Not only are Colorado taxpayers expected to see a refund from excess state revenues when they file their income tax returns next year, but they also could see a temporary reduction in the state's tax rate.
That's thanks to an even better revenue forecast that state economists are predicting for at least the next couple of years, they told the Colorado Legislature's Joint Budget Committee on Wednesday.
"The economy has grown for 10 straight years," said Larson Silbaugh, an economist with the Legislative Council, the nonpartisan research and staffing arm of the Legislature. "In July it will be the longest expansion in U.S. history. In that time, the economy has grown 25 percent on inflation-adjusted terms since the trough of the recession."
Silbaugh also said that in that time the nation has seen 20.4 million more jobs and Colorado has gained 535,000 more jobs. Those numbers have induced people to return to Colorado or remain here, he said.
About 8.8 million jobs were lost nationwide during the Great Recession, according to the federal Bureau of Labor Statistics.
Silbaugh and other state forecasters, said that while that growth is expected to continue this year and next, there are some looming factors concerning businesses, ones that could lead to another recession.
Those concerns primarily center around federal trade and tariff issues, and a tight labor market that's making it harder for businesses to attract and retain qualified workers, causing many to suspend or slow plans to expand.
"Typically, when we come off a period of rapid economic activity, which we have over the last year, it's oftentimes stimulated by kind of an overheated economy," said Legislative Council chief economist Kate Watkins. "The tightening of the labor market results in wage pressures and inflationary pressures. We really hadn't been seeing that and still haven't been seeing that. That may still be to come. What we have been seeing is a boost in business activity, a boost in hiring and some wage growth."
Gov. Jared Polis said that wage growth is helping to fuel the state's economy because it's giving Coloradans the confidence to spend, but warned that trade conflicts with other nations could result in higher prices for consumers and fewer export markets for Colorado businesses.
"Even though this forecast shows strong growth in revenue, Washington's misguided tariffs and trade wars could negatively impact key Colorado industries like agriculture and manufacturing," Polis said. "We must continue to stand against policies that threaten our state's economic growth."
For now though, the state is expected to see increased revenues at least over the next three years, which would trigger automatic refunds under the Taxpayer's Bill of Rights starting with 2019 tax returns that are filed by next April.
"In March, we were only expecting a TABOR surplus in the current year. We're now expecting it all three years of the forecast," Watkins said. "In the current year we're expecting a surplus of $575 million, next year, $310 million, and in the out-year, $342 million."
The first $153.2 million of that 2019 surplus is to go to reimburse local governments in funding the state's homestead exemption. That's the property tax credit that veterans and homeowners 65 and older get for remaining in their homes for 10 years or more.
The next $262.6 million of that 2019 surplus will come in the way of a temporarily reduced state income tax rate, which would go from 4.63 percent to 4.5 percent as called for under Referendum C approved by voters in 2005. If those TABOR revenues continue in 2020 and 2021, as forecasters are predicting, that lower tax rate would continue for those tax years, too.
In addition to that, taxpayers are to see the final $158.9 million returned to them in the form of a sales tax refund next year, which would come through their income tax filings.
All of that could go away, however, if voters approve Proposition CC this fall. That measure, placed on the November ballot by the Colorado Legislature, instead would evenly divide all those excess TABOR revenues between transportation, public schools and higher education.
For the western region of the state — including Mesa, Garfield, Delta and Montrose counties — the economists said the labor market has continued to add jobs through the first three months of this year. At the same time though, the unemployment rate rose to 3.8 percent because there were slightly more new entrants into the labor force than new jobs.
The economist also said natural gas production showed signs of growth for the first time in five years, increasing 1.3 percent in 2018. They said that uptick primarily is due to power plants seeking to replace coal with natural gas.
Severance tax revenues, most of which come from oil and natural gas production, are expected to increase by the end of the fiscal year, which is June 30, to nearly $211 million, a 47 percent increase over last year. That tax revenue, however, is expected to be nearly half that amount in each of the next two fiscal years.
Economists said those estimates don't account for whatever changes Senate Bill 181 will do to the oil and gas industry. That's the controversial bill that altered the Colorado Oil and Gas Conservation Commission's oversight role from fostering development to first considering what impacts drilling activities would have on public health and safety.
The commission is in the midst of considering several rule changes to the industry.