Legislative Council and OSPB lower near‑term revenue outlook, warn federal reconciliation and tariff risks could widen shortfalls

Legislative Council staff and the Office of State Planning and Budget presented updated economic and revenue forecasts that scaled back near‑term growth and highlighted substantial downside risks tied to federal policy.

Elizabeth Ramey of Legislative Council described Colorado’s outlook as a narrowed expansion amid cooling labor markets and heightened uncertainty from federal policy and tariffs. Ramey said technical parole returns and other state‑level dynamics are influencing corrections costs, and cautioned that some sector indicators — manufacturing, retail, leisure and hospitality, energy and construction — are vulnerable to federal trade and immigration shifts.

Emily Dorman (Legislative Council staff) walked members through the revenue implications: downward revisions in corporate and cash‑fund collections, and sensitivity in several 2023–2024 bills that embed revenue triggers for tax credits (including electric‑vehicle, workforce shortage and family affordability credits). The Legislative Council forecast showed the credits could be reduced or unavailable in tax year 2026 depending on the June/September/December forecast sequence; staff noted statutory ambiguity in how those trigger orders are applied.

Mark Ferrendino and OSPB staff presented a complementary baseline that also trimmed growth and highlighted a roughly $224M–$536M narrow TABOR surplus range across the next three fiscal years under current law. They emphasized two tail risks: (1) federal reconciliation proposals (House and Senate versions) whose tax changes could reduce state revenue by an estimated $500–600M in some OSPB analyses and (2) an elevated chance of a recession driven by tariff uncertainty. OSPB staff said combined effects of reconciliation policy and a large recession could exceed $2.5 billion — far larger than the state’s current reserves — and would require policy action rather than relying on reserves alone.

Committee members pressed staff on specifics — how individual forecast adjustments were computed, whether accounting changes in Department of Revenue timing (cash vs. estimated payments) altered near‑term revenue, and the statutory mechanics for TABOR and tax‑credit triggers. Staff committed to providing further detailed breakout charts and issue briefs and to revisiting the priority order for applying revenue‑triggered credits if the committee wishes.