“The actual economic results so far this year are well above expectations. As long as this year finishes out strong, there is some terrific news on the horizon: Not only will Coloradans get another income tax cut next year, but every Colorado taxpayer will also get a tax refund,” said Governor Jared Polis. “While some Coloradans are still facing challenges created by the global pandemic, today’s figures show that the Colorado comeback is well underway. I look forward to formally announcing the expected tax cut and tax refunds this Fall.”
The U.S. economy is poised to rebound sharply in 2021, with GDP likely to grow at its fastest pace in decades. Business applications are growing, even in the most affected sectors, and aggregate job openings continue to outpace hirings due to labor supply constraints. Meanwhile, aggregate household finances are strong overall, with wage growth supporting high savings and low debt, underpinned by a healthy housing market and accommodative financial conditions. Current high inflation is primarily due to supply chain disruptions and reopening sectors and is expected to subside, but persistent higher inflation remains a risk.
Colorado’s labor force participation rate has returned to pre-pandemic levels, partially driving a slower recovery for the unemployment rate. While the state is benefiting from a return to domestic travel, downtown areas may lag as businesses allow more remote work and business travel returns slowly.
General Fund revenue is projected to increase by 12.1 percent in FY 2020-21 followed by 4.1 percent in FY 2021-22 and 4.2 percent in FY 2022-23. The forecast is revised upwards from March by a total of $3.7 billion between FY 2020-21 and FY 2022-23. This is due to higher than anticipated collections in recent months across all major revenue sources and stronger economic expectations, as vaccine distribution and high consumer spending fuel business activity.
Total cash fund revenue subject to TABOR was $2.3 billion in FY 2020-21, an increase of 2.1 percent from the prior fiscal year. In FY 2021-22, cash fund revenue is projected to increase by 9.2 percent followed by 5.7 percent growth in FY 2022-23.
Revenue subject to TABOR is expected to exceed the voter-approved Referendum C cap (as restored by SB21-260) in each of the next 3 fiscal years. In FY 2020-21, revenue subject to TABOR is expected to exceed the cap by $696.6 million. In FY 2021-22 and FY 2022-23, revenue is projected to exceed the cap by $1,012.1 million and $1,133.6 million respectively. The temporary income tax rate reduction (from 4.55% to 4.50%) is expected to be triggered each year.
With these updated projections, the General Fund reserve is now projected to be $1.76 billion above the statutory reserve amount of 13.4 percent of appropriations in FY 2022 after accounting for legislation passed in the 2021 legislative session.