DENVER – Colorado’s economy continues to grow, and the state is collecting more tax revenue, but the bulk of the increase is going back to taxpayers and possibly to mandated funding transfers to transportation.
That means that despite revenue growth, the state is in the curious position of facing a small deficit for the budget year that begins July 1, state economists told lawmakers Friday during a quarterly briefing forecasting Colorado’s tax collections.
But state economists say the shortfall estimates are nominal and likely to change, so immediate action is not necessary.
“I don’t believe it to be permanent. We’ll end up with a balanced budget for (next year),” said Henry Sobanet, Gov. John Hickenlooper’s budget director.
The governor’s economists say the state faces a $69 million shortfall, while legislative economists put the figure at nearly $181 million. Those amounts are small percentages of the state’s general-fund revenue, which hovers around $10 billion.
Sobanet also said that the state’s budget reserves are strong – currently at $576.4 million – and there’s enough money in Colorado’s savings account for schools to give budget writers flexibility to deal with a deficit.
The state finds itself in the predicament of having a shortfall despite increasing tax collections because laws that trigger certain budget requirements when some benchmarks are reached.
For instance, Colorado’s Taxpayer’s Bill of Rights requires refunds when revenue exceeds the rate of population growth and inflation. Lawmakers, however, were told to expect a larger amount for next year – anywhere between $194 million and $220 million.
Lawmakers will have a definitive figure in November.
Then there are potential transfers to transportation when personal income growth increases more than 5 percent. But that transfer is dependent on the size of the taxpayer refunds, so lawmakers may not know until next year how much, if anything, they’ll have to allocate to transportation.
“The economy is doing well, and revenue is growing to the state. We just have a collection of rules that aren’t really working well together,” Sobanet said.
Laws enacted since the last forecast that require funding also account for the shortfall projections.
Economists told lawmakers Colorado’s finances remain strong, with higher wage growth and major employment gains last year. But they warned the state could see only moderate growth next year because of a slowdown in the oil and gas industry, smaller collections from taxes on stock sales and the expectation that the Federal Reserve will raise interest rates in September.