Surge fueling state growth
The Colorado economy will continue to grow at a steady clip, according to state economic forecasts released Wednesday, thanks in part to rebounding oil prices that have energy companies adding rigs in Colorado for the first time since a 2015 downturn in the industry.
But despite the encouraging outlook, rural Colorado is expected to continue to lag behind the Front Range, dragged down by a precipitous drop in agricultural commodity prices and the ongoing struggles of the coal industry, which has shed nearly half its jobs since 2003.
Released at a Wednesday Joint Budget Committee hearing, the predominantly rosy economic picture painted by state and legislative economists will mean more revenue for Gov. John Hickenlooper’s next budget proposal, due out in November.
“This is welcome room as we look ahead to planning the next budget request,” said Henry Sobanet, the governor’s budget director, in the morning briefing.
The general fund is expected to grow in 2018-19 by as much as $666 million under the more optimistic Colorado Legislative Council forecast, a 6 percent boost over this fiscal year. The governor’s budget forecast shows similar growth of $636 million next year.
That’ll give state lawmakers some breathing room as they confront Colorado’s funding crises of the moment: escalating property tax cuts that will slash local school funding, a badly under-
funded public pension system and a transportation network that hasn’t kept up with the state’s growth.
The revenue projections were largely unchanged from the most recent forecast in June.
Sales tax revenues are expected to grow 8.3 percent this year, to $3 billion, and another 5 percent next year.
Income taxes, which make up the bulk of the state’s revenue, are expected to grow 7.8 percent this year, to $7.3 billion, and another 5.1 percent next year, to $7.6 billion. The biggest driver: an 11 percent expected increase in corporate income tax revenue, thanks to business growth and a stabilizing energy industry.
The number of active oil and gas rigs in Colorado plummeted from about 80 at the end of 2014 to a low of 15 in May 2016, according to the industrial services company Baker Hughes. Since then, the industry has brought at least 22 more online.
The budget outlook is a night-and-day difference from this time a year ago, when the state was staring down projected budget shortfalls of as much as $330 million.
But the economic gains aren’t hitting all areas of the state equally.
“A lot of the growth is really concentrated along the Front Range,” said Jason Schrock, the governor’s chief economist.
Low agriculture prices, in particular, have hurt rural areas. The agriculture sector’s gross domestic product fell 20 percent in the first quarter of 2017, decreasing income and leading some farmers and ranchers to take out loans to make ends meet.
Changes to energy consumption, too, have taken a toll. Demand for coal has plummeted in recent years, overtaken by natural gas as a cheaper and cleaner-burning fuel source. The shift in demand wiped out more than 900 of the 2,118 coal jobs the state had in 2003.
“We’ve got some almost insurmountable problems,” said Rep. Bob Rankin, RCarbondale. “When we talk about Colorado we need to acknowledge that there’s more than one economic situation going on in the state.”
And even in the booming Denver metro area, the ongoing economic expansion has disappointed on several key measures. Wages haven’t risen as much as in prior economic recoveries, and low labor market participation — driven in part by an aging population — has left businesses with fewer opportunities to expand, analysts said.
On paper, the state closed out the 2016-17 fiscal year in June without dipping deeply into its reserves, even though the government was previously expected to spend $136.6 million more than it brought in. That money was still spent — it simply occurred after the new fiscal year began, because of the timing of some bill payments, Sobanet said.
With revenue projections showing steady growth this year and next, the Legislative Council analysis projects the state will replenish its reserves to 6.3 percent this year under current spending levels. It’s expected to hit its 6.5 percent statutory rainy day fund target next year with $636 million to $666 million to spare.