inflation.

While the state’s economy continues to grow, it’s growing more slowly, economists from both departments said.

What that adds up to: state budget-writers may not have much in the way of general fund dollars to spend on new programs in 2020-21.

The OSPB predicted spending from the general fund — primarily dollars that come from individual and corporate income taxes — will be at 2.9% in 2020-21 versus 6.2% in 2019-20. That’s still about $832.5 million in additional revenue, but only if operating expenses were held constant. That would ignore, for example, inflationary increases.

If the General Assembly decided to increase spending in 2020-21 at the same rate as it has done for the past several years, that available money drops to $55.5 million. And that would be further reduced by any changes in the 2019-20 budget, adjustments that are likely due to higher costs than were budgeted for full-day kindergarten and reinsurance. 

That also means that lawmakers and the governor are looking for savings wherever they can find them, including in cuts to existing operating expenses. Gov. Jared Polis, in his 2020-21 budget presentation, noted that his administration had found $238 million in savings, which included $78 million in general funds, through eliminating “unused, duplicative and unnecessary spending.”

Rep. Chris Hansen, D-Denver, also noted that the lack of available money in the budget means the state won’t be able to invest in areas such as deferred maintenance for state buildings.

“We are passing those costs” to future lawmakers, Hansen said, estimated at around $10 billion. “We’re allowing state buildings to crumble,” and that cost “is a massive liability that will catch up with us,” he said. 

Most of the deferred maintenance is for the state’s public colleges and universities, Hansen said. 

Larson pointed out that TABOR doesn’t allow the state to capture real economic growth and hence make those kinds of investments. “If you had a business, you would use the profits to invest or save for a rainy day,” she explained to Rep. Kim Ranson, R-Lone Tree, who later said that most of the state’s spending is tied to bills passed by the General Assembly in the last few years. Larson disputed that, noting that a $13 billion state budget cannot be attributed to bills passed in a matter of a few years.

“These aren’t wasteful expenditures,” Larson said. “These are important services provided” to Coloradans and they cost money.

So what do the refunds look like?

According to Legislative Council economists, taxpayers should expect TABOR refunds for the next several years. When the state collects more revenue than allowed by TABOR, those dollars are refunded through a variety of mechanisms.

The first is property tax exemptions to seniors and retired or disabled military veterans; the second is a temporary reduction in the state income tax; the third — and it’s a mechanism that hasn’t been used before — is a refund of sales tax, based on a six-tiered income structure.  

Based on the December forecast from the legislative Council, the TABOR refund in 2019, which will be paid out with income tax filings in 2020, is estimated at $304.3 million. That will be paid out through all three mechanisms, the Legislative Council economists said. The governor’s economists pegged that TABOR refund at $279.9 million. (The forecasts always differ, although they’re a lot closer than usual this month.)

In 2020-21, the TABOR refund is estimated by the Legislative Council at $367.3 million; and by OSPB at $404.5 million. That will be paid out in 2021.

The Joint Budget Committee usually works off the forecasts from its economists with the Legislative Council, although Larson suggested they might want to use her staff’s forecast numbers instead.

As to the possibility of a recession, which have been on the minds of economists for the past year, those fears have lessened. Kate Watkins, chief economist for the Legislative Council, said they don’t expect a recession in 2020 but the risk of recession for the full forecast period, which runs through 2021-22, does remain “elevated.”

One problem that is rising above the horizon: the impact of cash funds on the TABOR surplus and, hence, on TABOR refunds.

Cash funds include things like severance taxes, which are paid by oil and gas companies on the minerals they take from the ground. It’s been a particularly volatile source of funding the last couple of years. The Legislative Council forecast said severance tax revenues grew by $112.2 million in 2018-19, based largely on the price of a barrel of oil. However, new exploration and resulting production activity have fallen off in both Colorado and the rest of the nation, Watkins told the JBC.

When the state issues TABOR refunds, those dollars come from general fund revenue, even when cash funds come in higher than expected. Economists liken it to a bucket.

Budget writers also got their first hint at how much the State Education Fund will need in this budget year to cover a higher-than-estimated cost for full-day kindergarten, one of Gov. Polis’ signature policies in 2019.

Enrollment figures released Friday showed the state’s K-12 population grew by 3.6%, to 868,597 full-time equivalent students. Marc Carey of the Legislative Council told the JBC that the growth is almost entirely due to House Bill 19-1262, since kindergartners were previously counted as a half-FTE. 

The 2019 bill estimated an enrollment of 85% of all eligible students in full-day kindergarten, which would have been around 22,367 students. The reality is that about 1,500 more students enrolled in full-day kindergarten than was budgeted for in the 2019-20 budget. That shortfall will come up next month when the JBC starts looking at supplemental budget requests from state agencies, including the Department of Education.

The additional cost is around $20 million, Carey said, with $11 million to be picked up by local school districts and their property tax payers, and $9 million by the state.

Most of the growth in K-12 in the 2019-20 year is coming in places like Northern Colorado and Colorado Springs, where there’s more job growth and housing is more affordable, the economists said. The Eastern Plains also showed a 1.1% in growth, which surprised lawmakers.

But that growth is coming in the far western parts of the region, such as in Elbert and Morgan counties, and in the far eastern parts of Arapahoe and Adams counties.