Lawmakers to Close More Than $1 Billion Budget Deficit as FY26-27 Revenue Falls Narrowly Above TABOR Cap

DENVER, CO – Democratic members of the Joint Budget Committee (JBC) today released the following statements after the Legislative Council Staff (LCS) and the Office of State Planning and Budgeting (OSPB) delivered the March quarterly economic forecasts.

“Today’s economic forecast is nothing short of devastating. Between rising prices, federal cuts to essential programs, and global uncertainty, the state budget is getting squeezed from all sides,” said JBC Vice Chair Senator Jeff Bridges, D-Arapahoe County. “We’re working on solutions to modernize our budget and give the state more flexibility to weather economic ups and downs while better funding core priorities like education. But the reality right now is that our budget constraints mean painful cuts. A dollar for one area is a dollar less for another, and under the TABOR cap there simply isn’t enough room to do it all.”

"Today's economic forecast is a stark reminder that despite the cuts we’ve already made, we still need to close a staggering budget deficit of more than $1 billion," said JBC Chair Rep. Emily Sirota, D-Denver. "It's impossible to balance our budget without touching some of the core services for Coloradans, especially programs and services that have been proven effective. I didn't run for office to slash essential programs that hardworking Coloradans depend on. There is only so much money we can spend under the fiscal constraints of TABOR, which means every decision requires a painful trade-off."

“Over the next week, the Joint Budget Committee will use the latest data in this forecast to set our budget for next year, and that means we will have to close an astounding budget deficit of over $1 billion,” said JBC Member Senator Judy Amabile, D-Boulder. “We’re doing our best to minimize harm, but the truth is it’s impossible to cut hundreds of millions of dollars year after year without impacting the priorities that Coloradans care about and core services for vulnerable people.” 

"The economic forecast shows what we already know, Medicaid costs have skyrocketed beyond what was originally predicted,” said JBC Member Rep. Kyle Brown, D-Louisville. "Our budget primarily funds K-12 education, health care and other services for the most vulnerable community members, and we will continue to make the best evidence-based decisions through an empathetic lens about where to invest taxpayer dollars. At the end of the day, there is only so much money we're permitted to spend under TABOR, which means we face even more gut-wrenching cuts to programs in order to balance our budget."  

The Legislative Council Staff (LCS) forecast anticipates General Fund revenue to be $16.5 billion in FY 2025-2026, $18.2 billion in FY 2026-2027 and $19.5 billion in FY 2027-2028. This represents an overall decrease of $354 million in the current year and $143 million for FY 2026-2027 as compared to the December forecast.

The Office of State Planning and Budgeting (OSPB) anticipates that General Fund revenue will be $17.0 billion for FY 2025-26, $18.4 billion for FY 2026-2027 and $18.7 billion for FY 2027-2028. This represents an overall increase of $49.6 million in the current year and an increase of $431.7 million for FY 2026-2027 as compared to the December forecast.

For the last two years, Medicaid costs have grown dramatically by nearly $1 billion a year while providing roughly the same services to roughly the same eligible population. Cost increases have primarily been driven by aging demographics and higher demand for more expensive services, such as long-term care. The February Medicaid forecast indicates that Medicaid costs have once again increased; a 2.3 percent increase, or $138 million General Fund, as compared to the prior Medicaid forecast, bringing the total expected year-over-year cost growth to 8.7 percent.

Other states are also grappling with rising Medicaid expenditures, including long-term care, pharmacy, and behavioral health care. According to a nationwide survey of state Medicaid directors, almost two-thirds of responding states indicated the chance of a Medicaid budget shortfall in FY 2026 was either 50-50 or more likely.

Accounting for all of the reductions to programs and services JBC has approved up to this point, based on the LCS forecast, the JBC must still close a budget deficit of $1.5 billion to meet its constitutional requirement of a balanced state budget. Without any further action the state would end 2026-2027 with a 6.5 percent reserve, less than half of the current 15 percent statutory requirement.

The LCS and OSPB forecasts anticipate that FY 2026-2027 revenue will be above the TABOR cap by $276 million and $711.1 million, respectively. For the current FY 2025-2026, by the LCS forecast, Colorado’s revenue is below the TABOR cap by $914 million. By the OSPB forecast, revenue is below the TABOR cap by $229 million. Corporate tax cuts in Congressional Republicans’ H.R. 1 have jeopardized the legislature’s ability to fund the state’s approximately $200 million senior homestead property tax exemption for the current fiscal year, which is funded by the prior year’s surplus when one exists, and by the general fund in years where there is an insufficient TABOR surplus. Since revenues were below the TABOR cap in FY 2025-2026 due to H.R. 1, the senior homestead exemption will need to be funded using General Fund dollars, creating an additional $200 million deficit to fill this year. 

H.R. 1 also impacted the ability to lower taxes for hardworking Coloradans and lift families out of poverty. Due to corporate tax cuts in H.R. 1, the Family Affordability Tax Credit (FATC) will be entirely turned off for the 2026 tax year, raising taxes on families. Under H.R.1, corporations received a massive tax cut, paying nearly 40 percent less in income tax this year. Next year, corporations will pay $1 billion dollars less in taxes than they did before Congress passed H.R. 1.

Forecasts show H.R. 1’s ongoing revenue impacts are likely to reduce both FATC and the Earned Income Tax Credit (EITC) in future years. A 2026 report found that the EITC, FATC and the Child Tax Credit (CTC) reduced Colorado’s child poverty rate by 37 percent and family poverty rate by 32 percent. Both forecasts predict that the EITC and FATC will be triggered off in 2027; for 2028, LCS forecasts that they will be triggered off completely, while OSPB forecasts that they will be available at a reduced level. 

Preliminary data revealed that new job growth is higher in Colorado than the national average, and the state’s gross domestic product (GDP) grew at an annual rate of 4.6 percent, slightly above the U.S. rate of 4.4 percent. However, declining corporate tax revenue caused by H.R. 1, combined with a national slowing economy and job growth, is increasing risks to Colorado’s budget outlook. The probability for a recession is higher than normal, exacerbated by escalating conflict in the Middle East, which is contributing to global economic uncertainty and trade interruptions.