Colorado's economy overall continues to be one of the best in the nation, and state government is expected to be flush with even more surplus revenue than it had this year, legislative economists told lawmakers Thursday.
Due to a growing economy and the recent federal tax cuts, the state saw a $1.27 billion surplus earlier this year, a large chunk of which was earmarked for transportation. Next year, that surplus isn't expected to be as high, but could exceed another $1 billion.
Louis Pino, an economist with the Legislative Council, the nonpartisan research and staffing arm of the Colorado General Assembly, said Colorado has the fourth-best economy in the nation, behind Washington, Utah and South Dakota.
"The bottom line is the U.S. and Colorado economies are performing very well," Pino told the Legislature's Joint Budget Committee, which drafts the state's annual spending plan. "Most economic indicators remain positive. Healthy levels of job creation, robust consumer demand, rising incomes and solid business investment are propelling the U.S. and Colorado economies. The nation is on track to post the longest economic expansion in U.S. history."
Pino and Chief Economist Kate Watkins said much of the surplus was due to unusual taxpayer activity because of last year's federal Tax Cuts and Jobs Act, a hallmark of President Donald Trump's administration.
Much of that revenue increase came from taxpayers rushing to claim deductions that are set to expire this year, and business activity that was boosted by the act, Pino said.
The economists even had some positive things to report about the western region of the state, which includes Mesa, Garfield, Delta and Montrose counties.
In their report to the JBC, the economists said employment increased 4.1 percent last year for the western region as a whole, with Grand Junction seeing a 2.4 percent employment increase in the first seven months of 2018.
The report also said that the region's energy sector saw a slight increase — 3.1 percent — in natural gas production in the first five months of the year, the first such increase in five years.
Severance tax revenue, money the state collects from extraction activities such as drilling and mining, is expected to exceed $217 million this year and $188 million next year. That money goes to fund state parks and wildlife programs, water projects and to local governments to mitigate impacts of mineral resource production.
That revenue stream, however, is forecast to drop off in 2020 to about $67 million, primarily because oil and gas producers are expected to claim a larger amount of the property tax credits they are allowed to offset from their severance tax burden, the economists said.
"We expect the Colorado economy to accelerate through the rest of this year," Pino said. "We expect that the economies for both the U.S. and Colorado will continue to grow through the (five-year) forecast period, but at a slower pace."
Still, the economists warned that three things may hinder that growth: a tightening availability of qualified workers, rising inflation and trade disputes. They said additional tariffs on China and other nations have the potential of dampening Colorado growth, particularly for agricultural and manufacturing products.
"The agricultural industry, and industries reliant on steel and aluminum for production, such as the aerospace industry or medical instrument manufacturing, are expected to be most exposed to the impacts of current tariffs," the economists' report says. "Producer and consumer prices are expected to be pushed upward the longer tariffs remain in place. Canadian tariffs on U.S. timber imports have already caused prices to rise impacting the construction industry."
The economists said that the construction and manufacturing industries are among the main drivers of the state's booming economy, adding 288,000 and 240,000 jobs, respectively.
They said that the state's real estate market remains one of the hottest in the nation, and higher housing costs were driving home buyers, including retirees, to locate outside of the Denver metropolitan area or rural parts of the state, such as Grand Junction, where prices are cheaper.
"Homebuilders are slowly ramping up production, but they are mostly building on move-up and high-end levels, not at the entry level where demand is strongest," the report said. "High construction costs are making it more difficult to profit on low-priced homes."
