Earlier today, both the Colorado Legislative Council Staff (LCS) and the Governor’s Office of State Planning and Budget (OSPB) released an updated forecast for the state’s economy and budget outlook.

You can view the CO Leg Council Staff report and presentation slides here – https://leg.colorado.gov/publications/forecast-update-may-2020

You can view the OSPB report and presentation slides here – https://drive.google.com/drive/u/2/folders/1vtjOq5n2lSo2FSLasGiPziCrhLrYm8y5

While the estimates differ slightly, they both paint a very challenging picture for lawmakers over coming month and next few years.

The LCS forecast estimates a reduction in general fund revenue of $4.3 Billion for FY21 from the December 2019 forecast of $14.5 Billion in general fund revenue for FY 21. This means that the response to the current public health crisis is projected to reduce state revenue by roughly 30%.

From the budgeting perspective, the more relevant numbers to focus on would be the difference between the FY20 budget level, and the projected FY 21 available revenue. From this perspective, the anticipated revenue reductions would mean that lawmakers will need to cut roughly $2.7 billion (OSPB) to $3.1 billion (LCS) from current spending levels or closer to 20%. Both these figures account for the Governor’s recent sequestration order which cut $230 million from current FY20 budget.https://drive.google.com/file/d/1Aelk2C0MJnNDdNgClukjWtmeuNECGcJC/view

As highlighted in our recent research, while revenue are expected to decline, demands for government services are expected to increase, which both of these estimates do not explicitly include.

The LCS forecast indicates the Unemployment Insurance (UI) Trust Fund, which is used to pay unemployment insurance benefit claims, will become insolvent at the end of June, the current fiscal year. This will trigger increased surcharges on businesses starting in 2021, and loans from the federal UI trust fund. The federal Families First Coronavirus Response Act, includes a provision to allow for states to take interest free loans from the federal UI trust fund through the end of the current year. The full estimated cost of FY21 UI benefits is estimated to be $2.8 Billion and the state revenue to the state UI trust fund, including the new higher surcharge, is expected to be just $840 million. While not explicit in the projections, the difference is assumed to be borrowed from the federal government.

Outside of the general fund, LCS is projecting a nearly 10% reduction in Motor and Special Fuel Taxes for the current fiscal year (FY20) due to a roughly 35% reductions in fuel taxes between March and May 2020.

Over the coming weeks as the Joint Budget Committee continue to meet and hear from department experts and directors, the decisions surrounding where cuts will be made will start to come into view.