Joint Budget Committee: September forecast revises revenue outlook; TABOR and tax‑credit triggers complicate FY26 planning

Legislative Council Staff told the Joint Budget Committee that recent policy and data changes have materially altered Colorado’s revenue outlook and raised stakes for near‑term budget choices.

Greg Sobetsky, chief economist for Legislative Council Staff, said the September forecast revises the FY25–26 picture: LCS now expects a TABOR surplus for FY24–25 of roughly $296 million but projects the state will fall below the TABOR cap in FY25–26 by about $215–$307 million depending on assumptions and later forecast updates.

Special‑session legislation accounts for a large part of the upward revision to FY25–26 collections; Sobetsky said the committee’s actions produced an estimated $347 million upward revision to the FY25–26 general‑fund forecast, driven largely by policy enacted during the special session. At the same time, federal tax law changes (referred to in testimony as HR 1 and related OBA/OBAA adjustments) lower taxable income and reduce projected income and corporate tax receipts in coming years. LCS and OSPB both flagged that the full effect of those federal changes on state receipts depends on taxpayer choices and will not be known until the spring 2026 filing season.

Sobetsky walked the committee through how several statutory, TABOR‑related mechanisms interact with the forecast. Some tax credits in state law are triggered or reduced based on the preceding December forecast; LCS’s September projection suggests the family affordability and expanded Earned Income Tax Credit availability could be fully unavailable for tax year 2026 unless the December OSPB forecast moves differently. The forecast shows those credits could range from fully off in 2026 to partially on in later years, with large fiscal swings depending on the December read of revenue.

On refunds and reimbursements, LCS noted a $293 million estimated TABOR refund payment for FY24–25 (slightly below the reported $296 million surplus, due to prior over‑refunds). Crucially, because the state expects no TABOR surplus in FY25–26, the forecast assumes $198 million of general‑fund obligations in FY26–27 to reimburse local governments for property‑tax homestead portability obligations (the program created in recent legislation) without a prior refund balance to offset those payments.

Why it matters: The combined effect of federal tax changes, special‑session actions and lower near‑term revenue growth leaves the FY25–26 budget unusually sensitive to forecast revisions: small changes (tens of millions) materially change available reserves and budget options. That vulnerability raises the policy stakes for the December forecast and for any interim balancing actions the committee may consider.

What the committee did: Members pressed staff on the assumptions behind corporate and individual income revisions, the mechanics of TABOR enterprise disqualification related to HIE revenue, and the timing of refunds and reimbursements. Staff said they will continue to refine estimates and that the December OSPB forecast will determine final trigger outcomes for several credits.

Next steps: The committee will use the December forecast to resolve tax‑credit trigger questions and the timing of refunds; staff pledged follow‑up analyses of tariff dollar magnitudes and ongoing data revisions from the Bureau of Labor Statistics that could change payroll counts and taxable bases.