State budget staffers see reason for economic optimism

DENVER — A year into one of the most volatile economic periods in recent history, Colorado lawmakers are receiving some optimistic news. 

As legislators prepare to craft the state’s 2021-2022 budget, Colorado leaders on the Joint Budget Committee have received the March 2021 Economic and Revenue Forecast from Colorado Legislative Council staff suggesting that “the worst of the recession appears to be behind us.”

As of January, the state had regained 57% of jobs lost since the pandemic began last March, but that recovery has been uneven. High-wage positions have clawed back to pre-recession levels, but many lower wage earners are still struggling to find work, according to the report.

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Despite the severity of the COVID-10 pandemic and its resulting business shutdowns, Colorado’s general fund, made up primarily of income tax collections, “has remained resilient,” state economists wrote. 

Still, general fund revenues are projected to decline 1.1% in 2020-2021. 

However, according to the report, “significant budget balancing actions made during the 2020 legislative session are expected to more than offset this projected revenue decline. The general fund is projected to end the year with a 30.7% reserve, $2.95 billion above the required 2.86% reserve.”

General fund revenues in 2021-2022 are projected to be about $13.8 billion, up more than 8%.

Looking backward, the economic slowdown of the past year is estimated to have resulted in a 4.2% revenue decline for the state.

“The crude oil market rout, depressed travel activity due to COVID-19-related disruptions, and reduced casino capacity will continue to weigh on collections from severance tax, transportation-related revenue, and gaming revenue in the current fiscal year,” the forecast said. “As the economy improves and COVID-19-related restrictions ease, collections are expected to recover but to remain below FY 2018-19 levels through at least FY 2022-23.”

An area of ongoing concern for state officials is the Unemployment Insurance Trust Fund, expected “to end FY 2020-21 with a deficit of $955 million due to an unprecedented increase in unemployment benefits paid during the COVID-19-related recession,” the report said.

Still, the overall economic picture is rosier than previously forecasted. 

“With vaccine distribution progressing in earnest and the recent announcement of a third round of federal government stimulus, this forecast upgrades the U.S. economic outlook for 2021 and 2022,” according to the forecast. “For broad measures of U.S. and Colorado economic activity, the worst chapters of the pandemic-induced recession appear to be behind us.”

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