Property values have risen so fast in Colorado that school districts and local governments are still on track for a 25% jump in their property tax rolls — even after lawmakers approved a $434 million tax cut earlier this year.

Nonpartisan Legislative Council Staff analysts and the governor’s Office of State Planning and Budgeting on Wednesday presented their latest quarterly revenue forecasts to Colorado’s Joint Budget Committee. They were the final predictions before the legislature reconvenes on Jan. 10 for its 2024 lawmaking term, and come as the JBC begins to craft its budget for the next fiscal year, which starts July 1.

It was the first major financial update for lawmakers since the special legislative session in November, during which the legislature made sweeping changes to the budget by cutting taxes for homeowners, expanding a tax credit for low-income residents and increasing spending on a number of programs.

After accounting for the cuts, assessed values for homes are still expected to rise 28% this fiscal year for tax bills due in 2024, legislative analysts said. Assessments of commercial and other nonresidential properties are expected to jump 22% this budget year.

The property tax windfall indirectly buoys the state budget, by reducing the state’s K-12 funding obligations as local taxpayers contribute a larger share of the cost.

But, economic forecasters from the Legislative Council Staff and the governor’s Office of Planning and Budgeting warned the property tax boom may not last.

Home prices have receded from their 2022 peak, while housing construction is slowing. Offices have emptied, with Denver vacancy rates topping 30% for the first time since 2000.

To top it all off, lawmakers and outside groups are pushing for further property tax cuts in 2024, either through legislation or via the ballot. A legislative task force to study property tax relief held its first meeting Wednesday afternoon.

Put it all together and lawmakers could soon face new challenges as they try to fully fund K-12 education, on top of growing spending on other state programs. But for now, the state budget is in good shape, forecasters said.

Here’s a few other key takeaways from Wednesday’s presentation.

Usually the December forecast is when Colorado lawmakers uncover a key piece of the annual budget puzzle: how much money they need to spend on public education this school year.

This time, legislative analysts told the JBC they aren’t sure yet. Counties haven’t finalized the math on how statewide property tax cuts will affect local property assessments.

As it stands, local property taxes are expected to generate $86 million more for schools than expected. That leaves lawmakers with a choice: They can keep the state budget the same, and reduce the K-12 funding shortfall by more than expected this year, or they can redirect money away from schools to spend on other programs.

Down the road, lawmakers are likely to face harder choices. Legislative forecasts expect slower growth in home values, while office market vacancies drag down nonresidential values. The legislative forecasts expect 7% growth in the 2024-25 budget year, and less than 1% the year after that — and that’s only if lawmakers don’t enact further tax cuts.

The forecasts from legislative staff and the governor’s office largely agree about what to expect this budget year.

Forecasters said the general fund should generate around $17.1 billion in the current 2023-24 budget year, which ends June 30, an estimate largely unchanged from the last forecast in September. That’s down about $400 million from last year’s budget, largely because corporate income taxes came back down to earth from a record-setting year.

Still corporate profits continue to exceed expectations. Both forecasts expect corporate income taxes to generate around $2 billion this year. That’s down from $2.4 billion last year, but up from previous estimates.

In 2024-25, the forecasts are close as well, projecting 4% to 6% growth in the general fund. The governor’s office projects the state could maintain its 15% reserve fund with a $37 million surplus, relative to Gov. Jared Polis’ proposed spending plan. Legislative analysts forecast an $83 million shortfall — the equivalent of 0.5% of the $18.1 billion general fund.

The forecasts expect the state would collect $1.6 billion to $1.7 billion in surplus revenue above the Taxpayer’s Bill of Rights cap this budget year, triggering taxpayer refunds.

In future years, the two forecasts diverge, largely because legislative staff expect higher income tax revenue and larger refunds under TABOR, a constitutional measure that limits the growth in state tax collections to the rate of population growth plus inflation. Legislative staff project a $1.8 billion surplus in 2024-25 and a $2 billion surplus in 2025-26. The governor’s budget office projects $1.1 billion in refunds owed each year.

Neither forecast expects a recession in the coming year.

U.S. gross domestic product has grown an estimated 2.5% this year, and forecasters project 2.2% growth next year.

Denver metro area inflation dipped to 4.5% over the last year, and unemployment ticked up to 3.3%, but both remain above the national average.

However, forecasters said there are troubling signs for the housing market.

Builders are projected to pull just 39,000 housing permits in Colorado this year, down from 49,000 last year, according to the governor’s office presentation. Budget officials attributed the drop in part to high interest rates, which make it harder for builders and would-be homebuyers to acquire financing. They also cited a labor shortage in the state’s construction industry, which saw a 7% drop in jobs vs. this time last year. That was one of the largest employment dips of any sector, according to legislative analysts.

Meanwhile, sales of existing homes have dropped to their lowest level since the Great Recession, because homeowners don’t want to trade their low mortgage rates for a higher one when they move.

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