A May revenue forecast update was presented by the Office of Legislative Council Staff (LCS) and the Governor’s Office of State Planning and Budgeting (OSPB) to the Joint Budget Committee (JBC) today, May 12th. Both offices forecasted around a $3.3 billion revenue shortfall for 2020-21. The revenue shortfall includes a $895.8 million deficit carried over from fiscal year 2019-20. However, utilizing savings in fiscal year 2019-20 from the Governor’s sequestration order and increased federal match rate for Medicaid while considering increased Medicaid caseload in fiscal year 2019-20, OSPB’s total revenue shortfall is closer to $4 billion.
Regarding the economic forecast, both sets of economists predicted a severe decline in the economy followed by multi-year recoveries. As projected by LCS, the economy’s growth rate will decline by 15% in fiscal year 2020-21. Economic recovery will likely be modeled by a square root or swoosh, meaning an extremely sharp decrease in economic growth followed by a short period of sharp increase in economic growth then a more gradual increase in growth. This economic forecast accounts for gradual reopening of business, some regional closures, and a vaccine or cure for COVID-19. The forecast does not account for another mass closure of business or a significant resurgence of COVID-19 cases. If unaccounted for options became reality, the economic forecast could reflect a more gradual rate of recovery or a “double-dip” recession. This economic forecast was largely based off surges in unemployment insurance claims as other typical data points such as income tax revenue has yet to be collected. In developing their economic forecast, OSPB also utilized mobility data to project pre- and post- stay at home order participation in the economy.
In addition to the general economic and revenue forecasts, LCS also presented the statuses of income tax, energy, and unemployment insurance. Income tax revenue will be affected by changes in state and federal policy including the Tax Cut and Jobs Act (TCJA), CARES Act, and changes to state tax policy in response to the TCJA. Oil and gas revenues have been volatile due to international trade disagreements coupled with decreased demand resulting from COVID-19. As a result, severance tax revenues are expected to drastically decrease in fiscal years 2019-20, 2020-21, and 2021-22. The Colorado Unemployment Insurance Trust Fund is expected to be insolvent by the end of calendar year 2020. Without other revenue from the CARES Act or other sources, federal unemployment insurance loans will likely be taken out by Colorado and a surcharge on unemployment insurance premiums will be charged to employers.
Links to both presentation and full forecasts can be found below: