The Colorado Outlook Economic and Fiscal Review, March 2017 The following information is excerpted from the Colorado Office of State Planning and Budgeting’s March 2017 forecast. To access the full forecast document, click on the image above or follow this link: https://goo.gl/9xlofG

The Economy The upward momentum in Colorado’s economy has sustained itself in recent months. However, non-urban agricultural economies continue to struggle with weak commodity prices and reduced incomes. Statewide economic growth for 2017 is forecast to be higher than last year. However, growth is expected to be only modestly higher due to the state’s persistently tight labor and housing markets that are acting as a constraint on economic activity. 75

Expectations among businesses have turned markedly more positive.

Positive Expectations

70

Businesses’ expectations for Colorado’s economy have turned markedly more positive due to the end of the oil and gas industry contraction, improved global growth, and expectations for pro-business federal policies. Improved expectations often result in increased hiring and investment in the near future.

65 60 55 50 45

Capital spending plans for businesses have also turned more positive.

Negative Expectations

40 35 30 25

Capital Expenditures Expectations 30

Source: CU Leeds School of Business

Manufacturing activity has been expanding since the fall 2016 as improved expectations for global growth and higher energy prices have outweighed the pressure of a strong dollar. Expectations for future activity remain high as new orders outpace production capacity, resulting in increasing backlogs of orders.

10th District Manufacturing Survey: Composite Index Regional manufacturing activity has been improving rapidly.

20

10

0

Jul-01 Feb-02 Sep-02 Apr-03 Nov-03 Jun-04 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Feb-16 Sep-16

Expectations for State Economy

-10

-20

-30 90

$120

Rising oil prices lead to higher rig counts and employment.

80

Source: Federal Reserve Bank of Kansas City

$100

70 60

Regional oil producers recorded their first profitable quarter in more than two years in the fourth quarter of 2016. Innovations in business practices and technology have enabled regional oil producers to operate profitably with lower oil prices.

$80

50

$60

40 30

$40

20

$20

10 0

$0

CO Rig Count (Left Axis)

WTI Spot Price (Right Axis) 6%

Source: Baker Hughes, U.S. Energy Information Administration

Every Colorado metro area has experienced a decline in unemployment over the last year, and every metro area also has an unemployment rate less than the national average. Boulder has the lowest unemployment rate at 2.4 percent, while Grand Junction is the highest at 4.6 percent.

Unemployment Rates by Metro Area

5%

4.3% 4%

3.3% 3% 2% 1% 0% Boulder

Fort DenverCollins- Aurora Loveland

3.0%

Financial Activities

3.0%

Leisure and Hospitality

2.8%

Government

2.7%

Professional & Business Services

2.2%

Trade, Transportation & Utilities

1.7%

Construction

1.5%

Information

0.8%

Manufacturing

-0.9%

Pueblo

December 2015

Grand Statewide National Junction

December 2016

Job growth slowed across most sectors in 2016, though professional and business services and other services grew at a faster pace than in 2015. Job growth may be poised to accelerate modestly in 2017, however, as the drag on the economy from the downturn in the mining and logging sector dissipates.

3.5%

Other Services

Greeley Colorado Springs

Source: Bureau of Labor Statistics

1.9%

Education & Health Services

3.0%

2.8%

2.7%

2.6%

2.4%

Colorado Year-over-Year Job Growth by Sector, January 2017 Total Nonfarm

4.7%

4.6%

Mining and Logging

-14.5% -15%

-10%

Source: Bureau of Labor Statistics

-5%

0%

5%

10%

15%

Annual Home Price Appreciation, 4th Quarter 2016 *Rank among U.S. metro areas above bars

12%

13

Colorado had four of the top twenty (out of 402) cities for home price appreciation, all in the northern Front Range. Population growth fueled by inmigration, in combination with low housing supply and low mortgage interest rates, have contributed to the high levels of appreciation.

14

16

17

10%

67

8%

109 6%

182

4% 2% 0% Fort Collins Loveland

Greeley

Denver*

Boulder

Colorado Springs

Pueblo

Grand Colorado Junction

United States

Source: Federal Housing Finance Agency

General Fund Revenue Forecast General Fund revenue continues to rebound modestly from its marked weakening in FY 2015-16. After an increase of just 1.7 percent last fiscal year, General Fund revenue is forecast to increase 4.0 percent in FY 2016-17. Sales and use taxes and individual income taxes are growing at higher rates with the end of the oil and gas industry’s contraction. General Fund revenue is forecast to increase at a slightly faster rate of 5.2 percent in FY 2017-18 with continued economic expansion and as corporate income tax revenue posts an increase for the first time in four fiscal years. Forecast

$12.0

Revenue Adjusted for Population Growth and Inflation

$10.0

$9.8 $8.5

$7.5

$ in Billions

$8.0 $6.9

$6.5 $6.0

$7.7

$5.5

$5.4

$5.7

$10.0

$10.4

$10.9

$9.0

$7.7 $7.1

$6.7

$6.4

$6.1

$4.0

$2.0

$0.0

Source: Office of the State Controller and OSPB Forecast

General Fund Budget $12.0

General Fund Money, Obligations, and Reserves Projected reserve shortfall of $260.4 million

$11.0

$0.641

$0.375

$ in Billions

$10.0

$9.0 $10.932

$11.307 $10.665

$10.556

$8.0

$7.0

With this forecast and the current budget, the State’s General Fund reserve is projected to be $260.4 million below the required statutory reserve amount of 6.5 percent of appropriations in FY2016-17. Based on this forecast and current law requirements and assumptions for major programs in FY 2017-18, there is a $696.6 million funding gap in the General Fund.

$6.0 FY 2016-17 Projected Funds Available

FY 2016-17 Obligations

General Fund Spending

FY 2017-18 Projected Funds Available

Reserves

Funds Available

FY 2017-18 Obligations

Required Reserves

Taxpayer’s Bill of Rights: Revenue Limit $180 $160

Total: $157.8 *

Total: $153.7 *

Total: $145.1

$140

$ in Millions

$120 $100

Six-Tier Sales Tax Refund: $68.0

$80 $60 $40

Six-Tier Sales Tax Refund: $157.8

Six-Tier Sales Tax Refund: $145.1

FY 2017-18

FY 2018-19

Earned Income Tax Credit: $85.7

$20 $0 FY 2014-15

FY 2015-16

FY 2016-17

Under current law and this forecast, TABOR revenue is projected to be $220.9 million under the cap in FY 2016-17, but is expected to be above the cap by $135.1 million in FY 2017-18. An additional $22.7 million will be refunded in FY 2017-18 due to accounting adjustments to prior years and fewer refunds claimed than expected. TABOR revenue will exceed the cap by $145.1 million in FY 2018-19.

*Amount above Referendum C cap plus adjustments from prior years

www.colorado.gov/ospb