Colorado expects more revenues as state's economy continues to grow

State revenues are expected to grow over the next two fiscal years and will be higher than projected in March, economists told the Joint Budget Committee today.

Even with this relatively strong growth, revenues are only now returning to pre-recession levels. In fact, the Office of State Planning and Budgeting stated, "Despite the growth, state general fund revenue is nearly $1 billion less (when adjusted for inflation) than it was five years ago."

Economists with the legislature and the governor's office both report that Colorado's economy is getting stronger and performing better than the nation as a whole. Europe's financial crisis, weaker global demand and uncertainty over federal fiscal policies appear to be slowing down overall economic growth in the U.S. Colorado will be affected by these trends, and although it is likely to outperform the national economy, state economic growth is expected to be slow and somewhat uneven. The European crisis is the major risk to their forecasts, both groups said.

Economists with the Legislative Council Staff project that General Fund revenues will come in $133 million higher this year than their March forecast and that the state will close the current fiscal year which ends on June 30, with $346.5 million over the statutory reserve. This is after accounting for a transfer of $59 million to the State Education Fund under a bill (HB12-1338) passed this session. This legislation transfers funds in excess of the statutory reserve this year and next to the State Education Fund.

The Legislative Council Staff projects General Fund revenues will be $186 million higher in fiscal year 2012-13 and $118 million higher in FY 2013-14 than predicted in the March forecast. Based on these projections, the FY 2012-13 budget is balanced and the legislature will have enough revenue to transfer $427.1 million to the State Education Fund under HB 1338. They expect General Fund revenues will grow by 6 percent, or $490.1 million, in FY 2013-14 over FY 2012-13. These funds will be needed to cover increased costs due to caseload growth and inflation.

Economists with the Office of State Planning and Budgeting (OSPB) presented a very similar forecast. They see an increase of $239.5 million in General Fund revenues this fiscal year over their March estimates. They project increases of $95 million in FY 2012-13 and $99 million in 2013-14, both higher than estimates they made in March. They forecast the budget will remain in balance for fiscal years 2011-12 and 2012-13, with $59 million and $342 million transferred, respectively, to the State Education Fund.

Economists from both offices urged lawmakers to be cautious about the ability to sustain this level of revenue growth in the future. Henry Sobanet, OSPB director, pointed out that much of the revenue increase came from individual income taxes likely triggered by capital gains. Given that the stock market has not seen strong gains this year, he argued this may be a one-time event and lawmakers should not count on similar increases down the road.

Comparing June and March General Fund Revenue Estimates

($ amounts in millions)