According to Colorado economists’ December revenue forecast, the economy is holding steady, though growing warnings, particularly in consumer demand and spending, are emerging.

But the forecast presented on Friday was not as complete as economists would have liked, given the six-week federal government shutdown and the loss of weeks of data for two key indicators: inflation and unemployment. 

The shutdown canceled the October data, and it won’t be collected retroactively. It also led to less reliable data in November and continues to cause data delays, according to Emily Dohrman, the senior economist for the Legislative Council. 

Greg Sobetski, the council’s chief economist, explained that if the economy is receding, he wouldn’t have enough information to determine it because the data isn’t being published.

That missing data means the Joint Budget Committee, which heard forecasts from both the Legislative Council and the governor’s Office of State Planning and Budgeting, will have incomplete information to begin crafting the 2026-27 budget. 

The 2026-27 budget is due to the House on March 30, just 10 days after the next revenue forecast that is usually intended to be a kind of “true-up” of last-minute data. 

Lawmakers anticipate having to fill a $1 billion hole in the 2026-27 budget on top of the $1.7 billion hole already addressed in the 2025-26 budget with a variety of corporate tax increases, spending cuts, a hiring freeze and tapping into the state’s general fund reserve.

The forecast, however, showed the 2025-26 budget still has a shortfall of some $399 million, about $92 million more than was estimated in September.

Sobetski warned that changing the reserve requirement, as Gov. Jared Polis has suggested, will make the process of developing next year’s budget more difficult.

“How you balance this year’s budget will impact your available funds for next year’s budget,” he said. “If the budget is balanced by changing the reserve requirement from 15% to 13% of general funds, you’re not really changing the next year’s budget picture at all” and will end up in the same situation for 2026-27.”

When lawmakers return to the state Capitol for the 2026 session on Jan. 14, the JBC’s first work will be on agency supplementals to cover the shortfall. 

Based on available data, both forecasts indicate a growing economy, albeit one slowing, and a rising risk of recession.

Dohrman told the Joint Budget Committee on Friday that the economy is showing mixed signals. 

The housing market, household finances, and labor markets all show signs of weakness. Unemployment is ticking up nationwide, but remains low in Colorado, which could also indicate that people aren’t looking for work, Dohrman said.

On the consumer side, household savings are declining, and credit card delinquencies are on the upswing. 

Continued risks to the economy, in addition to weak household finances and deteriorating labor market conditions, include the ongoing effects of high tariffs and what economists call an artificial intelligence investment “bubble.”

The potential positives include tariff reductions, lowered interest rates from the Federal Reserve, and stimulus funds from federal tax breaks.

The downside also includes developments in the general fund revenue forecast and the TABOR surplus. General fund revenue collections, which come from individual and corporate income tax and sales taxes, have been revised downward for the current year and future years. 

Lower general fund revenues mean the TABOR surplus is gone for 2025-26, as revenues have fallen below the spending limit. 

That also means no TABOR refunds in 2025-26, said Sobetski, and the homestead property tax exemption for seniors and disabled veterans will have to be funded from the general fund.

That’s been anticipated by Gov. Jared Polis, who has proposed privatizing Pinnacol Assurance, the state’s largest provider of workers’ compensation insurance, as a funding source, at about $194 million.

State tax credits based on revenue forecasts are all being reduced or eliminated, the legislative council forecast said. That includes e-bikes, electric vehicles, heat pump credits, workforce shortage, family affordability, and the expanded earned income tax credit. 

The latter two will not be available in 2026 and will only be partially available in the two following years.

General fund revenues are expected to drop by $465 million for 2026-27, the forecast said. 

For 2026-27, if the legislature spent the same amount of money as in 2025-26, without accounting for inflation or caseload growth, there would be $164 million less to spend, Sobetski said.

That doesn’t include the general fund dollars lawmakers will have to find to cover TABOR refunds from 2024-25 and the homestead exemption, Sobetski explained.

The Office of State Planning and Budgeting’s forecast also struggled with incomplete data, but said the economy is holding up well, driven by investment in artificial intelligence and healthcare.

But the forecast indicates a growing number of cracks, tied to the labor market, spending, and inflation. Consumer demand is also weakening, according to the forecast.

Higher-income households and large businesses are doing well, said senior analyst Clint Saloga, but lower-income and small businesses are struggling. That’s reflected in disparities in wage growth, the forecast said. 

Lower wage growth for low-income households is putting strain on those families.

The AI investments outweigh investments in other parts of the economy, he said.

Small businesses are shedding employees, and that could be due to tariffs; the forecast noted that employers’ hiring plans are at the lowest level since 2010. Seasonal hiring is at its lowest on record, indicating limited optimism for holiday-season hiring. Saloga said Amazon is now doing the most hiring during the holiday season, which he said is unusual.

The forecast examined the impact of tariffs, stating that inflation growth is likely a result. Tariffs are at their highest levels in almost 100 years and are expected to climb, according to the forecast.

Then there’s beef, or what OSPB called “beef-urcation.” Historically small herds and lack of beef “trim” – that’s the leftovers after trimming steaks and roasts, and is used in hamburger for fast food, for example – is driving up beef costs to historic levels. It’s suitable for beef producers but not so good for consumers, the forecast explained.

In contrast, nationwide soybean production, despite strong crop production, has been stymied by China’s boycott. Colorado farmers do not grow soybeans.

Risks to the forecast, according to the forecast: a 50% chance of a recession, which is unchanged from September.

OSPB also does not expect TABOR refunds for the 2025-26 year, which would be payable in 2027. The governor’s economists also revised their general fund revenue forecast down by $89 million.

In a statement, Polis blamed the Trump administration’s trade wars for the economic woes. Those trade wars “continue to hurt our economy, skyrocket costs, and worsen inflation ahead of the holidays. Despite this, we are maintaining a healthy reserve to secure Colorado’s fiscal future,” he said.

JBC Vice-Chair Sen. Jeff Bridges, D-Greenwood Village, noted in a statement the magic tricks the JBC had to come up with to cover the 2025-26 budget. “We pulled a rabbit out of the hat with last year’s budget, cutting a billion dollars with minimal impact on the people of Colorado,” he said. 

“This year, we’re all out of rabbits,” Bridges said. “Despite a growing economy, we’ll have to cut another billion dollars from Colorado’s budget because of TABOR’s rationing cap,” and he estimated people will feel those cuts in their clinics, schools and communities.