state budget

Colorado's full economic recovery is still on pace, but inflation, particularly in housing prices, is taking a bite, the March revenue forecast shows.

Little changed in forecasted revenues for 2022-23 between last December's forecast and the March numbers. Those extra dollars are largely feeding into the TABOR surplus, adding to the already-substantial tax refunds expected in the next couple of years.

The forecast, presented by the economists with the Legislative Council Staff and the Governor's Office of State Planning and Budgeting, is the last major look the Joint Budget Committee gets at state revenue numbers before finishing up its work on the 2022-23 budget. The committee is scheduled to present that budget proposal to lawmakers on March 28. 

According to OSPB numbers, the average refund for individual taxpayers is $95 for 2022. That's from the TABOR surplus for 2021, which is held back in that calendar year and paid out the following year. The refund will get a lot bigger in the two years that follow. Single tax filers will get an estimated $561 in 2023, and $497 in 2024.

All told, the state will shell out $2 billion in TABOR refunds next year, with about $165 million for senior and veterans property tax homestead exemptions, a temporary income tax rate reduction at a cost of $130 million, and a sales tax refund for whatever dollars remain after the first two are taken care of. 

That's the good news for Coloradans who like tax refunds.

The bad news is inflation.

Nationwide, energy costs, both in fuel and transportation, are among the biggest drivers of inflation, and while energy is a major factor in Colorado, it's the high cost of housing that's playing a bigger role, according to the governor's budgeting office.

Legislative staff economists, meanwhile, pointed to transportation costs as the biggest driver of the current 7.9% inflation rate in Colorado.

Economists with both departments said they expect inflation to drop by about half, to 3.8%, in 2023. 

Another driver of near-term inflation is the growth in state employee wages.

Last November, Polis signed a collective bargaining agreement with the state employee union that mandated a $15 per hour minimum wage and a 3% per year increase for the two years after that. That agreement came out of 2020 legislation. 

The number of government jobs, according to economists, is still down more than 17,000, although exactly where those jobs existed was not available Wednesday. 

The legislature's economists also told the JBC that the state has regained 98.4% of the jobs lost since the beginning of the pandemic, but big gaps still exist in the hotel and restaurant sectors, which remains 10,700 jobs short compared to the period before the pandemic began in March 2020. OSPB staff noted that the 10,000 jobs still missing from the hospitality industry is a small percentage of total jobs in the industry. 

Employment in professional, scientific and technical services is now higher than it was before the pandemic-led recession began, the data also showed. 

The challenges and risks economists are looking at include the war in Ukraine, supply and demand mismatches, inflation, tightening monetary policy – the Federal Reserve hiked interest rates this week for the first time in three years – and the end of federal stimulus payments, although that has been offset by strong wage growth. 

What could help mitigate those risks include a quick resolution to the Russia-Ukraine war, more stimulus money, growth in productivity and increased spending by consumers on services. 

All of this means that growth in general fund revenues — that's money from individual and corporate income taxes and sales tax — is expected to slow after this year. General fund growth has topped 11% during the past two years but will drop to nearly zero next year and less than 2% the following year, according to the economists. That's also affected by higher interest rates and weaker capital gains returns, the forecast said. 

That leaves the JBC with about $3.2 billion in one-time dollars to spend in the 2022-23 budget, not counting decisions the committee has already made.

Among those decisions already in the 2022-23 budget is to give 11 out of 23 departments and agencies double-digit increases. That includes:

  • A 90% increase in the governor's budget from $64.3 million to $122.1 million;
  • A 34% increase in the Department of Health Care Policy and Financing from $3 billion to $4 billion; 
  • A 31% increase in funding for the state Treasurer's office from $348.6 million to $456.3 million;
  • The Attorney General's office is getting a 24% bump in funding from $16.3 million to $20.2 million; 
  • The General Assembly's budget is increasing from $59.7 million to $66.9 million, a 12.1% increase that is driven largely by growth in wages for legislative aides; and,
  • The first substantial funding for the Department of Early Childhood is set at $6.3 million 

Factoring those decisions leaves about $1.6 billion for the last-to-be-made decisions affecting big ticket state agencies, such as higher education; one-time decisions on capital development, which funds maintenance and construction of state buildings, primarily in higher education; and, one-time information technology investments.

That doesn't include a final decision on whether to pay the state's obligation to the Public Employees' Retirement Association, the state pension plan, and how much. The General Assembly canceled a $225 million payment in 2020 and legislation to repay that obligation, with about $78 million in interest, is on hold, pending final decisions on the budget. 

Joint Budget Committee staffers, however, recommend the JBC hold back some of those one-time funds to cover future obligations. That includes a looming structural deficit in the next couple of yearswhen base revenue won't cover spending obligations, to the tune of $1 billion to $2 billion, and which also still worries state economists. 

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