State revenue forecast improves
DENVER — Despite a rise in the state’s unemployment rate, Colorado’s economy is going gangbusters, state economists said Monday.
As a result, the Colorado Legislature will see a $600 million rise in state revenue for next year’s budget, a huge increase considering the billion-dollar deficits the state has seen since the recession began, economists told lawmakers.
“The U.S. and Colorado economies are gaining strength,” said Natalie Mullis, chief economist for the Colorado Legislative Council. “They’ve stabilized in the second half of 2011, and gained momentum in the first part of 2012. The business climate continued to improve.”
Mullis said in the current fiscal year, which ends June 30, revenue is projected to be $256 million higher than was budgeted.
Mullis and Henry Sobanet, director of the Office of State Planning and Budgeting, said nearly every sector of the economy is showing clear signs that the worst is over, including a stabilizing credit market and improving construction industry.
Mullis said more than 70 percent of small businesses are now able to get adequate loans compared with a recession low of 59 percent. At the same time, permits for multi-family construction projects doubled last year.
“The solvency of the banking system has improved significantly since the financial crisis ... and we’ve seen some loosening in credit conditions in consumer credit cards, auto loans and for business loans,” she said. “The construction industry continues to operate at very low levels historically, however, there have been large increases in activity both in the nation and Colorado for multi-family construction, which is starting to drive job growth in that sector.”
In their individual forecasts, both Mullis and Sobanet increased their tax revenue projections to the state by $108 million to $164 million, respectively, since their last revenue projections in December.
They said those increases came despite a drop in the price of natural gas, which forecasters said fell even lower than last year’s historic lows of about $4.50 per thousand cubic feet to less than $2.30 this month.
As a result, the Western Slope continues to struggle with its recovery, Mullis said.
She said the state and region’s unemployment figures rose slightly last week because those out-of-work Coloradans who quit trying to get a job are now back in the mix, adding that it may be another year or two before the state sees employment return to pre-recession levels.
While the economists gave little bad news in the state’s economic condition, they did say some risky signs persist, including uncertainty with the European debt, rising fuel prices and foreclosures that continue to impact housing prices.
“I don’t see any signs of slowing in the near term ... but there are still higher-than-normal headwinds and down drifts in the economy,” said Jason Schrock, Sobanet’s chief economist. “Our economy is bolstered by very, very low interest rates. There’s a risk that interest rates could rise, and that could have disruptions to the economy.”
Lawmakers and Gov. John Hickenlooper all said they were pleased with the encouraging forecast, but warned that it doesn’t mean four years of budget cuts can be restored overnight.
The forecasts clear the way for the legislative Joint Budget Committee to finalize next year’s spending plan, and fights over what budget cuts should be restored first are expected to dominate much of their discussions over the next few weeks.
That battle is expected to center on the homestead property tax exemption for seniors, which Republicans want to restore at a cost of about $100 million.
Hickenlooper, however, said that’s just not possible, not if the state also wants to restore deep cuts in education and return grant money to local governments taken from severance taxes and federal mineral lease payments.