Colorado’s economy is expected to rebound faster than expected, giving lawmakers more money to spend on government programs in 2021 – but the recovery will be patchy, the next few months could go badly and scars on public spending and life. people will last much longer.
That was the message from two groups of government economists on Friday morning.
“While many households and businesses have returned to their pre-pandemic levels, others continue to be hit extremely hard by this K-shaped recovery,” said Kate Watkins, chief economist of the Colorado Legislative Council. .
The ‘K-shaped recovery’ refers to how the fortunes of the wealthiest people have rebounded as the pain continues for people in low-paying jobs, from retail to entertainment and hospitality.
Forecasts – which shape government spending decisions – have steadily improved in recent months. But economists have warned that while tax revenues may soon return to pre-pandemic levels, the setback will make it harder to keep track of the long-term demands of population growth and inflation.
“We find that the economy is performing better than expected … but we still see a structural deficit, an operating deficit, where there is always a difference between annual revenues and operating expenses in the future,” said said Lauren Larson, the governor of the budget. director.
Yet the new forecast gives lawmakers more leeway with the state budget in the short term. At the start of the pandemic, forecasters expected a much longer and deeper slowdown. These fears have forced lawmakers to prepare for the worst and dramatically cut the state budget.
Over the months, two things became evident: the economy was doing better before the pandemic than economists thought; and tax collections have not fallen as sharply as feared during the pandemic.
The legislature’s forecast now indicates that the revenue of the general state fund – which is provided by income and sales taxes – will contract 5.6% in the current fiscal year, then increase by 8.1% for the fiscal year which begins in July 2021. The figures of the governor’s team are a little more optimistic.
An inequitable recovery
But the recovery in government revenues does not mean the economy is healthy. Instead, it was fueled by income taxes paid by high-income workers – a reflection of the relatively mild effects of the recession on the wealthiest people.
The number of jobs in the state paying over $ 60,000 has already returned to January levels. Meanwhile, employment in jobs paying less than $ 27,000 is down 18 percent. And that pain could worsen as federal CARES law unemployment benefits expire for tens of thousands of Coloradans later this month.
“Most of our recessions, the tide has come out for everyone. In this situation, it feels like we are getting really big impacts on 10 or 15% of the population, ”said Democratic State Senator Chris Hansen.
Money to spend
The forecast raises a big question for lawmakers: what will they do with next year’s budget?
Both forecasts estimate that the state government will have over $ 3 billion in new money to spend or save. The governor’s administration earlier suggested that the money should be split evenly between stimulus efforts and reserves to fortify the state against the next downturn. State lawmakers have already agreed this month to $ 342 million in stimulus spending.
The legislature will debate the governor’s budget request in the next legislative session.