Business Research Division Leeds School of Business University of Colorado RTD Sales and Use Tax Forecasting Model Richard Wobbekind Miles Light Brian Lewandowski Robert McNown September 24,

Business Research Division Leeds School of Business University of Colorado Presentation Outline Model development Economic drivers Uncertainty Forecasts and revisions Comparison with Colorado Legislative Council and OSPB 2

Business Research Division Leeds School of Business University of Colorado Model Development Short-term, medium-term forecasts: –Employment –Personal income –Retail sales and taxable sales Long-term forecasts: –Population projections from U.S. Census and State Demography Office –Population age distributions affect savings, labor supply, output, and household expenditures 3

Business Research Division Leeds School of Business University of Colorado Total Employment Denver-Aurora-Broomfield & Boulder MSAs 72 Months 58 Months Source : Bureau of Labor Statistics, CES (Seasonally Adjusted). 4

Business Research Division Leeds School of Business University of Colorado District Total Nonfarm Wages, 4Q Rolling Sum Source: Bureau of Labor Statistics, QCEW. Note: includes Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson counties. 5

Business Research Division Leeds School of Business University of Colorado Personal Income United States and Colorado 6

Business Research Division Leeds School of Business University of Colorado Household Debt Growth National Source: U.S. Flow of Funds Account, Z.1 data release. 7

Business Research Division Leeds School of Business University of Colorado State Taxable Retail Sales in the District Data Sources: Colorado Department of Revenue and RTD, based on period month. 8

Business Research Division Leeds School of Business University of Colorado Forecast Uncertainty and Revisions Previous slides show steady, moderate growth as U.S. and Colorado economies recover from recession Looking ahead, forecasters encounter uncertainty –Uncertainty over the debt ceiling, government shutdown, fed policy, Europe, the Middle East, etc. –Our revisions of forecasts to reflect new information Employment revisions Department of Revenue Accounting GDP expectations 9

Business Research Division Leeds School of Business University of Colorado GDP Expectations Source: Moody’s Analytics. 10

Business Research Division Leeds School of Business University of Colorado Revisions to 2013 Forecasts of Key Economic Drivers 11 National Forecast Revisions June to September YearJuneSeptemberRevision GDP Retail Sales State Forecast Revisions June to September YearJuneSeptemberRevision GDP Personal Income

Business Research Division Leeds School of Business University of Colorado Forecast Revisions Forecast Percent Error Quarter March 2012 Forecast June 2012 Forecast September 2012 Forecast December 2012 Forecast March 2013 Forecast June 2013 Forecast Q Q Q Q

Business Research Division Leeds School of Business University of Colorado Short-Term Forecast RTD Sales and Use Tax Revenues 13 a Historical data. b Includes estimates attributable to HB Forecasted Percentage Changes of Sales, Use and Total Revenues Year Sales Tax Revenue Use Tax Revenue Total Revenue Total Revenue with HB a a b

Business Research Division Leeds School of Business University of Colorado Forecast Uncertainty 14

Business Research Division Leeds School of Business University of Colorado Medium-Term Forecast Baseline Sales and Use Tax Revenue a Historical data. 15 Percentage Change in RTD Total Tax Revenue: Baseline Scenario Year2011 a Total

Business Research Division Leeds School of Business University of Colorado Long-Term Forecast RTD Sales & Use Tax Revenues (Nominal) 16 a Historical data. Note: Nominal means the year of expenditure. b Total includes estimates attributable to HB Average Annual Percentage Rates of Growth, Nominal Dollars Years RTD Sales Tax RTD Use Tax Total RTD Revenues RTD Revenues with HB a b b

Business Research Division Leeds School of Business University of Colorado Forecast Comparison Colorado Economic Indicators Business Research Division Colorado Legislative Council Office of State Planning and Budgeting Personal income (% change) %3.90%4.30% %5.40% Employment (% change) %2.40%2.60% %2.20%2.40% Retail trade (% change) %3.40%4.80% %5.40% 17

Business Research Division Leeds School of Business University of Colorado Interpreting the Model Forecasts Forecasts represent a best estimate at a given point in time Updated quarterly to reflect the most current economic situation Forecasts are generated from economic relations, modeled with state-of-the-art methods of modern econometric time series analysis BRD forecasts do not incorporate “add factors” or other subjective adjustments of model forecasts BRD is independent from RTD with no political or financial stake in the forecast numbers 18

Business Research Division Leeds School of Business University of Colorado Thank You 19