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.

For Forecast 5, we usually include gifs to find humor in the absurdities—but there’s nothing funny about this one. We’re in for a world of hurt.

1. Federal Policy Whiplash Is Hitting Colorado’s Economy
Colorado’s economy is still growing, but more slowly and with more uncertainty. A major contributor is shifting federal policy. The introduction of sweeping new tariffs—on everything from raw materials to outdoor recreation textiles—has rippled through Colorado’s supply chains and hit key sectors like manufacturing, construction, and outdoor gear production. Employers pulled forward imports early in 2025 to beat tariff hikes, but the frontloading created a post-surge slump that’s now dragging on investment. At the same time, reduced federal spending has had a measurable impact. In just the first few months of 2025, Colorado lost 1.4% of its federal workforce—about 800 jobs statewide. These economic stressors have been enough for the Federal Reserve to pause its rate-cutting cycle, even after its first cuts last September. Tariffs are expected to keep inflation above the target 2% through the rest of the year and likely into 2026. With inflation stickier than expected, and fiscal policy volatility growing, Colorado finds itself unusually exposed to national decisions.

2. Colorado’s Job Market Has Lost Its Edge
For the first time in 25 years, Colorado’s unemployment rate has remained above the national average for a sustained period. Colorado’s unemployment rate sits at 4.8%, compared to the U.S. rate of 4.2%. That’s a major break from the state’s long-standing reputation as a labor market outperformer. Colorado’s job growth is now hovering just under 1%, while the U.S. as a whole is slightly above 1%. The leisure, hospitality, and tourism industries—which are foundational to the state’s economy—have been particularly hard-hit as travel and consumer spending show signs of weakening.

3. Consumers Are Pulling Back—And Colorado’s Economy Feels It
Multiple indicators show Colorado households tightening their belts. Retail sales were negative in 2024, even as retail trade grew nationally, suggesting that Colorado consumers are behaving more cautiously than the country as a whole. Personal income, once a bright spot that typically outpaced national averages, is now trailing historic state norms when adjusted for inflation. Household savings rates are ticking upward—a sign that people are spending less and bracing for uncertainty—while credit card delinquencies and outstanding loan debt are slowly rising. Even “Buy Now, Pay Later” programs are surging following relaxed federal oversight, which could add to financial fragility later. Colorado depends on tourism, retail, and discretionary income in ways other states don’t. When consumer sentiment deteriorates here, the broader economic ripple is more acute.

4. No TABOR Rebates—and Reduced Tax Credits for Working Families
Coloradans won’t receive TABOR refunds in 2025 or 2026, and several tax credits tied to revenue triggers are being cut. Both the Family Affordability Tax Credit and the expanded Earned Income Tax Credit are expected to be reduced in fiscal year 2026–27 due to weaker revenue growth. Pulling back those credits boosts revenue in the forecast, but at the cost of household support. Complicating matters further, the state’s projected TABOR surplus in fiscal year 2025–26 ($83 million) isn’t large enough to fully reimburse local governments for the homestead exemption. This makes those property tax breaks a General Fund obligation. In addition, multiple tax credits scheduled to expand in 2026 will instead be scaled back. These include the Family Affordability Tax Credit (FATC), the expanded Earned Income Tax Credit (EITC), and the suite of decarbonization credits for electric vehicles, heat pumps, and e-bikes. All are forecasted to be cut in half or reduced due to revenue thresholds not being met.

5. Budget Hole Ahead: Forecast Points to a $700 Million General Fund Shortfall
Colorado is staring down a projected $698 million shortfall in fiscal year 2026–27—and that’s before factoring in any recession or downturn. The gap reflects rising obligations under current law, including inflation, caseload growth, and capital maintenance. Even after this year’s budget cuts, if lawmakers roll those same spending levels forward, the shortfall remains, and deeper cuts will still be needed. If the federal budget shifts more costs onto states, as many anticipate, Colorado’s fiscal outlook could go from tight to untenable.

By Chris Stiffler, Senior Economist at the Colorado Fiscal Institute