Colorado needs to cut $3.3 billion from the budget for fiscal year 2021 after the largest revenue drop in the state’s history, officials said.
“This pandemic is affecting the global economy, and Colorado is not immune to this economic crisis,” said Gov. Jared Polis. “This is a challenging budgetary environment, and everyone is working hard to ensure Colorado remains on the right path.”
COVID-19 has triggered widespread job losses amid business closures and lost tourism, and the state’s oil and gas industry has also been hard hit by falling prices.
More than 16% of the state’s workers have filed unemployment claims since mid-March, predominantly in low-wage industries, officials said.
“With the rapid deterioration of the labor market, official unemployment figures currently understate the scale of the economic catastrophe,” the new outlook from the governor’s office said. “The labor market impact of the pandemic varies significantly across the state, with tourism-dependent mountain communities experiencing the largest increases in initial UI claims.”
General Fund revenue is expected to fall by 7.4% in FY 2019-20 that ends June 30 and by another 7.5% percent in FY 2020-21 that begins July 1. The General Fund revenue forecast was revised down from the March forecast by a total of $3.4 billion through June 30, 2021, and by $5.5 billion over the forecast period through June 30, 2022.
The decline is due not only to the impact of the pandemic-induced recession but also due to federal tax policy changes in the CARES act that will reduce the state’s income tax collections from businesses by more than $400 million over the forecast period, the governor’s office said.
On April 30, Polis signed an executive order proactively making specific cuts with the least possible impact to state programs and services. That reduced $228.7 million from the budget. The General Fund reserve now is projected to be $3.4 billion below the proposed statutory reserve amount for FY 2020-21.
“Recovery from this recession is expected to be slow and highly contingent upon progress against the virus,” the governor’s office said.
Transportation-related cash fund revenue is projected to decrease by 4.7% in FY 2019-20 and grow by 1.5% in FY 2020-21. The forecasts have been revised downward since March, by $25.6 million, or 2.1%, in FY 2019-20 and by $67.9 million, or 5.2%, in FY 2020-21.
Legislative Council economist Greg Sobetski told the Joint Legislative Budget Committee that businesses that incur losses don’t owe income taxes and don’t make estimated tax payments. That adds volatility in income tax collections, he said.
Weld County, which includes Greeley north of Denver, will be especially hard hit by the drop in oil and gas production and revenues.
New well permit submissions were down 96% in April from the year prior, as Colorado producers withdrew more permits than were submitted. Producers have reduced the number of active oil rigs in the state to eight last week, down from 33 a year ago.
According to a survey by the Federal Reserve Bank of Kansas City, regional energy firms estimated that only 61% of their competitors could remain solvent for at least one year if prices remain below $30 per barrel.
Moody’s Investors Service has a stable outlook on Colorado’s Aa1 issuer credit rating. Colorado does not issue general obligation bonds but does issue certificates of participation, which Moody’s rates Aa2.
Colorado has an issuer credit rating of AA with a stable outlook from S&P Global Ratings.
“States most dependent on tourism are likely see credit pressures due to loss of revenue, spikes in unemployment, and reduced economic activity and may face a significant lag during the recovery,” said S&P Global Ratings credit analyst Ladunni Okolo.
Colorado’s ski resorts were required to close in mid-March, one of their busiest months.
International tourists and those who normally vacation in state have also been affected. As of mid-April, the U.S. Travel Association estimated that Colorado traveler spending had declined by 89% from the prior year.
Nationally, March retail sales were down 8.7% from February, representing the largest
monthly decline ever recorded by the data series beginning in 1992, according to the report.
As of May 1, the federal Paycheck Protection Program had issued $10.5 billion in loans to about 14% of Colorado small businesses, the report said. That accounts for 2% of the overall share of available loans.
“At least 75% of the loans must be spent on worker pay within the first eight weeks of the loan in order for the recipient to qualify for loan forgiveness, which suggests that they will have a significant effect on keeping workers employed in at least the short term,” the report said. “In the absence of further relief programs, however, the loans may not be sufficient to keep afloat firms in hard-hit sectors such as retail, food services, and oil and gas, evidenced by recent surveys showing a majority of small businesses in some of these sectors yet to receive federal stimulus loans.”