(Colorado Newsline) Wage growth and Colorado’s overall economic output continue to exceed expectations as inflation ebbs, state economists told lawmakers at the Capitol on Friday. But pressure in the form of high housing costs and other factors still pose significant “downside risks,” they warned, and quirks in the state’s constitutionally-mandated budgetary limits may put the squeeze on state social spending.

The March updates to the state’s official economic forecasts were presented to the Legislature’s powerful Joint Budget Committee, which will play a key role in shaping Colorado’s roughly $40 billion budget in the coming weeks. Two different quarterly forecasts are prepared by analysts from the Legislative Council Staff, an arm of the General Assembly, and the governor’s Office of State Planning and Budgeting.

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Both forecasts revised upwards some of their key estimates from previous figures in December, projecting that Colorado’s gross domestic product and state tax revenues will be higher than expected in 2024. But because tax revenues in Colorado are strictly limited by a 1992 constitutional amendment, the Taxpayer’s Bill of Rights, that means that Coloradans can expect substantial refunds in each of the next three years, according to the forecasts.

The combination of the TABOR limits and higher-than-expected revenues for the state’s cash funds — which collect fees and allocate them for a dedicated purpose, like transportation — could mean less wiggle room in the state’s general fund, much of which is allocated to education, health care and other social services.

“When we have increasing cash fund revenue subject to TABOR, we have an increased general fund obligation for TABOR refunds that limits available budget space,” Greg Sobetski, the chief economist for LCS, told lawmakers.

In a press release, Democratic legislative leaders said the forecasts showed a “strong economy” but a “constrained state budget.”

“The March economic forecast represents the final set of data before we finalize this year’s budget,” said state Senator Rachel Zenzinger, an Arvada Democrat and vice chair of the JBC. “Today’s cautiously optimistic outlook reaffirms our budget work thus far: to be bold in supporting critical services by fully funding schools and health care provider rates, but to be responsible and constrain spending so we remain well-prepared for the future.”

The excess revenue under TABOR can be refunded through a variety of mechanisms. For the second fiscal year in a row, Coloradans this year will receive “flat” refund checks of $800 each, rather than tiered payments based on income levels, under a plan enacted by lawmakers in a special legislative session last year.

Though neither forecast projects that an economic downturn is likely in the short term, the OPSB still estimated the odds of a recession in the next year at 30 percent. Consistent with national trends, Colorado’s inflation rate continues to fall, while its unemployment rate has risen slightly as higher interest rates have put a damper on job growth. Both forecasts noted the upward pressure on living costs exerted by Colorado’s housing shortage, and looked ahead to potential federal interest-rate cuts in mid-2024, which could help ease “shelter inflation” by spurring more home construction.

“Colorado continues to lead the nation with strong economic growth and unemployment below the national average,” Governor Jared Polis, a Democrat, said in a statement Friday. “Our focus on continuing to strengthen our workforce and saving Coloradans money on housing, education, healthcare, and more will drive an even more dynamic economy while protecting our reserves and the financial strength of the state.”

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