C3 Investors and Steering Committee members,
The economic and revenue forecast was presented to the Legislature’s Joint Budget Committee Recently. Here is a brief summary of what the Legislative Council and the Governor’s Office of State Planning and Budgeting presented (let us know if you or your members have any questions):
Legislative Council
Following five years of robust job growth, CO has likely reached full employment. Moderate growth is expected through 2017. Economy still shows slowing growth, rising housing costs are one of key reasons for slowing growth.
According to LC staff, the forecast “has barely changed” since September. Preliminary data indicate the GF ended FY 2014-15 with a $112.1 million surplus. A $156.5 million TABOR refund will be returned to taxpayers for FY 2014-15. In FY 2015-16, GF revenue will be $207.8 million short of the amount needed to fully fund the budget and required reserve- this amount is $12.7 million LOWER than the shortfall expected in September. Revenue is expected to be sufficient to allow GF operating appropriations to increase 4.1 percent. Revenue is expected to be sufficient to grow GF appropriations by 2.7 percent in FY 2016-17.
The forecast anticipates the same pattern for SB 228 as in September (full transfers in FY15-16, half in FY16-17 and no transfers in FY17-18).
HPF revenue is unchanged from September. Collections for FY 2014-15 totaled $528.8 million, a decrease of 6.7 percent from the previous fiscal year. Collections are expected to increase 52.4 percent in FY 2015-16, and then decrease to $757 million in FY 2016-17 before rebounding to $799.6 million in FY 2017-18. This forecast assumes current law and does not include the Governor’s budget request proposal for reducing anticipated HPF collections by $100 million in FY 2016-17.
Severance tax revenue is projected to decline to $71.1 million in FY 2015-16, a downward revision from the September forecast, largely due to the continued drop in oil and gas prices this fall.
Colorado oil prices reached $35/barrel early this month. State oil prices are expected to remain below $40/barrel in December due to the significant pool of reserves that have accumulated. Weld county is now responsible for over 89 percent of the state’s oil production, and preliminary data indicate that average monthly production in the county increased through the first eight months of 2015.
https://www.colorado.gov/pacific/sites/default/files/December2015Forecast%20.pdf
OSPB
Henry noted that there are very little differences between the LC and OSPB forecasts. OSPB’s assessment is similar to LC’s regarding the economy, they are seeing slower growth as expected – much due to the oil and gas contraction (they are expecting a 20 percent drop in employment in the oil and gas industry). Despite major oil and gas contraction, the unemployment rate continues to fall and is the lowest its been since the spring of 2007.
GF revenue is forecasted to increase just 2.1 percent in FY 2015-16, which is a lower growth rate than September but is expected to rebound moderately in FY 2016-17 at a 6.7 percent projected growth rate. The state’s GF reserve is projected to be $156.5 million below the required amount of 6.5 percent of appropriations in FY 2015-16. This shortfall is LARGER than in OSPB’s September forecast, due to lower revenue projections and the new expectation that transfers under SB 228 will occur at full amounts rather than being cut in half. Full transfers are now expected as no TABOR refunds are forecast for FY 2015-16. Under the Governor’s budget request and this forecast, the state’s GF reserve in FY 2016-17 is projected to be $47.1 million above the required amount of 6.5 percent of appropriations.
Cash fund revenue subject to TABOR in FY 2015-16 is forecasted to be 3.8 percent higher than FY 2014-15, primarily as a result of growth in revenue from the HPF. This growth will offset a sharp decline in revenue from severance taxes.
HPF revenue is unchanged from September. It’s expected to increase 52.2 percent, or $276.2 million, to $805.0 million in FY 2015-16. It will then decrease 6.0 percent in FY 2016-17 and grow 5.6 percent in FY 2017-18.
Severance tax will decrease 72.3 percent in FY 2015-16 due to the sharp decline in oil and natural gas prices (this projection is $31.5 million lower than the September OSPB forecast due to lower-than-expected revenue collections through the first part of FY 2015-16).
Oil and gas prices remain suppressed but production levels remain high. Oil prices dropped below $40 at the beginning of the month. Price projections for 2016 are expecting only slight improvements to $51. Employment data from CDLE indicates that jobs in the oil and gas industry decreased 18 percent from December 2014 to June 2015. The contraction in employment for the industry is expected to slow through the remainder of the year.
https://drive.google.com/file/d/0B0TNL0CtD9wXTkQyeHd0YTNNb1k/view