State economy is picking up some speed

DENVER - Colorado's economy grew faster this year than expected, and it's set to grow and add jobs at an even faster clip in 2013, state economists said Thursday.

But there's just one problem - Washington, D.C.

The ongoing drama over the "fiscal cliff" negotiations between Congress and President Barack Obama has become a real drag on the economy, top economists for the governor and the Legislature said during their quarterly economic forecast.

Henry Sobanet, director of the governor's budget office, said business leaders have real fears about the fiscal cliff but are ready to expand if the issue gets settled.

"It's a real psychological issue on the upside," Sobanet said. "We are really on the cusp of a sustained expansion."

The fiscal cliff is a creation of Congress and the president. It's a mix of tax increases and $1.2 trillion in spending cuts that is designed to be so harmful that it will force both sides to reach a long-term budget deal.

If they can't reach a deal, economic growth next year would fall by more than 4 percent and plunge the country into a new recession, said Natalie Mullis, the Legislature's chief economist.

But Mullis expects a deal from Washington by spring, which will lead to higher economic growth in the second half of 2013.

Colorado is in the top 10 states in job growth, according to the governor's office,

"Both urban and rural areas of the state are growing. Colorado has a very resilient agricultural economy," Mullis said.

But the expansion isn't shared equally.

Housing construction in Southwest Colorado "continues to struggle and is expected to be a drag on this region in the future," according to the Legislature's report.

Last year's warm winter probably led to lower employment in the region, too, according to the report.

But retail sales in the Four Corners posted their second straight year of strong growth.

But overall, the state is doing well, so for the first time in five years, legislators will have extra money to fight over.

Because of two years of conservative budgets, the State Education Fund - a savings account for schools - is expected to grow to nearly $790 million by next summer. The fund had been at risk of insolvency in some recent years.

Gov. John Hickenlooper wants to maintain a large reserve to get ready for the next recession. But his office also said Thursday that he will ask in January for higher spending on education, economic development, public health, safety and infrastructure.