The two measures approved by voters in November would cut legislative spending by about $750 million each of the next three years, but the two economic and tax revenue projections proposed by the deputies on Tuesday predicted that the reduction will not be reduced. in Colorado’s budget.
The projections also indicate that Coloradans can expect a refund — albeit less than they would have if both measures failed.
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Proposition 121, which reduced the income tax rate to 4.4% from 4.55%, is expected to reduce state revenue by $620 million this year. -current work — which ends June 30, 2023 — and about $400 million in 2023-24. 2024-25 years. Proposition 123 dedicates up to 0.1% of taxable income each year to affordable housing programs, which is estimated to be about $150 million annually. -current business and approximately $300 million in 2023-24 and subsequent fiscal years.
However, if there is a deep recession, the staff of the non-partisan Legislative Council and the Governor’s Office of Budget and Budget have warned that there could be budget cuts and taxpayer refunds will be wiped out. And the two agencies said the risk of a recession remains high.
“Amidst this tightening of monetary policy, the housing adjustment and the shrinking of household balance sheets, we believe that the risks to the outlook remain elevated and weighted to the downside ,” Jeff Stupak, monetary policy and inflation analyst for the Legislative Staff Council, told lawmakers. Joint Budget Committee, which writes Colorado’s budget.
Greg Sobetski, chief economist for the Legislative Council Staff, said “we think there is a possibility of a recession.”
Legislators are barred from spending all the money the state collects in tax revenue because of the Colorado Taxpayer Bill of Rights on government growth and spending, which is calculated by annual inflation rate and population rate. Any money collected by the government in excess of the limit must be returned to the taxpayers. Repayment is expected every three years.
Legislative Council staff predict that tax revenue will exceed $2.5 billion in the current fiscal year, $1.5 billion in fiscal year 2023-24 and $1.4 billion in fiscal year 2024-25.
The revenue forecast from the governor’s office is less. TABOR revenue is projected to be $2.4 billion in the current fiscal year, $469 million in fiscal year 2023-24 and $736 million in fiscal year 2024-25.
Lauren Larson, who leads the OSBP, said that the reason for the discrepancy has to do with the agency’s expectation that there will be “a slight decrease to two quarters by the end of 2023. “
After reimbursing $225 million in excess TABOR tax relief for the current fiscal year, thanks to a bill passed in 2022, lawmakers are still expected to Nonpartisan legislative staff and the governor’s office will have more than $2 billion to pay back.
Money can be returned in a variety of ways. Earlier this year, the fiscal year 2021-22 TABOR was returned to Coloradans with checks of $750 or $1,500 depending on whether they filed their taxes individually or jointly.
Lawmakers will decide during the 2023 legislative session, which begins Jan. 9, how to restore the TABOR cap.
Return to the number
Colorado’s job market remains strong, both OSPB and Legislative Council staff told JBC. There are about two jobs for every unemployed person in the state and the unemployment rate in Colorado was 3.5% in November.
“For the most part, we’ve regained all the jobs we lost in the recession,” Supak said.
There were exceptions in the mining, government, food and real estate sectors. However, demand for workers across the board continues to outstrip supply, according to OSPB.
Both the OSPB and legislative council staff say inflation continues to weigh on Coloradans. And while Denver’s overall inflation rate is lower than the national rate, Denver’s inflation rate is 10% compared to the national average of 7.1%.
Housing costs have been the largest contributor to inflation across the United States, according to the Legislative Council Staff. However, these prices are dropping nationally and in Denver as the market cools. Denver home prices are down 4.5% from their peak, although demand for homes still exceeds supply and rental prices are rising.
Additionally, the rise in interest rates as a result of the Federal Reserve’s expectation of higher inflation has resulted in a significant reduction in homebuyers.
Stupak said someone who could buy a $550,000 home with a 20% down payment in 2021 would have $1,900 a month in debt.
“That same person, if they wanted to keep the minimum wage and the same monthly income, they would have gone from being unable to buy a $550,000 house to a $413,500 house. So the purchasing power is reduced by about 25%,” he said.
Uncertainty in the housing market is one of the reasons the state’s economy is warning of a recession. Another indicator of the possibility of an economic downturn is the trend in consumer spending, which makes up 70% of economic activity, according to policymakers. law.
“We’re seeing lower interest rates, lower household balance sheets and lower consumer expectations about the future economy,” Stupak said.
The OSPB projects a slowdown in consumer demand and economic growth in the second half of 2023. “The labor market and consumer spending are currently stronger than expected.” early for this year, but slow consumer demand and economic growth are expected in the second half of 2023,” he said. Bryce Cook, chief economist at OSPB.
Legislative Council staff expects Colorado’s annual inflation rate to fall to about 4% in 2023 after hovering around 8% in the year 2022.