Law360 (May 13, 2020, 2:11 PM EDT) -- Colorado's tax revenues are projected to fall by $5.5 billion by fiscal year 2022 due to the recession induced by the COVID-19 pandemic and federal tax policy changes responding to it, according to the state governor's budget office.
According to a report released by the Colorado Governor's Office of State Planning and Budgeting on Tuesday, the state's general fund revenue for fiscal year 2020 is projected to be $11.6 billion, $1.1 billion lower than the $12.7 billion forecast in March. General fund revenue will be $2.4 billion lower for fiscal year 2021 and $2 billion lower in fiscal year 2022 than the March forecast.
Federal policy changes in the Coronavirus Aid, Relief, and Economic Security Act , or CARES Act, are expected to account for $400 million in reduced income tax collections by fiscal year 2022, the report said.
The Colorado economy's dependence on the tourism and energy sectors means that the state is even more vulnerable, the report said, as both sectors are unlikely to quickly recover.
Individual and corporate income taxes and sales and use taxes account for 96% of the state's general fund revenue, with all three sources seeing steep drops since the state's forecast in March. According to the report, other tax revenue sources, like insurance premium taxes and tobacco and liquor excise taxes, were not significantly different from the March forecast.
Projected sales tax revenue for the state has been reduced by $347.6 million for fiscal year 2020, $643.7 million in fiscal year 2021 and $494.4 million in fiscal year 2022, compared to the state's March forecast, the report said. Consumer spending is projected to remain under pre-COVID-19 pandemic levels until fiscal year 2022.
According to the report, sales tax revenue is dependent on the performance of several sectors that have been severely affected by the pandemic, such as the accommodation, motor vehicle sales, retail and wholesale, and food and beverage sectors. However, sales tax collections from online retailers would boost tax revenue.
Corporate income tax revenue is projected to fall to $575.5 million in fiscal year 2020, which the budget office said would be a 37.5% decline from fiscal year 2019. The report noted fiscal year 2019 revenue was higher than usual because of a large settlement with a delinquent taxpayer. The updated forecast projects corporate income tax revenue to be 25% lower than in the March forecast due to the pandemic.
For individual income taxes, projected collections have been revised downward by $538.6 million for fiscal year 2020 and $1.6 billion for fiscal year 2021. The report said "significant workforce reductions" would contribute to the decreased collections. Over 16% of the state's workers have filed unemployment claims since the middle of March, with tourism-dependent mountain communities reporting the largest increases in claims.
The report also noted lower-paying industries have a much higher share of layoffs than higher-paying businesses, with industries paying average wages below $20 an hour accounting for over 60% of total initial unemployment claims.
Democratic Gov. Jared Polis on April 30 signed an executive order to cut $228.7 million from the state budget. Polis, in a statement Tuesday about the updated forecast, acknowledged the difficulties Coloradans were facing as a result of the pandemic.
"This is a challenging budgetary environment and everyone is working hard to ensure Colorado remains on the right path," Polis said. "We are all in this together and we will get through it together."
Sage Naumann, communications director for the state Senate Republicans, told Law360 it would not be possible to raise taxes to cover the revenue drop because any tax increase must go to the voters under the state's Taxpayer Bill of Rights, and the state needs a balanced budget in place by June 31. Naumann said the state Joint Budget Committee would be considering cuts to state spending.
"Practically everything is on the table with such a massive shortfall," Naumann said. "It's a collaborative effort, and I don't think anybody is going into it with specific cuts in mind considering how significant the shortfall is."
Polis' office did not respond to requests for additional comment regarding potential measures to address the revenue drop. Party leadership in the state House and Democratic leadership in the Senate also did not respond to requests for comment.
--Editing by Joyce Laskowski.
Correction: An earlier version of this story misstated the title of the budget office. The error has been corrected.
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