The quarterly revenue forecast released by state economists Wednesday shows Colorado lawmakers may have more breathing room than expected for the 2024-25 budget year, despite a projected decline in tax collections. 

Additional general fund revenues available to spend in 2024-25 are estimated at $1.195 billion, about $23 million more than anticipated expenses, the report said. That’s an improvement over the June forecast, Chief Economist Greg Sobetski of the Legislative Council staff told lawmakers, which projected a slight deficit heading into 2024-25.

General fund revenues, which are the state’s most flexible form of revenue and used to pay operating expenses, are expected to head downward in the next year, economists reported.

Revenues came in stronger at the end of the current budget year, revised upward from June by $306 million. But the situation could take a 180-degree turn the nest year, with revenues projected to drop by $304 million in 2023-24, and by $82 million the following year.

That’s driven by significant declines in state individual income tax, according to Sobetski.

On the other hand, there were record revenues from corporate income tax. That traditionally is the third largest source of general fund revenue, behind individual income tax and sales tax. 

Corporate profits peaked in 2022, the highest level ever, Sobetski said. Those and are expected to drop but, remain well above historical trends. Corporate income tax collections will decline some, but will remain well above the pre-pandemic levels.

But overall, general fund revenue collections are expected to drop by about 3.1%, the forecast said.

That won’t stop the state from issuing TABOR refunds, as surplus revenues will still exceed the TABOR/Referendum C cap by some $3.57 billion in 2022-23 and by $1.7 billion in 2024-25. The surplus from 2022-23 will be paid out in 2024, while the surplus from 2024-25 is set to be paid out in 2025.

The 2022-23 surplus of $3.57 billion is nearly 18% of almost all state revenues, or about 20% of gross general fund revenues, Sobetski said. The total anticipated TABOR refund, which includes some carryover from the previous year, is $3.68 billion.

The forecast presented by the governor’s Office of State Planning and Budgeting, under new director Mark Ferrandino, showed a rosier outlook for the economy and for the state budget.

“It’s nice to be back in budget geek world,” joked Ferrandino, who previously served as House speaker and also spent three years on JBC.

Colorado job growth has flattened a bit, said Alex Carlson, the agency’s long-range financial planning manager. He also noted that migration into Colorado has declined, which he said is contributing to a constraint on the labor supply.

The housing market continues to struggle, he said, with lack of affordable housing also contributing to new additions to the workforce. That’s aggravated by people staying in their homes, and not selling what could be more affordable units. 

Both the OSPB and legislative council forecasts showed Coloradans are spending down their savings, although wage growth is still exceeding inflation, according to Carlson. The decline in savings is a major factor in continued high consumer spending, he added.

Carlson pointed to a lower risk of inflation, which remains a concern for economists, tied to wage growth, strong labor demand, and low credit delinquency rates. That’s balanced by downside risks such as geopolitical issues and a potential federal government shutdown, he said.

However, Carlson said he does not expect a shutdown to create a risk to the state’s economy. 

Sen. Julie Gonzales, D-Denver, who was sitting in on the hearing, asked about the net migration rate and the impact of people leaving Colorado versus migrating in. Carlson said those leaving the state are similar to those coming in, in terms of numbers and age. People are headed to Colorado from more expensive states, like California, and leaving for states like Utah, he said.

The OSPB forecast said general funds, cash funds and TABOR refunds were all revised upward, based on better than expected economic conditions, including record corporate profits, which they estimate at $411 million higher than in June. 

Their projections showed a slightly smaller increase in general fund revenues compared to June, by about $223 million (the legislative council forecast revised their estimate upward by $306 million). But for 2023-24, they projected $793 million more than in June, based on their expectations of $411.6 million in higher individual income. 

The OSPB expectations for TABOR surpluses show revenue will drop by 3.4%, a smaller downturn than previously expected in June (more than 7%). Their expectations for the TABOR refund for 2022-23 (and paid out next April) is nearly identical to what the legislative council estimated.

Ferrandino pointed out over the last several years that the legislature and governor have made “great strides” on tax expenditure legislation, with 64 bills adopted and with a tax expenditure impact of $580.7 million. “Based on those successes” and other factors, “it is important to not overextend in future sessions.” Some of those tax expenditure bills will sunset in the next few years, he noted.

“We are back to a very normal budget cycle,” Ferrandino said, which follows several years of the pandemic and federal funding. 

The JBC also announced a new staff director on Wednesday. Craig Harper, who steps into that role on Oct. 1, succeeding Carolyn Kampman, who is retiring after four years as director and 19 years as a member of the JBC staff.