Colorado Revenue Forecast Indicates Slower Growth Rate

DENVER — Friday, March 18, 2016 — The Governor’s Office of State Planning and Budgeting (OSPB) today released its quarterly economic forecast.

Colorado’s economy continues to grow at a slower pace than in recent years with General Fund revenue forecasted to increase just 1.5 percent in FY 2015-16. Several factors are converging to cause the marked slowdown in revenue growth this fiscal year, including the deep contraction in the oil and gas sector, a continued tepid stock market, and global economic pressures that are reducing corporate profits.

OSPB expects General Fund revenue growth to rebound moderately in FY 2016-17 from continued economic expansion and as some of the factors weighing on revenue collections this fiscal year abate. General Fund revenue is projected to increase 6.4 percent in FY 2016-17, which is below the rates experienced in most years of the current expansion.

Projections for General Fund revenue for FY 2015-16 are $51.0 million, or 0.5 percent, lower than in the December 2015 forecast. The forecast for FY 2016-17 is lower by $88.1 million, or 0.8 percent. With the current budget for FY 2015-16, the State’s General Fund reserve is now projected to be $98.1 million below the required amount of 6.5 percent of appropriations.

General Fund appropriations in FY 2016-17 can grow 4.5 percent after accounting for the required reserve amount and based on expectations for other General Fund obligations, including TABOR refunds and transfers to transportation and capital construction under Senate Bill 09-228. General Fund and State Education Fund expenditures combined can grow just 1.3 percent, assuming that the negative factor is maintained at its current level, as there is less funding available from the State Education Fund to support school finance.

Under this forecast, transfers to transportation and capital construction under Senate Bill 09-228 will occur at their full amounts in FY 2015-16. Half transfers are expected for FY 2016-17 due to the forecasted size of TABOR refunds. Refunds above one percent of General Fund revenue trigger a 50 percent reduction in the transfers; refunds above three percent reduce them to zero. A relatively small downward revision in the revenue forecast in FY 2016-17 would result in additional General Fund obligations to cover full transfers. As a result of the expected size of the TABOR refunds in FY 2017-18, SB 09-228 transfers would be zero.

Cash fund revenue subject to TABOR in FY 2015-16 is projected to be $119.6 million, or 4.3 percent, higher than FY 2014-15, primarily as a result of growth in revenue from the Hospital Provider Fee and miscellaneous cash funds. This growth will offset a sharp decline in revenue from severance taxes and insurance-related revenue. Cash fund revenue subject to TABOR will decrease 0.1 percent in FY 2016-17 as a projected 9.4 percent decrease in revenue from the Hospital Provider Fee will offset growth in revenue from most of the major categories of cash funds.

TABOR revenue is projected to come in $80 million below the cap in FY 2015-16, but is expected to come in over the cap in the following two years, by $149.3 million in FY 2016-17 and $350.9 million in FY 2017-18.

While the state’s economy continues to grow at a slower pace than in recent years, the labor market remains strong and the state is weathering the oil and gas industry’s contraction better than other states. The northern Front Range continues to bolster the economic indicators for the state; rural areas and regions with oil and gas activity are experiencing weaker economic activity. The U.S. economy continues to post mostly modest growth. A stronger labor market and sustained consumer spending growth continue to propel the national economy forward while a slower global economy, stronger dollar, and financial market volatility present obstacles.

Weaker global economic activity and increased levels of uncertainty pose heightened downside risks to the economy. In addition, although Colorado’s economy has been resilient during the deep contraction in oil and gas activity thus far, continued weakness in the industry may yet have larger adverse impacts on economic activity for the state.

Click here for the full forecast report from OSPB.