State staff tell legislature HR 1 will create roughly $1.2 billion shortfall this year and deplete reserves unless action taken

The Executive Committee of the Legislative Council was told that passage of federal reconciliation bill HR 1 will deliver an immediate, material shock to Colorado's finances. Mark Ferrendino, director of the Office of State Planning and Budgeting, told the committee the office's preliminary estimate is a roughly $1.2 billion revenue loss in the current fiscal year, producing a cash shortfall in the neighborhood of $955 million against obligations already approved in the long bill.

"We are going to lose, we expect $1,200,000,000 in the first year," Ferrendino said, explaining that the state is being hit by roughly 18 months of federal tax changes consolidated into the current fiscal year. He added the administration projects multi‑year costs and cited possible lost federal Medicaid matching funds in the billions as provisions phase in.

Those figures were echoed as broadly consistent by Legislative Council staff, who used Joint Committee on Taxation scoring and an alternative baseline to reach largely similar first‑year impacts while allocating specific provisions differently across corporate and individual tax streams. Elizabeth Ramey of Legislative Council staff said LCS's estimate also shows about $1.2 billion of first‑year effect, with notable uncertainty.

Why the first year is larger: Ferrendino and LCS explained the timing quirk that HR 1 is scored on tax year 2025; because Colorado's fiscal year straddles that tax year and the bill was signed after the state closed books, roughly 18 months of federal effects hit the state in one fiscal year. A second factor is expanded business deductions and full expensing of prior research and experimental expenditures, which front‑loads losses for the state. Third, specific provision choices and baselines (whether the state assumes prior federal tax law would have continued) change allocations between corporate and individual impacts.

The administration warned of difficult tradeoffs. Ferrendino said departments have already been asked to propose non‑mandatory operating reductions of 2.5 percent as an initial mitigation step; he also noted statutory executive powers to reduce spending when revenue falls. But he cautioned that waiting until the supplemental cycle will dramatically increase the amount of cuts needed to produce equivalent cash savings.

Taken together, OSPB projected that without intervention the state would draw down roughly $955 million of reserves, leaving materially less cushion for future economic stress, and that every day without a plan raises the amount of additional reductions that will be required.

What happens next: LCS and OSPB emphasized their numbers are preliminary and sensitive to assumptions and taxpayer behavior. Committee members pressed for immediate action and asked JBC to engage; OSPB said it is coordinating closely with JBC staff and stands ready to present further detail. Ferrendino and LCS urged leadership to use the coming weeks to refine numbers and to consider a combination of reserve usage, executive actions and legislative options to limit long‑term consequences.

The committee did not take a formal vote. The next steps flagged were more detailed technical briefings to JBC and updated forecasts from OSPB and LCS.