Colorado’s economy has grown for the past eight years since the economic downturn, and it’s on a path towards the longest expansion in the state’s history, lawmakers heard Tuesday.
State budget writers received an update from the governor’s office and legislative staff on the June revenue forecast for the state.
Colorado is currently in its third-largest economic expansion in the state’s history, with a record-low May unemployment rate of 2.3 percent. Colorado enjoys the lowest unemployment rate in the nation.
The national unemployment rate stands at 4.3 percent.
The Colorado unemployment rate is expected to tick up, but only slightly, meaning the state will continue to benefit from a booming jobs market and economy, albeit with some constraint ahead.
As expected, the economy is not uniform throughout the state, with most of the productive economic activity taking place along the urban Front Range corridor.
But overall, state economists believe Colorado is poised for continued success.
“It is an economy that is close to or pretty much at productive capacity,” said Natalie Mullis, chief economist for Colorado Legislative Council staff.
The forecast, however, is a bit uncertain, as several unforeseen factors remain in play, including an increase in automation for jobs, the state’s growing aging population, and the emergence of so-called “shadow markets,” which utilize the internet and apps.
That said, the economy could also do better than economists anticipate: “It’s possible that there is more capacity in the economy and we’re really not truly in a mature capacity … which would mean our forecast is pessimistic,” Mullis said.
Also weighing on the forecast is the rising price of housing costs in Colorado.
“There’s not a whole lot of opportunity for the supply of labor to increase,” said economist Larson Silbaugh, pointing out that the state needs housing options for an increased workforce.
Economists also believe that the cost of doing business in the state will go up, which means prices will be passed on to consumers, which could cause inflation. Either way, the economy will continue to grow, but more likely at a constrained pace.
In terms of impact to state government, revenue that is used for discretionary spending is increasing at a modest 3.4 percent pace in the current fiscal year, but it’s expected to increase at a stronger 6.7 percent rate in the upcoming fiscal year that begins in July, according to an assessment by the governor’s office.
Budget writers were concerned that the greater revenue impact on the current fiscal year would be from declining oil and gas prices. But a new factor to consider is that taxpayers appeared to delay income from investment gains given uncertainty in Washington, D.C. over likely federal tax changes.
“Colorado reached two significant milestones this year – the number one economy in the country and the state’s lowest unemployment on record,” Gov. John Hickenlooper, a Democrat, said in a statement. “Our challenge now is maintaining this success and that requires addressing tight labor and affordable housing conditions.”
Lawmakers may have some additional budget maneuvering ahead of them in next year’s legislative session, though reserves are $52.3 million above the level that would trigger immediate mandatory budget-balancing moves by the governor’s office, according to Henry Sobanet, the governor’s budget director.
Recent action by the legislature on restructuring a fee that is assessed on hospital bed stays is starting to take form as well. The state is below its spending limit, which means taxpayer refunds are not expected, though they were not expected in the upcoming fiscal year even without the change in law.
Revenue from cash funds will decrease 17.3 percent in the upcoming fiscal year, as the Hospital Provider Fee is restructured to exempt it from contributing to the state’s spending cap, according to the governor’s office.
The move by the legislature also lowered the state spending limit cap by $200 million, so there is some uncertainty in the future over when taxpayer rebates would be triggered.