December 2023 | Legislative Council Staff

Outlook for the Economy, Budget

and School Finance

Presentation to the Colorado School Finance Project

January 19, 2024

Economic Outlook

Economic growth exceeded expectations in 2023

Real U.S. Gross Domestic Product

Trillions of Dollars, Adjusted for Inflation

Source: U.S. Bureau of Economic Analysis and Legislative Council Staff December 2023 projections. Real GDP is inflation-adjusted to chained 2012 levels and shown at seasonally adjusted annualized rates.

Annual Growth

2021: 5.9%

2022: 2.1%

2023*: 2.5%

2024*: 2.2%

2025*: 2.4%

*Forecast

Impacts of economic slowdown vary across sectors

Colorado Job Gains and Losses by Supersector

Year-over-Year Change, October 2023

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

Thousands of Jobs Percent Change

Housing costs continue to exert upward pressure on Inflation

Contributions to Denver-Aurora-Lakewood CPI-U

Year-over-Year Change in Prices

The forecast anticipates a continued, slowing expansion.

• Downside Risks:
• Persistent inflation
• More restrictive monetary policy
• Deteriorating household finances stymie consumption
• Geopolitical uncertainty, trade disruptions, other external shocks
• Upside Risks:
• Rebounding real wages boost household spending and finances
• Faster resolution to inflationary pressures
• More accommodative monetary policy
• Further expansion in the labor force, productivity growth

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General Fund Revenue Outlook

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Revenue outlook upgraded modestly through�FY 2024-25

23.7%

Source: Colorado Office of the State Controller and Legislative Council Staff December 2023 forecast.

Gross General Fund Revenue

Billions of Dollars

Percentages show year-over-year changes

11.2%

1.7%

-15.4%

-1.5%

-12.9%

-4.2%

-2.7%

December 2023 Expectations

6.0%

5.5%

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TABOR Outlook

Source: Colorado Office of the State Controller and Legislative Council Staff December 2023 forecast.

Revenue Subject to TABOR

Dollars in Billions

Referendum C

Five-Year Timeout Period

Referendum C Cap

TABOR Limit Base

TABOR Surpluses

Revenue Above the Ref C Cap

FY 2022-23: $3.57 billion

FY 2023-24: $1.78 billion

FY 2024-25: $1.79 billion

FY 2025-26: $2.01 billion

CY 2022 inflation determines FY 2023-24 growth rates

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Assessed Values

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2023: Reassessment Year

• Determines school finance for FY 2023-24

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• Residential value growth represents appreciation between June 2020 and June 2022

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• Nonresidential value growth driven by rapid increases in vacant, commercial, and industrial values and a spike in oil and gas prices

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2023 Valuations: The Perfect Storm

+40%

+42%

FHFA All Transactions Price Index

Colorado, Indexed to 2012

Case-Shiller Home Price Index

Denver, Indexed to 2012

Source: U.S. Federal Housing Finance Authority. Quarterly data. Seasonally adjusted.

Source: S&P Dow Jones Indices LLC.

Monthly data. Seasonally adjusted.

2023 Valuations: The Perfect Storm

Prices peaked in June 2022

Value of Colorado’s oil and gas production rose rapidly following the pandemic

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Dollars in Billions

Source: COGCC and Legislative Council Staff.

Forecast

2023: Reassessment Year

Assessed values in 2023 significantly lower than what would be expected otherwise due to legislative adjustments

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• SB 22-238:
• Lower 27.9 percent assessment rate for most types of nonresidential property and a $30,000 actual value reduction for real lodging and improved commercial property

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• SB 23B-001:
• Lower 6.7 percent assessment rate for residential property after a $55,000 actual value reduction

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2023 Reassessment Year: 24.8% growth

Fastest growth in resort communities, larger relative impact of legislative adjustments on growth in lower value areas of the state

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2024 Intervening Year: 6.9% growth

Fastest growth in lower value areas of the state that experienced a larger relative impact of 2023 legislative adjustments

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Risks to the Assessed Valuation Forecast

• Market conditions, including:
• Housing market correction and impact on 2025 reassessment cycle
• Value of oil and gas production through the forecast period

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• Evolving property tax policy environment
• Estimated single family RAR for 2024; actual rate forthcoming
• Property Tax Commission
• Ballot Measures

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K-12 Enrollment Forecast

LCS Enrollment Forecast

LCS forecasts K-12^th Grade on FTE basis:

• Students attending Brick and Mortar (traditional) schools
• Online students
• Charter School Institute students
• Extended High School (ASCENT, TREP, Ptech) students

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LCS does not forecast:

• At-Risk students
• English Language Learner (ELL) students

Enrollment Forecast (FTE Basis)

AY 2023-24

• Down 3,328 (0.4%) on year-over-year basis
• Down 1,061 (0.1%) relative to initial appropriation

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AY 2024-25

• Down 4,613 (0.6%) on year-over-year basis

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AY 2025-26

• Down 3,900 (0.5%) on year-over-year basis

School Finance Outlook

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Change in Expectations for FY 2023-24 School Finance Funding�Dollars in Millions

Source: Legislative Council Staff December 2023 forecast

*Current law appropriation uses December 2022 forecast

Current Law

Appropriation*

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$141 million

December 2023 Expectations

The General Assembly's Choices Range From:

Hold at $141 million

Reduce to $113 million

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Year-over-Year Change in School Finance Funding�FY 2023-24 to FY 2024-25*�Dollars in Millions

Source: Legislative Council Staff December 2023 forecast

*Assumes that the budget stabilization factor is eliminated in FY 2024-25

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Scenario for State Education Fund (SEF) during the Forecast Period

• Scenario assumes GA doesn’t want to:
• maintain BS Factor beyond FY 2023-24;
• produce a cliff effect by having negative y/o/y change in GF contribution.

(Scenario largely depends on estimated increases local share in 2023 & predicted increases in 2025 & 2027.)

• SEF Balance projected at $1.5 billion in FY 2023-24 with $141.2 million BSF
• Eliminating BS Factor in FY 2024-25 and holding GF appropriation constant results in and ending balance in SEF of:
• $1.5 billion in FY 2024-25;
• $1.4 billion in FY 2025-26;
• $1.1 billion in FY 2026-27;
• Scenario assumes increasing contribution from SEF:
• $461.6 million in FY 2023-24;
• $772.7 million in FY 2024-25;
• $849.9 million in FY 2025-26;
• $1,005.5 million in FY 2026-27.

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Current Areas of Uncertainty

Assessed Values and the Property Tax Commission

• Very likely some kind of cut to property taxes, which would mean a lower local share for FY 2024-25 than forecast

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Recommendations from School Finance Task Force

• Report on recommended formula changes due on January 31^st.

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Implementation of New At Risk Factor

• Report on CDE pilot program expected in early February.

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Questions?

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Greg Sobetski

Greg.Sobetski@coleg.gov | 303-866-4105

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Marc Carey

Marc.Carey@coleg.gov | 303-866-4102

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Current Year K-12 Enrollment�Full-time equivalent (FTE) students counts

Source: Colorado Department of Education October Count

Decline in 2023-24 Enrollment:

-3,328 FTE

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That is 1,061 FTE (0.1%) less than was forecast last year.

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Year-over-Year Change in Enrollment�2023-24 compared to 2022-23

Source: Colorado Department of Education October Count

Total

-0.4%

Brick

& Mortar

-0.7%

Online

7.0%

Kindergarten

-2.2%

1^st – 12^th

-0.3%

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K-12 Enrollment - Forecast

Source: Colorado Department of Education and Legislative Council Staff December 2023 forecast

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Projected Change in 2024-25 Enrollment

Total

-0.6%

Brick & Mortar

-0.6%

Online

0.8%

CSI

1.1%

Kindergarten

-0.8%

1^st – 12^th

-0.5%

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Extended High School Enrollment

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Risks to the K-12 Enrollment Forecast

Upside Risks:

• Extended high school enrollment increases faster than expected
• Population of five year olds expected to grow beginning in 2025
• Students who left public education during the pandemic return more quickly than expected

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Downside Risks:

• Housing affordability issues continue to limit options for families
• Lower birth rates constrain enrollment more than expected

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