State Revenue Forecast Shows Steady Performance

DENVER — Tuesday, December 20, 2016 — The Governor’s Office of State Planning and Budgeting (OSPB) today released its quarterly economic and revenue forecast.

Overall economic activity has improved in Colorado compared with 2015 and early 2016, and the expansion is expected to continue at a moderate pace. The large drop in spending and income in the state from the downturn in the oil and gas industry is no longer weighing on growth. An increase in new business formation, the source of most net new jobs, is also contributing to Colorado’s improved economic growth. Demand for workers among Colorado businesses remains among the highest levels in the country, especially in the urban areas along the Front Range.

“Colorado’s economy has picked up in recent months. Our state’s economy has demonstrated resilience during the downturn in the energy sector, and we are cautiously optimistic about the future,” said Gov. John Hickenlooper.

State General Fund revenue is projected to increase 4.4 percent in FY 2016-17 and 5.1 percent in FY 2017-18. The revenue forecast is mostly unchanged from September’s projections. Under this forecast and the recent budget request, the General Fund reserve is $118.7 million below the target of 6.5 percent of appropriations in the current year. For FY 2017-18, the shortfall is $52.4 million. The OSPB will submit amendments to the budget request to close the gap in January 2017.

Cash fund revenue in FY 2016-17 is projected to be $154.7 million, or 5.2 percent, lower than FY 2015-16, as a decrease in revenue from the Hospital Provider Fee and miscellaneous cash funds will offset modest growth in revenue from many of the other major categories of cash funds. Cash fund revenue will increase 15.0 percent in FY 2017-18 as the budget restriction on the Hospital Provider Fee expires and severance tax revenue increases. If the budget request is approved, Hospital Provider Fee revenue would be restricted by $195 million.

Under current law and this forecast, State revenue subject to TABOR is projected to be $152.2 million under the cap in FY 2016-17, but is expected to be above the cap by $224.7 million in FY 2017-18 and $247.9 million in FY 2018-19.

Economic growth for the nation has also improved. Industrial production has regained more solid footing, while U.S. corporations in the third quarter of this year posted their first annual increase in earnings since the end of 2014. Furthermore, financial markets are signaling higher expectations for economic growth, and consumer spending and the labor market remain solid.

Although the economy has improved and is thus less vulnerable to a recession, overall growth in the U.S. economy remains at relatively low levels compared with previous expansions. Therefore, a large enough adverse shock that causes business, investors and households to pullback could result in recessionary conditions. With a still relatively modest pace of growth, the stance of monetary policy will be important to monitor in coming months as the Federal Reserve has signaled that continued monetary tightening will occur in the future. Previous monetary tightening was followed by deteriorating financial conditions and a strong rise in the value of the U.S. dollar, which weighed on industrial production and global growth during 2015 and into the beginning of 2016.