LCS and OSPB project FY25-26 TABOR shortfall, flag uncertain tax-credit triggers after HR1

Legislative Council Staff and OSPB presented competing but aligned revenue outlooks showing significant uncertainty from recent federal tax-law changes and the six bills passed in Colorado's special session.

Greg Sobetsky told the Joint Budget Committee that, while LCS revised general-fund revenue up modestly for FY25-26 compared with a July update, the forecast contains much uncertainty: "Our revenue forecast has a lot of uncertainty in it right now, not only because of economic expectations, but because of how we're trying to make revisions in the forecast to account for the federal tax changes in OBAA," he said.

Both offices highlighted the mechanics that make the November and December forecasts politically and financially consequential. Several recently enacted bills accelerate revenue into FY25-26 via tax-credit sales; HB1006 in particular accelerates receipts to the Health Insurance Affordability Enterprise (HIE). OSPB and LCS explained that these sales change TABOR accounting: some revenue will be subject to TABOR in FY25-26 and might create a refund obligation if the total exceeds the TABOR limit.

LCS reported FY24-25 TABOR surplus of $296 million and said it expects no TABOR surplus in FY25-26 under current assumptions. They projected a FY25-26 deficit relative to the statutory reserve of about $307 million. Sobetsky warned that small forecast errors now have outsized budget consequences without a TABOR cushion: "This forecast is high stakes in the sense that if we're wrong by $50 million, that's very little in the context of our general fund budget expectations."

Tax-credit availability was a recurring focus. Several state credits (the Family Affordability Tax Credit and an expanded Earned Income Tax Credit) are statutorily triggered by revenue conditions; LCS said that based on the September forecast they would be unavailable for tax year 2026 unless the December OSPB forecast converges with a more optimistic outcome. Sobetsky said LCS and OSPB currently concur that those credits are likely to be fully unavailable for 2026 but that December forecasts will determine final levels.

The offices also walked through refund mechanics for FY24-25 surpluses, homestead portability reimbursements, and the implications of selling tax credits (cash fund receipts, HIE disqualification for TABOR, and downstream impacts on future fiscal years). For budget writers, the immediate takeaway was the near-term vulnerability of the general fund and the unusual need to monitor revenue revisions closely through December.

The committee pressed staff on when hard evidence will arrive; both offices said tax-filing season (spring 2026) and December updates will provide the clearest data on taxpayer behavior under federal changes.

"We have to wait for the December OSPB forecast," Sobetsky said, "But based on our September forecast, if the December OSPB forecast converged with what we're expecting right now, you would have those credits fully unavailable for tax year 2026."