RTD Sales and Use Tax Forecasting Model Robert McNown Richard Wobbekind Brian Lewandowski Miles Light March 17, 2015 020215 BL

Presentation Outline Model development Economic drivers Uncertainty Forecasts and revisions Comparison with Colorado Legislative Council and OSPB 020215 BL

Model Development: Key Economic Drivers 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, productivity, output, and household expenditures 020215 bl

Employment Recovery National, State, District 020215 bl

Personal Income United States and Colorado 020215 bl

Household Debt Growth National 020215 bl Search for: flow of funds z.1, then from the data download program, select quarterly D.2. Next release:. Source: U.S. Flow of Funds Account, Z.1 data release.

State Taxable Retail Sales in the District Examining the 12-month rolling sum of taxable retail sales to show an annualized figure, taxable retail sales in the seven-county district have recouped losses stemming from the recession, and are now 7.5% above the prior peak. Data Sources: Colorado Department of Revenue and RTD, based on period month.

Forecast Uncertainty and Revisions Previous slides show steady, moderate growth as U.S. and Colorado economies recover from recession Colorado economy stronger than national average, both in long run and in recent recovery Looking ahead, forecasters encounter uncertainty Fed policy, Europe, the Middle East, etc. Frequent revisions of forecasts to reflect new information

Moody’s GDP Growth Expectations 020215 bl Source: Moody’s Analytics.

RTD Total Revenue Forecast Errors and Revisions Forecast Percent Error Forecasted Quarter December 2013 Forecast March 2014 Forecast June September 2014 Forecast December 2014 Forecast Q4 2013 0.36 -   Q1 2014 -2.52 -0.87 Q2 2014 -3.25 -2.40 3.03 Q3 2014 -5.90 -4.92 -3.07 -4.69 Q4 2014 -3.66 -2.63 -2.35 -2.22 2.08 020315 bl

Factors Impacting 2015 Revenues Improved Colorado employment, sales, and personal income expectations Change in taxable goods for RTD Addition of marijuana retail sales Decreasing oil prices 010413 bl

Short-Term Forecast RTD Sales and Use Tax Revenues Forecasted Percentage Changes of Sales, Use and Total Revenues Year Sales Tax Revenue Use Tax Revenue Total Revenue 2013a 4.86 -2.43 4.18 2014a 9.46 13.85 9.85 2015 6.20 16.22 7.09 2016 6.13 7.11 6.22 020215 bl aHistorical data.

Forecast Uncertainty 020215 bl

Long-Term (30-year) Forecasts Affected by Demographic Shifts Population age distributions affect long-run growth through impacts on savings, labor supply, productivity, output, and household expenditures National population forecasts: U.S. Census Bureau State and district population forecasts: Colorado Demography Office 010413 bl

Long-Term Forecast RTD Sales & Use Tax Revenues (Nominal) Average Annual Percentage Rates of Growth, Nominal Dollars Years RTD Sales Tax RTD Use Tax Total RTD Revenues 2001-2010a 1.20 -1.26 0.97 2011-2020 5.94 8.07 6.13 2021-2030 3.16 4.12 3.25 2031-2040 3.51 3.20   2011-2040 4.08 5.21 4.18 020215 bl aHistorical data. Note: Nominal means the year of expenditure.

Forecast Comparison Forecast Comparison Colorado Economic Indicators Business Research Division Colorado Legislative Council Office of State Planning and Budgeting Personal income (% change)   2015 6.3% 7.0% 5.9% 2016 7.1% 8.3% 6.2% Employment (% change) 2.8% 3.0% 3.2% 2.7% Retail trade (% change) 6.9% 6.8% 5.4% 6.4% 6.1% 020215 bl Note: BRD, CLC, and OSPB updates as of December 2015.

Integrity of Model Forecasts Forecasts are updated quarterly to reflect the most current economic situation Forecasts may be too high or too low, reflecting uncertainty in the economy Forecasts are generated from theoretically sound 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 010413 bl

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