Colorado’s economic turnaround has a long way to go but appears to be well ahead of schedule, state budget analysts say.
In a quarterly presentation at the Capitol, economists working for the legislature and the governor’s office shared an encouraging update Friday: sales tax and income tax collections were stronger in recent months than they previously projected, and state budget writers may have significantly more money to spend this year than they feared at the onset of the pandemic.
The analysts also stressed, however, that much remains unknown. It will be March before state budget writers can feel confident knowing how much money they have to spend in this year’s budget.
In late spring, the state legislature finalized a 2020-21 budget by closing a roughly $3 billion shortfall — a devastating, across-the-board reduction that left lawmakers in tears and key programs unfunded or underfunded. State budgeting will remain a difficult exercise in Colorado — perhaps for years to come — but the latest forecast shows it may be a bit less painful moving forward.
New forecasting data shows the state’s reserves collected $1.3 billion more than analysts previously expected for fiscal year 2019-20, which ended in June, and for the current fiscal year budget writers are now expected to have close to $1.7 billion more to spend.
“We’re not out of the hole yet,” said state Rep. Daneya Esgar, D-Pueblo, who chairs the legislature’s Joint Budget Committee. “This looks like it’s great news, and I don’t want to downplay it. It’s good that we’re doing better than we thought we’d be, but were still digging out of a hole, and we’re going to continue to be digging out of a hole. The hole might not be as big as we thought it was.”
While the forecasts are improving, they’re still ugly relative to pre-pandemic expectations. General fund revenue — money that covers core services — will bottom out in this fiscal year, economists expect, and are likely to lag behind pre-pandemic forecast levels for years to come. The governor’s budget director, Lauren Larson, told lawmakers she predicts a $1.6 billion shortfall in the 2021-22 fiscal year. That shortfall grows to $2.2 billion in 2022-23, she said.
And so, amidst the relatively good news shared Friday, Larson reminded lawmakers, “We’re nowhere near what we were forecasting back in December.”
Overall, state analysts said, Colorado has regained 39% of jobs lost since the pandemic began in March.
Colorado’s poorest suffered the most profound job losses and continue to do so, the analysts reported. Employment among low-wage earners dropped rough 25% below pre-pandemic levels in April. That sector is on the rise, with job rates now about 12% underwater — halfway to recovery.
The struggles of low-wage workers then and now contrast with much milder pains for mid- and high-level earners. According to the governor’s analysts, the employment rate of Colorado’s high-wage sectors never dropped more than 5% below pre-pandemic levels and currently sits about 2.5% underwater. Employment in medium-wage sectors dipped about 10% below pre-pandemic levels in April, but employment in that sector is now only down about 5%.
“The economy fell further and faster than we ever thought possible. It has also recovered further and faster than we expected,” state economist Elizabeth Ramey told members of the Colorado Joint Budget Committee.
“This recession is unlike any that we have seen before,” she cautioned, “and there is still a lot of uncertainty about the lasting damage, and we are still a long way from the recovery.”
Colorado’s economy is performing slightly better than the national economy. In a statement, the governor’s office said this is “because coronavirus cases are comparatively low, and Colorado has a high percentage of the workforce that can work remotely.”
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