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PAGE 2 | THE VILLAGER • May 28, 2020
Economic forecast presents lots of challenges BY FREDA MIKLIN GOVERNMENTAL REPORTER
On May 21, the Common Sense Institute (CSI), formerly the Common Sense Policy Roundtable, held its regular Eggs and the Economy breakfast meeting remotely, leaving folks to provide their own eggs. CSI provided important facts and figures to help understand what lies ahead for business and government in the next two years. As expected, there will be mountains to climb before our state and our country can return to the economic strength that we enjoyed before the coronavirus pandemic came calling and enveloped us all. Katie Wilkins, chief economist for the state legislature’s non-partisan Colorado Legislative Council Staff, who formerly served as regional economist for the Federal Reserve Bank spoke first. Wilkins presented a forecast update prepared on May 12 that accounted for the impact of the COVID-19 pandemic. “What
This chart shows state general fund losses in dollars and percentages for the current year and the next two years.
we’ve seen is the economy fall off a cliff, frankly, relative to our March (2020) expectations of just a minor contraction in economic activity, she said.” GDP (gross domestic product) for 2020 is now expected to drop by 5.6 percent, due to the huge and unexpected pullback in consumer activity, concentrated in the second quarter of 2020, because of the pandemic. “It’s a really sizable contraction of
ual income tax, 27 percent from sales and use tax, seven percent from corporate income tax, and the remaining five percent from other sources. The largest areas of expenditures from Colorado’s general fund are K-12 education (36 percent), health care (26 percent), higher education (nine percent) and human services (nine percent). A participant asked Wilkins about the possibility of dipping into the state’s TABOR emergency reserve. She explained that those assets are illiquid and would require the state to sell buildings, however, after drawing it down, it could institute emergency taxes.
This chart compares the shape of the impact of the COVID-19 pandemic to 2008 recession and illustrates the expected shape of the recovery.
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economic activity. What’s baked into that is a pretty extreme pullback in consumer activity, in particularly consumption of services, though a lot of durable goods also saw a radical decline during the shutdown period.” The monetary stimulus from the federal government has provided somewhat of a cushion. As businesses reopen gradually, overall activity and consumer spending will rise, but remain constrained by ongoing restrictions to prevent a resurgence of the virus. Wilkins’ forecasts assume an effective treatment for the virus within 12 to 18 months and no additional widespread outbreaks or the return of stay-at-home orders. Labor markets are expected to improve compared to current levels but “remain weak in 2020 and 2021.” Pre-COVID levels of economic activity are not expected to be seen “until at least late 2021 or 2022, if not later.” Inflation is not expected to be a problem “as low energy prices, low global demand offset global supply constraints.” The State of Colorado is projected to end the current fiscal year on June 30 with an $896 million budget deficit and is anticipating a $3.3 billion shortfall in the fiscal year July 1, 2020 to June 30, 2021. That amount can be altered by higher or lower spending than is anticipated at this time. State general fund revenue collections will decline with the contraction in business and household income and reduced consumer activity. Compared to what economists forecast just two months ago, they now see a decline of $893 million in this fiscal year ending June 30, $2.42 billion for the fiscal year ended June 30, 2021, and $2 billion for the fiscal year ended June 30, 2022. Our state gets 61 percent of its general fund revenue from individ-
Asked if she was “predicting a v-shaped recovery” (meaning the economy would rise as quickly as it fell) Wilkins said that It may look that way on the graph she used in her presentation but it won’t feel like it, because of the sheet magnitude of the decline. Next to speak was Patty Silverstein, president and chief economist of Development Research Partners in Littleton and consulting chief economist to the Colorado Association of Mechanical and Plumbing Contractors, who presented forecasts for nonresidential and multifamily new construction activity for 2020 to 2024 by region in Colorado and statewide. She explained that the demand for office, industrial, and healthcare properties was influenced by the employment forecast and that those numbers remained positive through 2024, noting that 31 percent of all employees in Colorado work in offices. She predicts that the average annual square feet of overall industrial space added in 2020-2024 will be 3.42 million square feet compared to 5.17 million square feet added in 2014-2019, a decrease of 34 percent. Within those numbers is a fourfold increase in the Colorado Springs area and a 19 percent increase in northern Colorado accompanied by a 65 percent decline in metro Denver. For the state as a whole, Silverstein forecasts an 11.5 percent decline in average annual additional healthcare square footage needs in 2020-2024 compared to 2014-2019 due to slower employment growth and the move toward more off-campus urgent care and outpatient surgery centers owing to the high cost of health care space. That mix includes a decline in new health care square footage in metro Denver of 24 percent, an increase of 15 percent in northern Colorado,
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and zero additional health care square footage in the Colorado Springs area during 2020-2024, which added 278,000 square feet between 2014 and 2019. The demand for average annual retail growth statewide is projected to decline from 2.55 million square feet in 2014-2019 to 1.58 million square feet in 2020-2024. The most significant declines percentage-wise are predicted in metro Denver, where the demand is predicted to decrease from 1,521,000 square feet annually to 845,000. In Pueblo, no new retail square footage is seen this year or in the next four years, after experiencing average annual growth of 59,000 square feet of retail between 2014 and 2019. In Grand Junction, retail added an average of 36,000 square feet annually for the past five years and is predicted to add only 5,000 square feet this year and in each of the next four years. Silverstein also presented data on the need for new space for higher education around the state. While new square footage needs are forecast to decline in nearly all other areas of our state including, notably, northern Colorado, metro Denver’s needs are predicted to double, 377,000 square feet annually from 2020-2024, compared to only 183,000 each year from 2014-2019. Looking at multi-family construction, the average annual new units needed between 2019-2024 are lower in metro Denver, northern Colorado, Colorado Springs, and Pueblo compared to the period of 2014-2018. Only Grand Junction and rural Colorado are seen as having increased needs for multi-family construction from 2019-2024. Simon Lomax, Energy Resources Fellow for the Common Sense Institute, talked about the strong negative relationship between increasing pressure to enlarge setbacks for oil and gas productions around the state and the all-important state and local tax revenues supplied by the industry. Colorado is the fifth largest oil producing state and the sixth largest natural gas producing state in the country. (Editor’s note: We will look at that issue more closely in next week’s Villager Newspaper). The final participant in the panel was state Senator Bob Rankin from Carbondale, a member of the all-important Joint Budget Committee (JBC) of the legislature that prepares the draft budget each year. After listing all the different places the JBC is looking at for budget cuts to meet the huge deficit facing the state, Rankin expressed his frustration with the numbers when he said, “You take all those and subtract them from the budget and you get the first two or three hundred thousand dollars, and now you need two billion more in cuts. That’s about what it’s like…We’re throwing widows and orphans out on the street.” Of course, he didn’t mean that literally. Over 50 people listened to the presentation remotely, including NextGen’s Charlie McNeil, real estate developer and civic leader Buz Koelbel, University of Colorado Regent Heidi Ganahl, AMG National Trust Bank’s Earl Wright, Arapahoe County Commissioner Kathleen Conti, and Republican political consultant Dick Wadham. Fmiklin.villager@gmail.com
