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. No TABOR Rebates for Taxpayers for Tax Year 2025

In 2022 and 2023, we saw historically large TABOR rebates each year totaling $3.7 billion. Even 2024’s $1.35 billion rebate was significant. However, in 2025, the state is projected to exceed the Referendum C Cap by just $108 million. Since 2022, we’ve returned more than $8.5 billion in TABOR rebates, yet we now face $1.1 billion in state budget cuts. For tax year 2026, taxpayers are expected to receive rebates between $43 and $137, along with a slight income tax reduction from 4.4% to 4.36%. Interestingly, a downgrade in severance tax collections increases General Fund flexibility—since TABOR rebates come from the General Fund, and lower severance taxes mean smaller-than-expected rebates compared to December projections. Ultimately, these rebate amounts fall well within forecast error.

2. Tax Credits and Homestead Exemption Competing with General Fund Dollars 

In the past, tax credits didn’t really mess with the General Fund (GF)—the pool of money that helps pay for schools, higher ed, roads, and other important stuff—because the state had a nice big TABOR surplus. Tax credits just meant less money for TABOR rebates, not less for the General Fund. Same deal with the Homestead Property Tax Exemption for Seniors and Disabled Veterans: it was paid for using TABOR rebates, not the General Fund. But things have changed. With the TABOR surplus now sitting at a modest $108 million, it’s nowhere near enough to cover the $212 million cost of the Homestead Exemption, especially since SB 24-111 expanded it to include people who’ve moved. To fully fund the exemption, we’d need to pull $104 million from the General Fund. Looking ahead to FY 2025-26, with the TABOR surplus shrinking, we might be able to plug part of that $104 million gap by trimming some tax credits.

3. $1.16 Billion Shortfall for Next Year’s Budget (Includes $350M From Prop 130)

Next year’s budget has an extra $320 million compared to this year, but that’s barely enough to keep up with rising caseloads, inflation, capital transfers, and reserve needs. On top of that, voters gave the green light to Prop 130, which mandates a $350 million transfer from the state budget to local law enforcement. Add it all up, and the budget shortfall is looking like $1.16 billion for the lawmakers to tackle in the coming weeks. And just to put that in perspective, that shortfall is more than half of our entire general fund reserve of 15%.

4. Tax Credits for Working Families Passed Last Legislative Session Triggered on Fully for Tax Year 2025.

In 2024, HB 24-1134 bumped up the state earned income tax credit, and HB 24-1311 introduced a new family affordability tax credit. Both credits will be fully available in tax year 2024, but they might get adjusted in future years depending on how state revenue shapes up. According to the December 2024 OSPB forecast, these credits will be good to go for 2025, with expected revenue growth also backing them for 2026. However, the exact amounts for 2026 will depend on the December 2025 forecast from either LCS or OSPB. Fingers crossed for good news!

5. Housing Component of the Consumer Price Index Is Driving the Difference in Recent Inflation Between Denver and the US

In the Denver metro area, the transportation component – including new and used vehicles, insurance, gasoline, airfare, and other household costs – has been the primary driver of price inflation, increasing 8.3% in the past year. Meanwhile, housing costs have cooled significantly after the pandemic years and contributed nothing to the headline CPI in the 12 months ending January 2025. The economic forecast is influenced by several factors, including consumer spending and business investment. Consumer sentiment has worsened recently, and international tariff policy escalations may reduce both consumer and business spending, leading to slower employment growth. Although inflation in Denver is currently lower than the national average, it had far outpaced the nation during much of 2023 and 2024.