State forecasters expect Colorado’s budget crunch to continue for the foreseeable future in the face of ongoing economic uncertainty.
Consumer sentiment remains near its 20-year low, reflecting less discretionary spending locally and from tourism. Economists under the governor’s office expect economic growth, as measured by gross domestic product, to dip into the negative next quarter as consumers and companies feel the brunt of President Donald Trump’s tariffs before flattening out for the rest of the year.
And when it comes to state spending, Colorado’s unique cap on budget growth and expected costs for Medicaid, maintenance and more leaves budget-writing lawmakers nearly $700 million in the hole for the budget year that begins July 1, 2026.
That hole continues the ongoing budget woes lawmakers confronted earlier this year as they pulled back $1.2 billion in spending to account for rising costs in mandatory spending.
Taken together, state finances are left balancing on a fine line, even before uncertainties like the federal reconciliation bill, tariffs and the overall economic climate are felt, according to economic forecasts presented to state budget writers Wednesday.
“We knew last year that we were going to be heading into a tough budget year next year,” Sen. Jeff Bridges, a Greenwood Village Democrat and chair of the Joint Budget Committee said. “What we didn’t expect was how significant an impact federal policy would have on Colorado’s economy. And not just on our economy, but what it is we’re expected to fund as a state.”
In a statement, Gov. Jared Polis blamed policy from Washington, D.C., for creating an undertow on Colorado’s economy.
“Trump’s disastrous tariff taxes continue to wreak havoc on our economy and the erratic trade policy is projected to continue hurting our economy, slowing job growth and increasing chances of a recession,” Polis said in the statement about the economic forecasts. “These national circumstances present a difficult economic environment for the state. Despite this, Colorado continues doing all we can to support local businesses, save Coloradans money and support prosperity in communities across the state.”
Mark Ferrandino, director of the executive branch Office of State Planning and Budgeting, warned the legislative Joint Budget Committee of a dual whammy of the Trump-backed One Big Beautiful Bill Act and an overall economic recession. The two together “could really wreak havoc with where we are from a budget perspective,” he said.
Ferradino estimated that the federal budget bill would cost the state between $900 million and $2.5 billion per year, depending on how some of the proposed provisions are implemented. Proposals to cut the federal match for Medicaid coverage expanded under the Affordable Care Act, unless programs for undocumented immigrants are cut, and changes to the Supplemental Nutrition Assistance Program, or SNAP, could account for hundreds of millions of lost dollars alone.
Bridges, the budget committee chair, called the federal bill’s cuts to Medicaid in particular “immoral,” and called on Colorado Republican Congressmen Jeff Hurd and Gabe Evans to vote against it. A narrow Republican majority in Congress could mean their votes are decisive on the bill.
In a separate news release sent Wednesday morning, the White House defended the One Big Beautiful Bill Act as raising overall wages and take-home pay. It cited a state-by-state analysis by the Council of Economic Advisers that found inflation-adjusted wages in Colorado would rise $7,000 to $13,300, and the take-home pay for a typical family with two children would rise between $8,700 and $15,000.
Barring a dramatic change, Colorado economists still expect the state to hit the spending cap set by the Taxpayer’s Bill of Rights, or TABOR, but just barely. Economists with the legislature predicted overall increases to state revenue of about 3% in the next fiscal year and 4% the year after.
State Sen. Barbara Kirkmeyer, a Brighton Republican on the budget committee, said Colorado’s fiscal predicament rests on the state’s Democratic majority. She argued throughout the budget wrangling of the last legislative session that lawmakers have put the state into a structural deficit, where its obligations outpace what it can afford.
“Next year is going to be more daunting,” Kirkmeyer said. “If we end up in a recession, it’s going ot be that much worse. If we end up with these federal cuts, every year for the next five years will be bad. …It’s of our own doing because we did not adhere to good, sound, fiscal, prudent policies. So now we are in this mess.”
Next year, the state will return an estimated $142 million to taxpayers, and $83 million the year after. In both cases, the refund would be a small enough amount that lawmakers will need to dip into the state’s general fund to pay for property tax exemptions.
Tax credits for electrification and the new Family Affordability Tax Credit, which aims to direct more refunds to low-income families, could also face lower amounts or be canceled outright for the year because the state isn’t pulling in enough money above its spending cap.
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