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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.
The June forecast describes an economy in transition. Investment in artificial intelligence continues to accelerate, and productivity gains from new technologies could provide a meaningful boost to future economic growth. At the same time, the labor market is showing signs of weakness, with job growth slowing significantly and consumer spending softening as household finances become increasingly strained. That strain is showing up in rising credit card debt, with delinquency rates near levels last seen around 2010, after the Great Recession. The number of Colorado workers who have left the labor force has also increased. So while Colorado’s unemployment rate remains below the national average, that is not entirely good news. More Colorado workers are working part time or have given up looking for work altogether.
Corporate profits remain near record highs, even after taxes, reflecting the continued strength of large businesses. Colorado’s final payments for tax year 2025 significantly exceeded expectations, resulting in a $498 million upward revision to General Fund revenue and suggesting the state’s economy may have been more resilient than earlier forecasts indicated.
Despite strong corporate performance, H.R. 1 limits Colorado’s ability to fully capture this economic growth through its tax system. As a result, corporations are able to retain a larger share of their profits, in part because federal tax provisions and corporate tax breaks reduce the revenue states can collect from highly profitable businesses.
Higher oil prices are expected to keep inflation elevated, erode consumers’ purchasing power, and strain household budgets at a time when savings rates are already falling and consumer spending is weakening. After inflation was close to the 2% target in 2025, it jumped to 5% in the first half of 2026.
After a decade of some of the fastest home price growth in the nation, Colorado’s housing market is finally cooling. Denver home prices have fallen 4% from their 2022 peak and were down 1.9% over the last year. Statewide median home prices have also declined as higher inventory, affordability challenges, and slower economic growth put downward pressure on the market.
Current forecasts indicate no TABOR surplus is expected in FY 2025-26, with revenue projected to come in approximately $425 million below the TABOR limit. However, revenues remain strong enough to trigger an automatic income tax rate reduction two years from now.
This outcome highlights how Colorado’s tax code, much like the federal tax system, disproportionately benefits high-income earners and corporations through broad tax reductions that are not tied to need. At a time when corporate profits remain strong and many working families continue to face rising costs, policymakers should consider a more graduated income tax structure that provides meaningful tax relief to low- and middle-income Coloradans while asking those who have benefited the most from economic growth to contribute a fairer share.
Last year, voters passed Proposition MM, which increased taxes on those making more than $300,000 by limiting deductions in order to fund universal school meals. Revenue from that measure came in about $40 million above expectations, likely prompting the need for a measure next year asking voters to retain the excess revenue.
The budget balances today only because lawmakers made painful cuts. The forecast incorporates all of the aggressive balancing actions passed during the 2026 legislative session. Even after those actions, the state’s reserve is only modestly above the legal minimum, at $116 million above the requirement this year.
There is about $873 million available above what was spent in this year’s meager budget for next year’s budget. But when accounting for obligations everyone knows are coming, including more students, more Medicaid enrollees, employee compensation, inflation, and controlled maintenance, the budget gap looks more like $315 million.
That shortfall does not factor in the cost shifts H.R. 1 will create next year, including $130 million for SNAP and a $105 million General Fund obligation from H.R. 1’s restrictions on hospital provider fee federal dollars, which could grow to more than $800 million by 2032. So as H.R. 1 redistributes income to the wealthy while requiring states to absorb new SNAP and Medicaid costs, it is time for a solution: Ballot Initiative 195.
