During the March 16 press conference where he announced the statewide shutdown of restaurants, bars, gyms, theaters and casinos over COVID-19, Governor Jared Polis suggested that forecasting the economic impact of the virus on Colorado is all but impossible in light of the many things we don't know about it thus far. But the Office of State Planning and Budgeting has attempted to do so anyway, and its vision of the fiscal future is summed up in these six words: "The economic outlook is extremely uncertain."
The analysis, assembled under the auspices of OSPB director Lauren Larson and deputy director Luke Teater, predicts a 30 percent decline in general revenues in 2020 as part of what's dubbed a "simulated recession," and 2021 projections show a $400 million decline in general fund revenue and a $52 million dip in Colorado's cash fund revenue. And that's just the beginning.
The report opens with a slew of graphics depicting how quickly things have changed since the completion of the previous economic survey, released in December 2019. In an illustration appearing under the heading "Uncertainty Around Forecast Estimate Has Increased," a sweeping upward curve representing the previous estimate is contrasted with one from March that executes a nosedive.
Getting specific from a numerical perspective is difficult, the authors admit, since data related to leading economic indicators — commercial lending standards, vehicle sales, housing permits, initial jobless claims, temporary staffing services and more — have not yet been reported. But consumer expectations were already heading south as of March 11, the last day for which statistics were available (and seemingly a lifetime ago, given the shifting nature of the virus reaction). Likewise, corporate bond risk has been increasing, treasury yields have declined, and gross domestic product benchmarks are continuing to sink.
For these reasons and more, general fund revenue forecasts suggest a $300 million shortfall in fiscal year 2019-20, a $400 million slide in fiscal year 2020-21, and a $370 million tumble in fiscal year 2021-22 — evidence that implies digging out of the COVID-19 hole won't be a speedy process. If these digits develop as anticipated, rebates under the Taxpayer Bill of Rights, or TABOR, which had been pegged at an average $279.90 for fiscal year 2019-20, will instead be zero, as will those in fiscal year 2020-21. And the TABOR refund for fiscal year 2021-22, which prompted a guess of $611.10 in December, is now looking more like a rebate of $216.60.
"Downward revenue revision means less budget available," Larson and Teater point out — and the repercussions of this statement can be seen in the following simulation, which boasts an ominous figure: -$274 million.
As a result, the authors conclude that "recession odds are increasing, with potentially significant budget impacts."
The state maintains a general fund reserve as a stopgap against just such an economic swing, but Larson and Teater hint that even careful planning may prove deficient in a worst-case scenario. They note that the general fund reserve currently measures nearly $900 million, but it needs to last multiple years in a downturn and, unfortunately, the prior two recessions exceeded $3 billion in revenue decline over a four-year period.
Two branches of state government can try to address this situation, as seen in this excerpt from the report:
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General Assembly May Act
• May address budget shortfalls through legislation during session
• May convene a special session by written request of 2/3 majority of each chamber
• May declare a fiscal emergency by joint resolution that expands access to certain funds
Governor May Act (and must act under certain conditions)
• May reduce/restrict state spending pursuant to an Executive Order
• Must change spending plans to protect half of General Fund reserve
• May access emergency revenues for non-fiscal emergencies, including epidemic
• May convene a special session
The news isn't all dire. Larson and Teater stress that "significant resources exist for responding to coronavirus epidemic" — among them, existing funds of about $5 million from non-emergency sources, emergency disaster funding of more than $100 million and federal resources based on congressional action that could add up to almost $400 million. They also underscore assistance for employees based on state and federal action, such as unemployment benefits that will be available for at least 26 weeks and perhaps as much as 39 weeks under a federal stimulus bill.
"COVID-19 has impacted the global economy and is having a significant impact on our state’s economy as well. I would call the economic situation in complete flux, and until we have a much better idea what’s going on, I wouldn’t put much stock in any economic forecast, although we know the news isn’t good," Polis offers in a statement. "My top priority during this time is protecting the health and safety of Coloradans, which also minimizes damage to our economy. We’re doing everything we can to minimize the long-term economic impact of this global pandemic and ensure that Colorado is prepared to come back stronger than before when this crisis is over."
Click to read the March 2020 Colorado Economic and Fiscal Outlook report.