It’s time for another Forecast Five, where CFI gets down in the details so you don’t have to. Check out our top five takeaways from the Legislative Council’s presentation on the economic and fiscal outlook for Colorado.

1. GDP Is Propped Up by AI Spending, While the Job Market Is Sluggish

Colorado’s economy is growing, but unevenly. Gross domestic product expanded at a healthy pace in early 2025, driven largely by surging business investment, especially in artificial intelligence, while consumer spending slowed and lower-income workers grew more pessimistic. Labor market conditions have softened, with job growth slowing sharply, hiring easing amid uncertainty and higher costs, and unemployment claims rising even as the labor force shrinks. The wage growth that lower-income workers saw from 2020–24 is decelerating. Household finances are under strain as credit card delinquencies climb. The forecast points to slower, modest growth ahead. In other words, the economy is doing great—if you measure it by how many servers are being installed rather than how many people are being hired.

2. Falling Below the Taxpayer’s Bill of Rights Cap Means Fewer Budget Cushions

Revenue collections are projected to fall $465 million (2.4%) below the Taxpayer’s Bill of Rights cap in fiscal year 2025–26, eliminating Taxpayer’s Bill of Rights refunds for tax year 2026. Falling below the cap also changes how revenue volatility hits the budget: when the state was above the cap, slower growth mainly reduced refunds, not General Fund spending. Now, any revenue slowdown—such as weaker sales tax collections as consumers pull back—directly reduces dollars available for priorities like schools and transportation. It also means programs previously paid from Taxpayer’s Bill of Rights surplus, such as the state backfill for senior and disabled veteran property tax exemptions, must now compete with other General Fund needs.

3. Another Big Hole in the Budget for Fiscal Year 2026–27

Colorado’s General Fund has $164 million less available to spend next year than it is spending this year (fiscal year 2025–26). That amount keeps this year’s appropriations constant and therefore does not account for caseload growth, inflation, and other budget pressures that must be addressed just to keep government even in real terms each year. So, it is another very difficult budgeting season that legislators will begin in January.

4. K–12 Schools Have Fewer Students Again, With Sharper Declines

Colorado’s public schools have 12,477 fewer students this year than last. Though the state has seen declines in student counts since 2019, this is the largest drop. Across Colorado, kindergarten through 12th grade enrollment declined in nearly every region in 2025–26, driven by low birth rates, housing affordability, slower migration, and increased interest in homeschooling and online options. The lone exception is the Colorado Springs region. The steepest declines occurred in rural, mountain, and southern regions, while metro Denver and Northern Colorado saw sharper-than-recent drops tied to migration and housing costs. Colorado’s school finance system smooths enrollment swings by averaging multiple years of October counts. Reducing that averaging window, to help bridge the state budget shortfall, from four years to three would accelerate the impact of this year’s sharp enrollment losses, further reducing formula funding for districts already experiencing steep declines.

5. Two Economies Are Taking Shape, Highlighting the Need for a Stronger Earned Income Tax Credit

Normally, gross domestic product and the labor market move together. Normally, consumer sentiment across income brackets also coincides. This year, though, they have become unyoked. Gross domestic product growth continued at a decent pace in 2025 largely due to massive investments in artificial intelligence, while consumer spending is slowing and job creation is sluggish. Normally, weak job creation means weak gross domestic product. Not this year. Meanwhile, the stock market is at a record high while wage growth at the bottom has stalled again. At the same time, consumer sentiment among those at the top of the income distribution has improved, while the bottom quintiles are feeling even worse. Credit card delinquencies are approaching Great Recession levels. At a moment when the bottom half of the income distribution is doing worse, targeted tax credits matter more, not less. Unfortunately, the enhanced earned income tax credit and Family Affordability Tax Credit will not be available in 2026.