JOINT RELEASE: Colorado Budget Squeezed by Federal Tariffs and H.R.1, Economy Facing Headwinds
Data challenges add to uncertainty driven by erratic federal policies
DENVER, CO – Today, Democratic members of the Joint Budget Committee released statements after the Legislative Council Staff (LCS) and the Office of State Planning and Budgeting (OSPB) delivered the December quarterly economic forecasts.
“Today’s forecasts highlight the damage caused by Trump’s chaotic economic policies that have raised prices for Coloradans,” said JBC Chair Emily Sirota, D-Denver. “Consumer growth is being driven by the top 20-percent earners, while low income earners struggle to make ends meet and dig into their savings. While our legislative efforts have successfully reduced housing costs in Colorado, cuts to federal clean energy tax credits and rising tariffs are leading to higher bills. This will be a very challenging budget year, made even more difficult by the federal GOP budget and decisions in Washington. We will protect funding for our schools and core services and seek responsible solutions to address the shortfall.”
“We pulled a rabbit out of the hat with last year’s budget, cutting a billion dollars with minimal impact on the people of Colorado,” said JBC Vice Chair Jeff Bridges, D-Arapahoe County. “This year, we're all out of rabbits. Despite a growing economy, we'll have to cut another billion dollars from Colorado's budget because of TABOR's rationing cap, a financial relic of the 90s. We have a resilient state that can weather Washington's shutdowns and tariffs, but TABOR means cuts people will feel in their communities, clinics, and classrooms."
“Working people are facing headwinds from Trump’s tariffs and Congress’s failure to extend health care tax credits,” said JBC Member Kyle Brown, D-Louisville. “Our efforts during the special session set Colorado on the right trajectory, but only Congress can stop skyrocketing health care premiums. This forecast also reaffirms that Medicaid costs are rising unsustainably and far faster than the state’s revenue caps under TABOR, and H.R 1 will only make it worse. With session around the corner, we know that painful budget decisions are ahead. Colorado Democrats have governed responsibly through difficult economic times before, and I know the JBC will meet the moment once again and responsibly balance our budget.”
“Every year we face difficult decisions about what we can and cannot fund – and these decisions keep getting harder,” said JBC Member Judy Amabile, D-Boulder. “Restraints caused by TABOR coupled with the chaos from the Trump Administration’s tariffs and reckless budget bill have squeezed our state budget even more than we initially anticipated, and Coloradans are feeling it. Faced with yet another budget deficit this year, we will do everything we can to protect essential funding for education, health care, and public safety.”
The 43-day federal government shutdown in October and November disrupted the economic and inflation data collection, making some data unavailable or less reliable than normal. The data challenges combined with potential federal policy changes has led to uncertainty in the forecasts.
The Legislative Council Staff (LCS) forecast anticipates General Fund revenues to be $16.9 billion in FY 2025-2026 – a $304 million decrease for FY 2025-2026 as compared with the September revenue forecast. The Office of State Planning and Budgeting (OSPB) anticipates that General Fund revenue will be $17.0 billion for FY 2025-2026 – an $87 million decrease for FY 2025-2026 as compared with the September revenue forecast. By the LCS forecast, Colorado’s revenue is now below the TABOR cap by $465 million for FY2025-2026. For the upcoming year (FY 2026-27), LCS forecasts General Fund revenue growing to $18.3 billion, above the TABOR cap by $501 million.
Democrats’ housing policies have led to rent prices stabilizing in key markets. According to OSPB, an influx of multifamily apartment units in late 2024 led to decreased rent prices. In Colorado, inflation ticked down below the national average at 2.2 percent in the Denver area, compared to 2.7 percent nationally. Unemployment also decreased below the national average of 4.6 percent to 4.1 percent in Colorado.
While the economy is expanding, it is showing signs of slowing and recession risk remains high at 50 percent. Wage growth for low-income workers is lagging, real U.S. household savings are declining, and consumers are relying more on credit card debt. Economic policies spearheaded by the Trump Administration, including tariffs, continue to raise prices for consumers. Tariffs are expected to slow economic activity by weakening consumer demand and limiting business development, which will result in lower spending, falling business profits, and slower wage growth.
Medicaid costs, driven by increasing caseload, health care costs, and Colorado’s aging population, continue to rise faster than what Colorado’s budget is allowed to grow by under TABOR. Medicaid is the fastest-growing part of the state budget, and the latest forecast indicates an increase of $631 million in the next year if no action is taken to reduce costs.
Legislation passed during August’s special session helped blunt some of the rising health care costs caused by H.R. 1. However, if Congress does not extend the Affordable Care Act (ACA) subsidies by the end of the year, upwards of 75,000 Coloradans could lose their health insurance. Due to the corporate tax cuts in H.R.1, the Family Affordability Tax Credit (FATC), which boosts the incomes of hardworking families, will be fully turned off for Tax Year 2026, but LCS anticipates it will partially return in Tax Year 2027.