Forecast Shows Steady Economy with Strong Headwinds and Difficult Choices Ahead Due to Federal Economic Policies, Tariffs and H.R.1
Special session legislation puts Colorado’s finances in a better position, while impacts of H.R.1 and tariffs continue to put pressure on state budget and economy
DENVER, CO – Today, Democratic members of the Joint Budget Committee released statements after the Legislative Council Staff (LCS) and the Office of State Planning and Budgeting (OSPB) delivered the September quarterly economic forecasts.
”We’re no strangers to difficult budget decisions here in Colorado,” said JBC Chair Jeff Bridges, D-Arapahoe County. “Years of thoughtful, bipartisan budgeting puts us on solid financial footing, but with the devastating impacts of H.R.1 along with tariffs continuing to create uncertainty and raise prices for Colorado families, more tough budget decisions are most certainly ahead.”
“While we face strong economic headwinds and uncertainty driven by the chaos in Washington, Colorado is now in a better position, in a large part due to our special session efforts to fill a $1 billion gap caused by Congressional Republicans,” said JBC Vice Chair Shannon Bird, D-Westminster. “Trump’s tariff taxes are driving up costs for families and businesses, slowing the job market and increasing the risk of a recession. As we look ahead to next year’s budget, I remain steadfast in my commitment to prioritize the programs and services Colorado families, seniors and veterans count on.”
“Today’s forecast confirms what we already know: the chaotic economic policies of the Trump administration are harming Colorado’s economy and the entire country,” said JBC member Judy Amabile, D-Boulder. “Tariffs are driving up costs in critical industries like housing and increasing costs for consumers, while H.R.1 increased administrative costs and slashed federal assistance for programs like health care and food assistance. Our commitment to serve Colorado families remains steadfast. Presentations like today’s help us be ready for the tough budget conversations that we’ll need to have in the coming months.”
“Today’s forecast indicates that closing corporate tax loopholes helped address some of the $1 billion budget shortfall caused by the Congressional Republicans,” said JBC Member Emily Sirota, D-Denver. “Colorado Democrats took a responsible approach to minimize the harm of the Congressional GOP budget to protect our schools, roads, health care and food assistance programs. Health care costs are rising faster than forecasted, which combined with federal cuts to Medicaid, means difficult decisions are ahead. But by closing corporate tax loopholes and putting people over profit, we spared some of the more severe cuts to life-saving community programs.”
The Legislative Council Staff (LCS) forecast anticipates General Fund revenues to be $17.17 billion in FY 2025-2026 – a $400 million decrease for FY 2025-2026 as compared with the June revenue forecast. The Office of State Planning and Budgeting (OSPB) anticipates that General Fund revenue will be $17.0 billion for FY 2025-2026 – a $756 million decrease for FY 2025-2026 as compared with the June revenue forecast.
In July, Congressional Republicans’ H.R.1 created a $1 billion state budget deficit by allowing corporations to dodge taxes owed to Colorado. Following four consecutive years of corporate income tax revenue growth, corporate tax revenue is projected to decline by 30.1 percent, primarily due to H.R.1, which was partially offset by last month’s special session. This forecast shows that laws passed by Democrats during special session to close corporate tax loopholes closed one-third of the deficit, while additional bipartisan legislation closed another one-third of the deficit by using some of the state’s rainy day fund.
Medicaid costs, driven by increasing caseload, health care costs and Colorado’s aging population, are rising at a faster rate than previously forecasted. Medicaid is the fastest-growing part of the state budget, and the forecast indicates an increase of $350 million in the next year. As Medicaid caseloads continue to increase, H.R.1 will increase administrative costs for state and local governments. H.R.1 drastically cuts Medicaid, including limiting provider fee revenue and state-directed payments, which according to LCS, will result in a reduction of $575 million in provider fee revenue and between $900 million and $2.5 billion in federal funds over a five year period. Additionally, the various provisions of H.R.1 will jeopardize Medicaid coverage for about 377,000 Coloradans.
The Trump Administration’s economic policies continue to raise prices for consumers. Tariffs are expected to slow economic activity by weakening consumer demand and limiting business development, which will result in lower spending, falling business profits, and slower wage growth. According to LCS, tariffs paid soared to a near-century high of 8.2 percent in Q2. Additionally, inflation continues to rise, with the U.S. experiencing inflation of 2.9 percent and Denver experiencing 2.1 percent. Slowing price increases in the Denver housing market and lower housing costs are the leading contributors to lower inflation in Denver compared to nationally.
During the special session in August, Colorado Republicans sponsored legislation to balance the budget on the backs of working families by reducing a vital tax credit that puts money directly into the pockets of middle and low income families (Family Affordability Tax Credit). Due to the corporate tax cuts in H.R.1, LCS anticipates the credit will be fully turned off for Tax Year 2026, but will partially return in Tax Year 2027.