The decline in tax revenue — compared to the December forecast from legislative economists — is driven by decreases in income and sales tax collections as the pandemic spikes unemployment and suppresses the retail and tourism economy.
The negative number reverses a decade of growth in Colorado and is the first decline since the start of the Great Recession hit in the 2008-09 fiscal year.
“What has transpired over the last two months has been, in many ways, unimaginable,” said Kate Watkins, the chief legislative economist, in a presentation to state lawmakers.
The immediate focus is the $3.3 billion shortfall for the next year — which includes an $896 million deficit in the current budget. The shortfall will force lawmakers to cut 25% from how much they spent in the current year. The actual shortfall is slightly less because the numbers don’t include the $229 million reduction in state spending from governor’s action April 30.
The Polis administration presented a more optimistic economic outlook but still showed a $6.6 billion impact in the next three years. In the near term, the revenue is projected to fall $3.4 billion short from what Gov. Jared Polis proposed in November, or a $2.7 billion cut from the current year spending.
The financial landscape is worse than Colorado lawmakers expected after preliminary estimates suggested an immediate budget shortfall between $2 billion and $3 billion.
So far, lawmakers approved about $700 million in cuts, according to a tally from the governor’s office, but deferred action on another $800 million. To balance the budget, lawmakers will need to go even deeper.
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