By Marianne Goodland | Colorado Politics
Colorado’s economic outlook is on a downward trend, according to state economists, who estimated that the chances of a recession here have risen to 50%.
“Uncertainty is the key aspect impacting the economy now and moving forward,” said Legislative Council Chief Economist Elizabeth Ramey, who discussed the June revenue forecast with the Joint Budget Committee on Wednesday.
The Office of State Planning and Budgeting (OSPB) is also less than optimistic about the economic outlook, should a federal budget bill pass, predicting it could affect 100,000 people on Medicaid and SNAP, devastate the state’s rural and safety net hospitals and nearly wipe out the state’s general fund reserve over the next two years.
Uncertainty is also the watchword for OSPB’s Bryce Cooke, who noted that while wage growth is stable, the same cannot be said for retail sales, which are slowing overall consumption and leading to a “pullback in business capital investments and labor demand.”
Consumer debt is at its highest level in 20 years, said Cooke, a finding also noted by Legislative Council economists.
Both forecasts showed a downward revision in economic growth for this year and 2026, with OSPB attributing the decline to elevated uncertainty around tariffs, which, the economists said, will affect spending and investments.
All of this suggests that Colorado is likely headed toward higher unemployment rates, with increased job losses and reduced job growth, Cooke said, adding that also includes weaker wage growth, expected to continue through 2027.
Both forecasts noted a weakening of consumer confidence, as indicated by poor consumer spending and efforts by consumers to save money in the wake of economic uncertainty.
The federal budget bill could cost Colorado $300 million to $700 million in general fund revenue, according to the OSPB forecast.
However, one of the more concerning factors is a prediction that Colorado could be in a recession within the next year, with an OSPB estimate that has increased from 40% to 50% in just the last three months. That’s due to a long list of factors, including federal policy, a “softening labor market,” re-acceleration of inflation, global geopolitical conflicts, particularly in the Middle East, and a rapidly aging population, coupled with slower economic growth.
The OSPB forecast noted that, had tariff rates remained at 28% as they were in April, that recession risk would have been above 50%.
The impact on the state budget: OSPB revised downward its general fund revenues estimate for 2025-26 by $177 million and for 2026-27 by almost $500 million.
That will also have an impact on the Taxpayer’s Bill of Rights surplus, coupled with downward revisions in cash funds, meaning a TABOR surplus is likely to be at its lowest expectations in years. Legislative Council economists predicted that there would not be enough money to cover the property tax exemptions, which are the first to be paid from the TABOR surplus.
OSPB also narrowed its expectations on the TABOR surplus, although its numbers were higher. There should be enough surplus in the next two years to cover the senior and veterans’ homestead exemptions, but little else, economists said.
Another impact of the downward revenue numbers: Both forecasts said tax credits tied to the TABOR surplus, the result of legislation in 2023 and 2024, will not be paid in 2026. The two largest are the Family Affordability Tax Credit and the Expanded Earned Income Tax Credit, both of which are from the 2024 legislation.
The news regarding the general fund reserve is also unfavorable. Legislative Council economists said the General Fund reserve is expected to be below the reserve requirement in all three years of the forecast period.
OSPB noted that individual income tax revenue declined in the current fiscal year, which ends on June 30, by $435.2 million. That’s due to the utilization of the 2023 and 2024 tax credit legislation and state-level tax policy expansion, OSPB noted.
Corporate income tax revenue is also expected to decline in 2025-26 and 2026-27, according to OSPB, due to weaker business expectations and lower corporate profits. In 2025-26, that’s $46.3 million less, and in 2026-27, it’s $105.6 million less.
OSPB also predicted “weakened” sales and use tax revenue, with $53.5 million less in 2025-26 and $53.8 million less the following year, driven by “consumer weakness,” tariffs, and inflation.
OSPB Director Mark Ferrandino said the federal budget reconciliation bill would “wreak havoc” on state spending.
Ferrandino said he had hoped the U.S. Senate version of the reconciliation bill would be better, but he no longer believes that, in part because the Senate version alters the funding for the state’s hospital provider fee, which is matched with federal dollars at a 90/10 rate.
Ferrandino said that it could cost Colorado $900 million to $2.5 billion per year and would devastate hospitals, particularly rural and safety-net facilities across the state.
Ferrandino also said the potential exists for a “mild” recession, tied to the budget reconciliation bill, that could result in a $1.6 billion shortfall in the 2025-26 budget and a reduction in the statutory reserve to 5.1% of general fund revenue, down from the required level of 15%.
The following year, the reserve could drop to as low as 2%, Ferrandino said.
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