Record-high oil production, rising wages and the anticipated benefits of the new federal tax law will inject hundreds of millions of extra dollars into Colorado’s tax collections, giving lawmakers a cushion for the next budget, according to economic forecasts released Monday.
The bipartisan Joint Budget Committee heard testimony about the forecasts that it uses to write the budget for the fiscal year that begins July 1. Democratic Gov. John Hickenlooper had submitted a $30.5 billion budget request that increases education funding, stabilizes state pensions and boosts reserves in case of an economic downturn.
Kate Watkins, chief economist for the Colorado Legislative Council, told the budget committee that general fund revenue could reach $12.5 billion, compared with this year’s $11.3 billion.
Much of the extra $1.2 billion is spoken for. The state needs to fund a road construction initiative enacted in 2017 and compensate local governments for property tax exemptions for seniors and disabled veterans.
Henry Sobanet, director of the governor’s Office of State Planning and Budgeting, noted that other legislative priorities will consume the infusion of revenue.
Colorado lawmakers face a $9 billion backlog in road maintenance and improvements; $32 billion in unfunded liabilities in state pensions; and roughly $6 billion in delayed payments for K-12 education.
The U.S. tax law passed last year is encouraging business investment and is expected to increase state tax collections that are tied to higher federal taxes, the forecasts said.
Colorado oil production also is at a record high, with an estimated value surpassing $10 billion, thanks to increased U.S. exports and a lower U.S. dollar that makes exports cheaper for foreign buyers.
Higher oil prices — averaging near $63 a barrel this year, compared with $51 in 2017 — will mean more state tax revenue as well as taxes that compensate local governments for the costs of energy extraction.
But both Watkins and Sobanet cautioned that the strong outlook should not be taken for granted.
They noted that rising interest rates, the prospect of rising inflation, volatile U.S. markets, barriers to immigration that affect the labor supply, unresolved trade negotiations with Canada and Mexico, and political tensions with Russia, China and North Korea could quickly affect that outlook.
Sobanet asked the committee to increase education funding by $200 million and transportation funding by $250 million. Hickenlooper’s budget, submitted in November, sought $6.9 billion for K-12 schools, $4.5 billion for higher education and more than $1.7 billion in Department of Transportation funding.