Colorado's budget-setting forecast is impacted by bank unrest
The Joint Budget Committee of the Colorado legislature presented uncertainty in Colorado's financial outlook. This is due to ongoing inflation and attempts to control it through higher interest rates and the ongoing conflict in Ukraine.
The Joint Budget Committee of the legislature, which sets the state budget, heard on Thursday economic forecasts from both legislative economists and the Governor's Office of State Planning and Budgeting. The legislature will set the budget for the next fiscal year based on the quarterly forecast.
Presenters spoke out about the uncertainty caused by ongoing inflation and attempts to contain it through higher interest rates and the ongoing conflict in Ukraine. It was evident in the collapse of Silicon Valley Bank late last week and subsequent tremors throughout the financial sector.
Goldman Sachs increased its prediction of a recession in the next 12 months due to the financial sector's havoc to 35%. The Washington Post reported on Thursday that Wall Street and federal regulators were working together to stabilize the First Republic Bank in San Francisco, just hours before the state-economic forecast presentation. Janet Yellen, Treasury Secretary, testified before Congress earlier that day that the nation's banking system was "still sound."
Louis Pino, the legislative economist, acknowledged that the forecast could not account for the rapidly changing financial industry. The economic forecast report states that "whether this bank closing is a symptom or a larger problem remains unknown."
He warned that it could further destabilize an economy that had been forecasting slow growth. Nonetheless, inflation and continued increases in federal interest rates as well as shocks to housing markets remain top concerns.
Bryce Cooke (deputy director of the office) stated that the "positive news here is all about the labor market. We believe there will be job losses," but the unemployment rate would still be below 4%. It currently stands at 2.8%. According to federal data, it reached 9.4% in October 2010 during the Great Recession.
Forecasters believe that there will be continued revenue surpluses despite the uncertainty. These revenues will exceed the limit set by the Taxpayer Bill of Rights. Each forecaster projects that the state will collect more than $2.5 billion this fiscal year than the constitutional limit.
Each forecast assumes that the cap will be broken in subsequent years. However, they differ on how much. TABOR requires that the state returns any excess collected money to voters. However, it can ask voters to keep the money through an election.
Although this may seem like a positive outlook, state senator Rachel Zenzinger, an Arvada Democrat, and chair of the budget panel, said that it's more complicated.
Zenzinger stated that it was paradoxical because we have the revenue, and it is growing. TABOR refunds will be expected. However, we won't be covering inflation plus the population with existing services.
State Senator Barbara Kirkmeyer, a Brighton Republican, is on the Joint Budget Committee. She said that her takeaway from the forecast was to be "guardedly optimistic" in the face of uncertainty. Kirkmeyer, a proponent for the TABOR limit, stated that any additional spending should be for one-time or to pay off debt so that the state doesn’t over-leverage.
Scott Wasserman, director at the progressive Bell Policy Center, said that the forecast highlights ongoing structural problems with the state's budgeting process. TABOR cap constraints will place state priorities against one another, while recent tax cuts limit the ability of lawmakers to address property tax relief.
Wasserman stated that the budget forecast showed that "this year really is as good a state has options. It seems to me that the legislature will have fewer options unless there is some structural change, and that's going to be really hard choice. This will mean that the legislature will have to pull back.business