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

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

3. 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 bl

4. Employment Recovery National, State, Districtbl

5. Personal Income United States and Coloradobl

6. Household Debt Growth Nationalbl
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.

7. 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.

8. 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

9. Moody’s GDP Growth Expectationsbl
Source: Moody’s Analytics.

10. 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 bl

11. 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 bl

12. 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 bl
aHistorical data.

13. Forecast Uncertainty bl

14. 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 bl

15. 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 a
1.20
-1.26
0.97
5.94
8.07
6.13
3.16
4.12
3.25
3.51
3.20
4.08
5.21
4.18 bl
aHistorical data. Note: Nominal means the year of expenditure.

16. 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% bl
Note: BRD, CLC, and OSPB updates as of December 2015.

17. 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 bl

18. Thank You