DENVER - Today, the Office of State Planning and Budgeting released the March economic forecast showing the significant economic impact of COVID-19. The overall economic impact is difficult to anticipate and depends on both the extent to which the epidemic can be slowed or contained and the effectiveness of federal fiscal and monetary policy interventions.
“COVID-19 has impacted the global economy and is having a significant impact on our state’s economy as well. I would call the economic situation in complete flux, and until we have a much better idea what’s going on I wouldn’t put much stock in any economic forecast, although we know the news isn’t good,” said Governor Polis. “My top priority during this time is protecting the health and safety of Coloradans which also minimizes damage to our economy. We’re doing everything we can to minimize the long-term economic impact of this global pandemic and ensure that Colorado is prepared to come back stronger than before when this crisis is over.”
While Colorado’s economy has expanded since the December forecast, the rapid spread of the COVID-19 virus poses a significant risk to the state’s economy. Economic activity is expected to slow sharply over the coming months as schools and businesses close and consumers stay home in an attempt to slow the spread of the pandemic. While this forecast projects that consumer and business activity will return to normal levels relatively quickly once schools and businesses reopen, there is an increasing risk that extended closures could trigger a recession as consumers stay home and workers and businesses lose income.
As in Colorado, the economic outlook for the U.S. has deteriorated since December due to the recent expansion of COVID-19 into the country and the economic losses associated with widespread emergency closures of schools and businesses. Despite strong economic momentum in recent months, a sharp decline in economic activity is expected but there is still uncertainty.
General Fund revenue is expected to grow 1.2 percent in FY 2019-20 after growing by 7.2 percent in FY 2018-19. The General Fund revenue projection was revised down from the December forecast by $301.2 million in FY 2019-20 and $400.5 million in FY 2020-21 due to the expected impacts of the COVID-19 pandemic. The primary General Fund revenue streams affected include individual and corporate income taxes and sales taxes.
With these updated revenue projections, the General Fund reserve now is projected to be $225.8 million below the Governor’s requested statutory reserve amount of 7.5 percent of appropriations in FY 2020-21 under the Governor’s budget request, as amended January 15, 2020.
Cash fund revenue is projected to remain flat in FY 2019-20 after growing by 5.8 percent in FY 2018-19. The forecast for FY 2020-21 is lower than the December forecast by $52.8 million, due largely to lower expected severance tax collections caused by lower oil prices after Saudi Arabia’s March 9th announcement that it would increase production volumes. Cash fund revenue is projected to grow by 1.5 percent in FY 2020-21 and 1.6 percent in 2021-22.
Revenue subject to TABOR is not expected to exceed the Referendum C cap in either FY 2019-20 or FY 2020-21 after exceeding the cap by $428.3 million in FY 2018-19. TABOR revenue is not expected to exceed the Referendum C cap again until FY 2021-22, when the projected surplus is $216.6 million.
To see the forecast presentation, click here.
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