Economic forecast gives rosy outlook

But budget writers see little flexibility; revenue projections look to be $2B over TABOR cap

Colorado lawmakers received an overall rosier economic outlook Friday than predicted by the last forecast a few months ago, but one official said the state’s unique spending rules will mean “hard work” ahead for budget writers.

Separate forecasts from legislative and executive branch economists were presented Friday afternoon to the Joint Budget Committee. They provided the final outlook before the legislature drafts its budget for the upcoming fiscal year, effectively dictating spending parameters for the General Assembly.

Both forecasts expect the state will need to refund billions of dollars in money collected over a cap set by the Taxpayer’s Bill of Rights, or TABOR, in coming years — limiting how much the state can spend. That was one of the challenges referred to by State Rep. Shannon Bird, a Westminster Democrat who chairs the powerful budget committee, in comments Friday.

Several fees collected by the state are subject to the revenue cap set by TABOR. Those came in above expectations, eating away at how much general fund money the state has left to pay for ongoing services and new priorities.

Lawmakers also have also passed several supplemental requests since last year’s budget, putting more pressure on current spending.

“You are extremely likely to end (the fiscal year in June) with a TABOR surplus,” Greg Sobetski, the legislature’s chief economist, told committee members. “And that means that changes in our revenue outlook are likely to increase or decrease the amount of obligation for refunds, but not to increase or decrease the amount of revenue.”

Spending for the upcoming fiscal year, which beings July 1, will be under scrutiny by the Joint Budget Committee and the legislature in coming weeks as they try to meet the constitutional requirement of approving a balanced budget.

Legislative economists project about $18.6 billion in total revenue in the next fiscal year, or about $1.9 billion over the TABOR cap. TABOR is a state constitutional amendment passed by voters in 1992 to limit the growth of government.

As it stands now, the legislative economists forecast an increase in general fund revenue of more than $930 million, or about 5.2%, over the current fiscal year. But some of that money will be eaten up by adjustments for caseload growth, inflationary pressure on specific budget items and other spending needs.

Add in some early spending plans considered by lawmakers — some of which were little more than placeholders, pending the forecast — and the excess in the general fund drops into negative territory by more than $260 million.

“We’re still dealing with a finite amount of resources, and we’re still going to have to prioritize those things we value,” said Sen. Rachel Zenzinger, a Democrat on the budget committee. “It’s pretty normal.”

Sen. Barbara Kirkmeyer, a Republican on the committee, said the forecasts give the committee a baseline for looking at upcoming spending. Committee members said some things remain top priorities, such as the erasure of the states’ debt to education, or the so-called budget stabilization factor, in the latest budget proposals.

“Our priorities have to do with education, whether that’s K-12 or higher education, Medicaid provider rates. We have to fund those types of things,” Kirkmeyer said, also noting needs in the Department of Human Services and corrections.

In the broader economy, inflation is still higher than average — and Colorado’s 3.5% inflation rate remains higher than the national average of 3.2% — but the rate is significantly lower than it was in 2022. Housing costs continue to be a driving factor in high inflation, the economists said.

The forecasters expect the economy to continue to grow, albeit at a slower pace than the post-pandemic boom. But economic conditions affect individual people and sectors differently, they noted.

“While we expect to avoid a recession, certain individuals” may begin to feel as though they’re experiencing a recession over the next year “as certain sectors of the economy begin to falter,” said Bryce Cooke, deputy director of the governor’s Office of State Planning and Budgeting.