Revenue forecast healthy, but wait
Revenues into the state’s general fund were about $700 million more than it budgeted for the last fiscal year, but don’t expect that good news to last, state economists told lawmakers Thursday.
At least, not until Congress settles on what it will do about whether it should make temporary tax cuts permanent, and whether Europe will come out of its recession with a minimized debt crisis, they told the Legislature’s Joint Budget Committee.
“This is frustrating for many reasons. One of those reasons is many fundamentals in the economy are much healthier than they were at the end of the recession,” said Natalie Mullis, chief legislative economist. “The housing market has begun to recover nationwide. We have banks that have rebuilt their balance sheets and are in a much better financial position than they used to be. Households have shed debt. Businesses have become more efficient.”
And yet she and Jason Schrock, chief economist in the Office of State Planning and Budgeting, said the state and nation are headed for another economic slowdown if certain things don’t happen soon.
Both said uncertainty in the political landscape and in Europe continues to be a main sticking point for business owners, who are reluctant to grow their businesses as a result.
“The uncertainty is causing a hold-back in hiring, investing and spending,” Schrock said of private industry. “Of course there are good things going on. It’s not like the economy has ground to a halt. It’s just that there’s not enough good things going on.”
Schrock said the amount of money being exchanged in the economy is at a 50-year low.
He said that’s partly what the Federal Reserve hopes to address with its plan to buy bonds to keep long-term interest rates low and keep short-term interest rates at rock-bottom levels until at least 2015.
“Its main intention was to provide a signal to the economy that it’s going to provide accommodative monetary policies until the economy recovers, and even after that,” Schrock said. “That’s meant to raise expectations in the economy to cause people to get off the sidelines and start making those investments and hire people, because they’re more certain that the economy is going to grow.”
In the meantime, Congress could speed things up by resolving sooner, rather than later, questions over the federal deficit and whether to postpone or repeal automatic tax increases and spending cuts scheduled to happen next year.
“The economy needs Congress to resolve these issues and restore certainty for the U.S. economy and fiscal policy for the United States,” Mullis said. “As soon as that’s resolved, I think the economy is going to take off.”
The increased revenues Colorado has been seeing stem from various sources, including an 11-percent increase in individual income taxes, and a 24-percent hike in corporate tax revenues.
OSPB director Henry Sobanet, however, said some of that increase came from a temporary increase in capital gains revenues and an uptick in oil and gas activity that continues to struggle with volatile prices.
“While we’re not seeing a lot of severance tax because of the price of natural gas, that activity is putting people to work,” he said.
“Our second quarter of fiscal 2012 was the second fastest in the country behind only North Dakota, who’s experiencing a dramatic oil and gas expansion,” Sobanet said.