DEMVER – Legislative Council Staff and the Governor’s Office of State Planning and Budgeting released their March 2021 economic and revenue forecasts Friday, which show better-than-expected overall General Fund revenues but also a large disparity between high-wage and low-wage workers in terms of job recovery.
The forecasts, which were presented Friday afternoon to the Joint Budget Committee, say that the worst of the pandemic-caused recession is behind Colorado, though there remain some questions about the recovery gap and how stimulus programs at the federal level will affect the state later this year.
The Legislative Council Staff (LCS) forecast says that Colorado lawmakers are projected to have $5.29 billion more in FY2021-22 to spend or put in reserves than they did in the current fiscal year, though the forecast does not account for federal money expected to be received by the state from the American Rescue plan and notes that the 2021-22 budget has not been finalized.
But it also notes that there remain more questions about income tax refunds and how the longer-term effects of the pandemic could factor into Colorado’s financial situation if stimulus programs end in September.
“For broad measures of U.S. and Colorado economic activity, the worst chapters of the pandemic-induced recession appear to be behind us. However, pre-pandemic levels of economic activity are closer in some areas than in others. The recession did lasting damage to employment levels and consumer spending, and a long road to recovery lies ahead,” Legislative Council Staff wrote in the forecast.
The LCS analysis shows that the percentage of high-income workers employed in Colorado since January 2020 has now increased by 0.6%. But there are about 10% fewer middle-income workers employed than there were in January 2020, and 30.3% fewer low-income workers employed than there were in January 2020.
“For higher-income earners able to transition smoothly to remote work, the recession’s economic impacts have been muted,” LCS wrote. “Yet, for businesses and employees in industries that remain shut down or at partial capacity, the recession’s consequences remain severe.”
"While this revenue forecast is certainly a relief, the economic situation continues to leave many low-income families behind," said JBC Member Senator Chris Hansen, D-Denver. "As we move forward, particularly with our state stimulus package, we must be diligent in prioritizing equity and inclusion as well as funding for essential programs that help the most vulnerable Coloradans recover and support robust job growth."
The LCS said that with vaccine distribution progressing quickly, leading to fewer pandemic-related restrictions, the outlook for Colorado and the U.S. for 2021 and 2022 have improved but said that markets have shown some concern about the stimulus programs with respect to inflation in the short-term.
The LCS said the American Rescue Plan dissipates or delays some of the downside risks they had discussed in December but also raised new risks. Upside risks include short-term booms in spending, employment, incomes and tax revenues, while new downside risks include inflation, market volatility and interest rate increases.
But revenue forecasts have greatly improved from last May’s forecasts, as have reserves – noted by the change in the 2021-22 budget outlook from $3.75 billion forecast in December to $5.29 billion forecast Friday, based on increased revenue expectations and the balance that will be rolled over from the current fiscal year.
The Office of State Planning and Budget had similar forecasts to the LCS, projecting benefits from the vaccine, more travel and increases in revenues and reserves. The OSPB forecast estimated about $6 billion coming to Colorado in state and local aid, about two-thirds of which will go to the state.
The LCS estimated Colorado had regained 57% of the jobs lost since last February but showed, as Colorado Department of Labor and Employment officials said earlier this week, that accommodation and food services still account for the greatest number of jobs lost and not gained back.
But the state unemployment trust fund, which has been insolvent since last August and has been borrowing at zero interest since then from the federal government, is projected to remain insolvent through FY2022-23, according to the LCS.
JBC Chair Dominick Moreno, D-Commerce City, called the forecast “a breath of fresh air” after a year of bad news in terms of the budget.
“Thanks to the diligent efforts by this committee and an accelerated economic rebound, Colorado’s recovery is looking even more promising. At the same time, we must remember that these are one-time funds. Beyond the current fiscal year, long-term budget issues persist – making it imperative that we keep one eye on the horizon and prepare for other potential storms,” Moreno said.
The LCS projects General Fund revenues for this fiscal year to be $12.7 billion, while the OSPB projects the revenues to be $12.9 billion. For the 2021-22 fiscal year, which begins July 1, LCS projects $13.8 billion in General Fund revenues, while OSPB projects $13.9 billion.
Gov. Jared Polis said the data showed Colorado is “moving toward a strong economic recovery,” and the extra revenue was somewhat predicted when state lawmakers unveiled a $700 million stimulus package last week.
“As we vaccinate more Coloradans and get back to normal, it’s important that we take this unique opportunity to make bold investments that will strengthen our economy and our communities for generations to come,” Polis said in a statement. “This larger than expected amount of one-time funds due to better than expected economic growth allows us to make important investments that will strengthen small businesses, reduce traffic, support Colorado families, invest in rural Colorado, and develop our workforce. I look forward to working with our legislators to deliver these results for Coloradans.”