The gap between how much money the Colorado legislature has to allocate this year and the cost of maintaining the state’s current level of government programs and services has grown to more than $1.5 billion, nonpartisan Capitol staff told lawmakers Thursday.
That means the General Assembly is dealing with a problem that’s at least a half-billion dollars worse than it had anticipated — and that it was already struggling to manage — when this year’s legislative session began in January.
“Jesus,” state Rep. Kyle Brown, a Louisville Democrat who sits on the legislature’s Joint Budget Committee, said reflexively when he got the news.
The JBC has been slashing spending for weeks as it works to draft the state’s 2026-27 fiscal year budget, which takes effect July 1. That includes cuts to Medicaid, which is the primary driver of the state’s budget shortfall.
It was unclear Thursday how much the JBC has cut so far. But even with those reductions, in the tens of millions of dollars, the deficit remains about $1.47 billion, according to Legislative Council Staff. That means the total shortfall is well over $1.5 billion.
The JBC was scheduled to finish its draft of the state budget next week. The updated shortfall estimate from the Legislative Council Staff will almost certainly make that impossible as lawmakers search for more places to reduce spending.
“Today’s economic forecast is nothing short of devastating,” state Sen. Jeff Bridges, a Greenwood Village Democrat and vice chair of the budget committee, said in a statement.
Legislative Council Staff and the Governor’s Office of State Planning and Budgeting presented their tax revenue and economic forecasts on Thursday to the six state lawmakers on the JBC who draft the state budget. They are the last forecasts the panel will receive before finalizing a draft of the budget and sending it to the full legislature for debate.
The budget shortfall grew in recent months in large part because nonpartisan staff now expect tax revenues in the current fiscal year, which ends June 30, to be about $350 million lower than anticipated.
Paired with a jump in Medicaid costs since the end of the last legislative session, the shortfall grew by about $650 million relative to what was projected in September, per LCS.
The governor’s office is predicting tax collections in the fiscal year to be nearly $700 million higher than what’s forecast by LCS. The discrepancy has to do with how much more money Gov. Jared Polis’ staff expects the state to receive in individual income tax revenue compared to what’s expected by nonpartisan legislative analysts.
Colorado Gov. Jared Polis presents his budget-cut plans to the legislature’s Joint Budget Committee Aug. 28, 2025, at the Colorado Capitol in Denver. (Jesse Paul, The Colorado Sun)“The biggest issue is what is H.R. 1 going to do to people’s tax returns,” Mark Ferrandino, who leads the Governor’s Office of State Planning and Budgeting, told JBC, referencing congressional Republicans’ tax and spending bill signed into law by President Donald Trump last year.
Colorado’s tax code is largely tied to the federal tax code, meaning federal tax cuts in H.R. 1 prompted state tax cuts.
In budget terms, that means the legislature has some $265 million more to cut or find in the couch cushions for the next fiscal year. That leaves more than $1 billion more in changes still needed before the budget is balanced, even in the best case scenario.
Greg Sobetski, chief economist for Legislative Council Staff, said the main difference between the forecasts has to do with the assumptions nonpartisan staff are making based on the individual and corporate tax returns that have already been filed for tax year 2025. The deadline to file those is April 15.
Sobetski conceded that the numbers in his more dire forecast may not be spot on, but are in the ballpark.
“I’m confident that we’re wrong in some direction,” he said, “not some magnitude.”
There are big consequences depending on which forecast the JBC accepts.
If “we are balancing to a number that is too low, then we are hurting Coloradans, and then we are cutting programs to really help people that do not need to be cut,” Brown said.
State Rep. Kyle Brown, D-Louisville, speaks at a bill signing at the Colorado Capitol in Denver on April 17, 2025. (Jesse Paul, The Colorado Sun)State Sen. Barbara Kirkmeyer, a Brighton Republican, pointed out that if the legislature balances the state budget to the OSPB forecast and tax revenues don’t meet the agency’s expectations, lawmakers will be in big financial trouble.
“We would just exacerbate the structural deficit,” she said.
The JBC will have to choose in the coming days which forecast to use to draft the budget.
The small silver lining in the forecasts is that tax collections are still expected to exceed the Taxpayer’s Bill of Rights cap on government growth and spending despite international economic uncertainty.
While that doesn’t really change the reality of the legislature’s $1.5 billion budget shortfall, it prevents lawmakers from having to make even deeper cuts. There were fears projected tax revenues would fall below the TABOR cap given the war in Iran and a weak recent national jobs report.
Legislative Council Staff forecasts the surplus to be $276 million next fiscal year. The governor’s office expects the surplus to be $711 million.
The surplus doesn’t solve the state’s budget shortfall because, under TABOR, it can’t be used for that purpose. But both forecasts expect the surplus to be large enough to cover the cost of a constitutionally required property tax break to seniors. If the surplus was smaller, that roughly $250 million cost would have come out of the state budget.
State budget writers are girding for a difficult few weeks ahead.
“I didn’t run for office to slash essential programs that hardworking Coloradans depend on,” state Rep. Emily Sirota, a Denver Democrat and chair of the JBC, said in a statement. “There is only so much money we can spend under the fiscal constraints of TABOR, which means every decision requires a painful trade-off.”
Both the governor’s office and nonpartisan staff warned the JBC that the economy is on shaky ground given rising oil prices caused by the war in Iran.
Amanda Liddle, a Legislative Council Staff economist, said there is “extreme uncertainty” in the strength of Colorado and the county’s economic future. The governor’s office put the risk of a national recession within the next year at 40%.
This is a developing story that will be updated.
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