Economic & Revenue Forecast

Presentation to the Joint Budget CommitteeJune 19, 2020

June 2020 Legislative Council Staff

2

Economic Outlook

3

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I II IIIIV I

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20192020

Gov't Consumption & Investment

Net Exports

Gross Private Investment

Personal Consumption Expenditures

The U.S. officially entered into a recession in March

Contributions to Real Gross Domestic Product (GDP)

Source: Bureau of Economic Analysis. Seasonally adjusted annual rates.

Real GDP

-5.0%

4

$14

$15

$16

$17

$18

$19

$20

2007

2008

2009

2010

20

11

2012

2013

20

14

2015

2016

2017

2018

2019

2020

2021

2022

Shape of Recovery

Real U.S. Gross Domestic ProductDollars in Trillions

Source: U.S. Bureau of Economic Analysis and Legislative Council Staff projections, including projected 2020Q1 revisions.

Real GDP is inflation-adjusted to chained 2012 levels and shown at seasonally adjusted annualized rates.

Projected

GrowthGreat

Recession

Current

Contraction

2008: -0.1%

2009: -2.5%

2020: -5.7%

5

0

10

20

30

40

50

60

70

80

90

100

$0

$100

$200

$300

$400

$500

$600

2006 2008 2010 2012 2014 2016 2018 2020

U.S. retail sales picked up in May

May Retail Sales

Month-over-Month: +17.7%

Year-over-Year: -6.3%

Source: U.S. Census Bureau, Advanced Retail Trade Report.

Monthly U.S. Retail SalesDollars in Billions

Total Retail Sales

Online Sales

6

30

40

50

60

70

2007 2009 2011 2013 2015 2017 2019

Contracting

Expanding

While manufacturing and business activity remain in

contractionary territory

Source: Institute for Supply Management.

Institute for Supply Management Indices

Diffusion Index

Manufacturing

Business Activity

7

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0.2%

1.2%

-18.3%

4.0%

2.2%

-7.9%

-10.7%

4.9%

2.1%

2.1%

2.4%

Headline

Core

Energy

Food

Housing

Apparel

Transportation

Medical Care

Recreation

Education

Other

Deflationary risk outweighs inflationary pressure

U.S. City Average CPI-U InflationYear-over-Year Change in Prices Selected Components, May 2020

Headline

Core1.2%

Source: U.S. Bureau of Labor Statistics.

Inflation is calculated as the growth in urban area prices in a given period relative to the same period in the prior year.

*Headline inflation includes all products and services. **Core inflation excludes food and energy prices.

0.2%

8

0%

2%

4%

6%

8%

10%

12%

14%

1995 2000 2005 2010 2015 2020

Unemployment improved in May but remains at historic

highs

Source: Bureau of Labor Statistics. Data are seasonally adjusted.

Unemployment Rates

Colorado April: 11.3%

May: 13.3%

U.S.

9

Counties reliant on tourism have the highest unemployment

Source: Bureau of Labor Statistics.

April 2020 Unemployment Rates

10

Dine-in restaurant service began to recover after

restrictions were lifted

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

18-F

eb

25-F

eb

3-M

ar

10-M

ar

17-M

ar

24-M

ar

31-M

ar

7-A

pr

14-A

pr

21-A

pr

28-A

pr

5-M

ay

12-M

ay

19-M

ay

26-M

ay

2-J

un

9-J

un

16-J

un

June 17

-58.1%

Colorado Open Table Seated Restaurant DinersYear-over-Year Percent Change

Source: Open Table.

11

U.S. and Denver air travel still subdued

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

March 2020 April 2020 May 2020 June 2020

U.S. TSA Passenger TrafficYear-over-Year Change

June 16, 2020

-83.1%

Source: Transportation Security Administration.

DIA Passenger TrafficYear-over-Year Change

January 5.8%

February 7.0%

March -46.4%

April -94.4%

12

$0

$40

$80

$120

$160

Reduced travel activity continues to constrain oil markets

Source: Energy Information Administration.

12,000

14,000

16,000

18,000

20,000

22,000

24,000

U.S. Oil SuppliedThousands of Barrels per Day

March 13 to June 12

-19.4%

West Texas Intermediate

Crude Oil PriceDollars per Barrel

$37.32

13

Outlook Summary

• Economic activity outperformed expectations in May slightly,

though the recession is still severe

• The recovery will impact economic sectors and geographic

regions differently

• Business activity and consumer spending will continue to improve,

but remain constrained by ongoing restrictions, health concerns,

uncertainty, and some permanent closures

• Labor markets will remain weak in the industries most affected

by COVID-19-related closures

• Inflationary pressures will remain subdued as low energy prices,

low global demand offset global supply constraints

14

Risks to the Forecast

Downside

• Strong resurgence of COVID-19

• Additional waves of layoffs

• Double-dip recession

Upside

• COVID-19 vaccine delivered sooner than expected

• Additional federal stimulus

• Structural shifts resulting in innovations

15

General Fund Budget Outlook

16

$4

$5

$6

$7

$8

$9

$10

$11

$12

$13

General Fund collections will decline with the contraction in

business and household income, and reduced consumer activity

Source: Colorado Office of the State Controller and Legislative Council Staff June 2020 forecast.

Gross General Fund RevenueBillions of Dollars

Percentages show year-over-year changes

-4.7%

-9.5%

13.9%

-15.5%-1.8%

-13.0%-4.4%

Change Relative to May

FY 2019-20: +$320.9 million

FY 2020-21: +$526.1 million

FY 2021-22: +$675.1 million

17

Income taxes represent the largest and most volatile

General Fund revenue stream…

Source: Colorado Office of the State Controller and Legislative Council Staff calculations.

*Income taxes net of the State Education Fund diversion.

60.7%

27.1%

6.8%

5.5%

Individual Income Tax

Sales & Use Tax

Corporate Income Tax

All other

Share of Total General Fund Revenue* Based on FY 2018-19 Collections

Income taxes also carry the greatest forecast risk with economic uncertainty,

delayed filing deadlines, and state and federal policy changes.

*Six-year average of actual collections data, FY 2013-14 to FY 2018-19p.

18

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

$12

$13

$14

$15

$16

TABOR Outlook

Source: Colorado Office of the State Controller and Legislative Council Staff June 2020 forecast.

Revenue Subject to TABOR

Dollars in Billions

Referendum C

Five-Year

Timeout Period

Referendum C Cap

TABOR Limit Base

TABOR Surpluses

19

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

-$100

$100

$300

$500

$700

$900

-$100

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Changes relative to May:

Revenue: +$320.9M on

income tax policy changes

Net transfer: +$145.1M on

legislative changes

Appropriations: -$281.3M

with budget package

Reserve: -$513.8M on lower

reserve requirement,

appropriations

Source: Legislative Council Staff forecasts based on current law.

3.07%

Reserve

Requirement

Current Year FY 2019-20 General Fund ReserveDollars in Millions

June 2020

Forecast

May 2020

Forecast Update

-$895.8M Deficit

7.25%

Reserve

Requirement

$364.7 million

Excess Reserve

20

$0

$500

-$3,500

-$3,000

-$2,500

-$2,000

-$1,500

-$1,000

-$500

$0

1

Next Year FY 2020-21 Budget Outlook

May 2020

Forecast Update

June 2020

ForecastChanges relative to May:

Beginning balance: +$746.6M

carried over from FY 2019-20

Revenue: +$526.1M on income

tax policy changes, slightly

higher economic expectations

Appropriations: -$1.44 billion

lower than FY 2019-20 budget

Net transfers: +$273.8 on

legislative changes

Reserve: -$571.7M on lower

reserve requirement,

appropriations

Source: Legislative Council Staff forecasts based on current law. *Amount holds FY 2019-20 appropriations constant and incorporates

the May revenue forecast, current law transfers, rebates and expenditures, TABOR refund obligations, and the 7.25% reserve

requirement.

-$3.3 Billion Shortfall*

2.86%

Reserve

Requirement

$272.7 million

Excess Reserve

21

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

1

Out Year FY 2021-22 Budget OutlookAdditional revenue available to spend or save above FY 2020-21 spending levels.

Amounts hold FY 2020-21 appropriations constant and incorporate the revenue forecast,

current law transfers, rebates and expenditures, and the 2.86% reserve requirement.

$1.34 Billion

June 2020

Forecast

This amount does not account for

caseload growth or inflationary

pressures

Source: Legislative Council Staff June 2020 forecast.

22

$4

$6

$8

$10

$12

$14

FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22

General Fund Budget (Spending or Saving)

Source: Legislative Council Staff June 2020 forecast and current law.

Dollars in Billions

TABOR Refund

Appropriations

FY 2021-22 amounts hold

FY 2020-21 constant

$1.34 Billion

Transfers

Additional Revenue to

Spend or Save Excess Reserve

Rebates & Expenditures

Required Reserve

23

Risks to the Forecast

New Information

• Legislation from the 2020 Session

• 11 months of FY 2019-20 collections data

• Starting to understand how much economic activity declined and how quickly we are bouncing back

Unknowns

• Extent of economic damage and its lasting effects

• Influence of the recession on income taxes

• Containment and treatment of COVID-19

• Additional fiscal and monetary policy changes

Downside risk: Prolonged economic recovery or a double-dip recession (COVID-19 resurgence, vicious cycle)

Upside risk: Stronger near-term rebound in economic activity, less damage to the economy than expected

24

Unemployment Insurance Outlook

25

Current State and Federal UI Benefits

* States are normally required to cover half the costs of extended benefit programs. However, this requirement was suspended

during the Great Recession and has currently been suspended through 2020, allowing full federal funding for extended

benefits.

** Expires July 2020.

Funding

Source State

State &

Federal* FederalBenefits Regular Extended Temporary

Description

Partial

wage

replacement

for up to 26

weeks

Extended benefits

are triggered by

persistently

elevated state

unemployment

rates*

Additional $600 per week for up

to four months**; Extends eligibility

to self-employed workers and

independent contractors; up to 13

additional weeks of benefits

Expires December 2020

26

Impacts of Senate Bill 20-207

Key provisions reducing the forecast fund balance:

• Freezes the chargeable wage base at $13,600 for 2021

• Suspends the solvency surcharge for calendar years 2021 and

2022

Key provisions increasing the forecast fund balance:

• Increases the chargeable wage base incrementally beginning

in 2022 to $30,600 in 2026 and adjusts for changes in

average weekly wages thereafter

27

0

10

20

30

40

50

60

70

2006 2008 2010 2012 2014 2016 2018 2020

2019

Weekly

Average: 1,900

Colorado Initial Unemployment ClaimsFour-week Average, Thousands of Claims

Source: Colorado Department of Labor and Environment. Data are not seasonally adjusted.

April 2020

Weekly

Average:

56,900

2009-2010

Weekly

Average:

4,800

March 2020

Weekly Average:

21,450 May 2020

Weekly

Average:

17,015

28

Unemployment Insurance Trust Fund

Revenues, Benefits Paid, and Fund BalanceDollars in Millions

Actual

FY 2018-19

Estimate

FY 2019-20

Estimate

FY 2020-21

Estimate

FY 2021-22

Beginning Balance $922.3 $1,104.1 $74.6 ($1,606.8)

Plus Income Received

UI Premium $523.0 $531.5 $644.1 $713.5

Solvency Surcharge $0.0 $0.0 $0.0 $0.0

Interest $23.3 $21.1 $0.0 $0.0

Total Revenues $546.3 $552.6 $644.1 $713.5

Less Benefits Paid ($365.5) ($1,582.1) ($2,325.5) ($1,184.4)

Ending Balance $1,104.1 $74.6 ($1,606.8) ($2,077.8)

Solvency Ratio* 0.87% 0.05% -1.10% -1.35%

Source: Legislative Council Staff June 2020 forecast. Totals may not sum due to rounding.

*Fund balance as a share of total annual private wages.

29

Questions?

Kate WatkinsChief Economist • Legislative Council Staff

kate.watkins@state.co.us • 303-866-3446

www.leg.colorado.gov/lcs