Post on 22-Sep-2020
transcript
Economic & Revenue Forecast
Presentation to the Joint Budget CommitteeJune 19, 2019
June 2019 Legislative Council Staff
2
Economic Outlook
3
We are at the top of the business cycle
Real U.S. Gross Domestic Product (GDP)
Source: U.S. Bureau of Economic Analysis. Seasonally adjusted annual rates.
$14
$15
$16
$17
$18
$19
$20
2009 2011 2013 2015 2017 2019
$18,912.3
4
2009 2011 2013 2015 2017 201995
100
105
110
115
120
125
2009 2011 2013 2015 2017 2019
And employment is growing
Source: U.S. Bureau of Labor Statistics. Seasonally adjusted. Colorado U6 rates shown as four-month moving averages.
Total Nonfarm EmploymentIndex 100 = January 2010
U.S.
Colorado Underemployment (U6)
Unemployment (U3)
7.1%
3.6%3.4%
6.5%
17.1%
10.0% U.S.
Colorado
5
$24
$25
$26
$27
$28
$29
$30
$31
2007 2009 2011 2013 2015 2017 2019
Wages are increasing
Source: U.S. Bureau of Labor Statistics. Seasonally adjusted. Adjusted for inflation using the CPI-U for all urban areas.
Real Average Hourly Earnings
2019 Dollars
U.S.
Colorado
$27.83
$30.17
6
1.8%
2.0%
-0.5%
2.0%
2.8%
-3.1%
0.6%
2.1%
1.2%
3.2%
1.6%
Headline
Core
Energy
Food
Housing
Apparel
Transportation
Medical Care
Recreation
Education
Other
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2009 2011 2013 2015 2017 2019
And inflation is in check
Source: U.S. Census Bureau. Seasonally adjusted.
U.S. CPI-U InflationYear-over-Year Change in Prices May 2019 over May 2018
Headline
Core
7
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
I II III IV I
2018 2019
Gov't Consumption & InvestmentNet ExportsGross Private InvestmentPersonal Consumption ExpendituresReal GDP
3.1%
4.2%
GDP components are weakening
Contributions to Real U.S. Gross Domestic Product (GDP)
Source: Bureau of Economic Analysis. Seasonally adjusted annual rates.
8
30
40
50
60
70
2007 2009 2011 2013 2015 2017 2019
Contracting
Expanding
So is manufacturing and business activity
Source: Institute for Supply Management.
U.S. Institute for Supply Management Indices
Diffusion Index
Manufacturing
Business Activity
9
$100
$200
$300
$400
$500
$600
85
90
95
100
105
110
115
With slower growth in industrial production
Source: Federal Reserve Board of Governors & U.S. Census Bureau.
U.S. Industrial Production Index
Index 2009 = 100
Durable Goods
Industries
All Industries
U.S. New Manufacturers’ Orders
Billions of Dollars
10
-
50.0
100.0
150.0
200.0
250.0
300.0
Jan 2017 Jan 2018 Jan 2019
Employment growth is slowing
Source: U.S. Bureau of Labor Statistics.
Change in Total U.S. Nonfarm Employment
Three-Month Moving Average, Thousands of Jobs
Jan 2019
253,000
May 2019
127,000
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Economic Summary
Economic activity remains elevated, but has slowed
• Growth will continue to moderate through 2021
– Peak of the business cycle with low inflation
– Tight labor market and rising wages
– Slower business investment and consumer spending
Uncertainties remain elevated
• Growth may continue to slow due to trade tensions, lack of demand, or weak global economy
• Uncertain if economic conditions are sustainable or driven by one-time policy changes
12
General Fund Budget Outlook
13
$4
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
Revenue expectations were increased on strong income tax
collections in FY 2018-19
Source: Colorado Office of the State Controller and Legislative Council Staff June 2019 forecast.
Gross General Fund RevenueBillions of Dollars
Change Relative to March Expectations
FY 2018-19: +$459.4M
FY 2019-20: +$388.6M
FY 2020-21: +$438.9M
7.9%3.0%
3.1%
14.1%
Year-over-year
growth
14
Changes to the General Fund revenue forecast relative
to March expectations
• Upward adjustment to each year due to stronger than expected income tax collections in FY 2018-19
– However, it is uncertain whether this growth is one-time or ongoing
• Corporate income tax refunds and settlements
– FY 2018-19, net +$78.1 million resulting from the Oracle and Agilent decisions, refunds expected to mute growth in subsequent years
• 2019 legislative impacts will boost revenue beginning in FY 2019-20
– HB 19-1240 sales tax administration changes +$40.5M
– HB 19-1245 vendor fee changes +$23.1M
See the General Fund revenue section of the June forecast document for additional information.
15
$7
$8
$9
$10
$11
$12
$13
$14
$15
$16
TABOR Outlook
Source: Colorado Office of the State Controller and Legislative Council Staff June 2019 forecast.
Revenue Subject to TABOR
Dollars in Billions
Referendum C
Five-Year Timeout Period
Referendum C Cap
TABOR Limit Base
Expected TABOR Surpluses
$169.7M
$574.7M
$18.5M
$310.0M$342.1M
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TABOR Refund
MechanismsReimburse Local Gov’ts for
Property Tax Exemptions
Up to ~$150 million
TABOR Refund Obligation
If ~$400 million+Temporary
Income Tax Rate Reduction
Next ~$250 million
If the refund is large enough to
fund the first mechanism and
the rate reduction
Sales Tax Refund
Any remaining
#1
#2
#3
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$0
$100
$200
$300
$400
$500
$600
$700
2017-18 2018-19 2019-20 2020-21
Expected TABOR Refunds & General Fund Budget Impacts
TABOR surplus revenue is set aside in the year in which a
surplus occurs to pay refunds in the following budget year
TABOR Surplus & Set Aside:
Refunded in Fiscal Year: 2018-19 2019-20 2020-21 2021-22
Source: Colorado Office of the State Controller and Legislative Council Staff June 2019 forecast.
*This amount includes the $18.5 million FY 2017-18 surplus and $21.3 million in under-refunds from the FY 2014-15 surplus.
Dollars in Millions
$39.8M*
Income Tax Rate Reduction
Reimbursements to Local Govts for Property Tax Exemptions
$574.7M
$310.0M $342.1M
Sales Tax Refund Mechanism
18
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400Changes relative to March:
-$69.3 million
Current Year FY 2018-19 General Fund ReserveDollars in Millions
Source: Legislative Council Staff forecasts based on current law. For more detail, see Table 2 of the June forecast document.
10.6% Reserve
$811.9M 7.25%
Reserve
Requirement
$814.2M
Surplus Above
Required Reserve
$372.7M
10.0% Reserve
$303.3M
June 2019
Forecast
March 2019
Forecast
Revenue
Higher revenue expectations (+$459.4M)
Net transfers TO the General
Fund (+$21.1M)
Higher operating
appropriations, reserve
requirement (+$32.3M, +$2.3M)
Expenditures
Larger TABOR set aside ($509.9M)
19
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Next Year FY 2019-20 General Fund ReserveDollars in Millions
8.1% Reserve
$870.3M 7.25% Reserve
Requirement
Surplus Above
Required Reserve $97.5M
June 2019
ForecastChanges relative to March:
Higher revenue expectations ($388.6M)
Larger net transfers FROM the General Fund($306.6M, primarily to transportation and capital
construction)
Revenue
Smaller beginning balance (-$67M)
Larger TABOR set aside ($310M, partially
offset by $75M reduction in spending obligation)
Source: Legislative Council Staff forecasts based on current law. For more detail, see Table 2 of the June forecast document.
Expenditures
FY 2019-20 Budget Package
20
-$100
$0
$100
$200
$300
$400
$500
$600
$700
$800
1-$100
$0
$100
$200
$300
$400
$500
$600
$700
$800
1-$100
$0
$100
$200
$300
$400
$500
$600
$700
$800
1
Out Year FY 2020-21 Budget Outlook ScenariosAmounts above or below the required 7.25% reserve.
Incorporates the revenue forecast, current law transfers, rebates and
expenditures, TABOR refund obligations, and the reserve requirement.
$763.1M
Source: Legislative Council Staff June 2019 forecast.
*2020 projections. **Appropriations growth over the past two economic expansions.
Hold FY 2019-20
Appropriations Constant
Grow Appropriations by
Inflation + Population
Growth (3.3%)*
Grow Appropriations by
Historical Expansionary
Growth (6.0%)**
$338.2M
-$13.0M
21
Revenue trends in the late stages of economic expansion
Overheating
EconomyRevenue
$
Near-term
Recession
Slowdown(Current
Expectations)
This figure is for illustrative purposes and does not reflect actual state revenue collections.
We Are
Here
22
Risks to the Forecast
• Upside risks
– Stronger-than-expected economic activity
– Ongoing income tax base-building from federal tax law changes
– Out-of-state sales tax collections
• Downside risks
– Slower growth and rising risk of recession as the economic expansion
matures
• In the current TABOR refund situation…
– The TABOR limit will constrain revenue growth
– Upside surprises mean larger TABOR refunds
– Downside surprises mean greater budgetary pressures
23
Questions?
Kate WatkinsChief Economist • Legislative Council Staff
kate.watkins@state.co.us • (303) 866-3446
www.leg.colorado.gov/lcs