Legislative economists warn of large budget shortfalls and Medicaid-driven increases as JBC balances to OSPB forecast

Legislative staff presented a stark budget outlook to the Executive Committee, saying updated economic and revenue forecasts and recent policy changes could leave Colorado hundreds of millions — and in some scenarios more than $1 billion — below statutory reserve targets.

"Credit-card delinquencies of 90 days or more have risen above 12% of total credit card loans. That's the highest level since the comeback from the Great Recession," Greg Sobetsky, chief economist with Legislative Council Staff, told the committee, identifying household financial strain as a worrisome signal even as headline inflation moderates. Sobetsky projected inflation around 2.6% for the Denver–Aurora–Lakewood area and said oil-price volatility presented an upside risk.

Sobetsky said LCS has revised down revenue expectations for the current and next fiscal years and identified the federal tax changes (referred to in the meeting as the OBA/OBAA) that affect taxable income beginning in tax year 2025 as a major driver of uncertainty. He said LCS expects state revenue to be about $900,000,000 below the TABOR limit in FY 2025–26, which directly reduces the space available for appropriations.

That gap translates into large reserve shortfalls under staff scenarios. Sobetsky said that under LCS scenario B the deficit relative to a 15% reserve requirement is about $1.47 billion while the OSPB forecast yields a $1.21 billion shortfall. He emphasized those numbers are sensitive to transfers and policy choices already made by the Joint Budget Committee (JBC), including roughly $122,000,000 in transfers into the general fund offset by about $73,000,000 in supplemental appropriations and a roughly $110,000,000 affordable-housing transfer tied to Prop 1-23.

Director Harper framed the fiscal choices ahead for the General Assembly and noted the JBC selected the OSPB forecast for balancing. "The take home message for the JBC and for you all is that we're dealing with a persistent shortfall," Harper said, describing a budget process in which Medicaid cost growth and school finance drive much of the pressure and where large balancing options carry legal or implementation risk.

Harper identified major assumptions and governor proposals in the current request: an assumed $183,000,000 senior citizen property-tax (Homestead) exemption in the scenario, a $50,000,000 placeholder for school-finance general-fund support in the governor's request, $34,000,000 in staff-initiated Department of Corrections funding (including shift relief), and several Medicaid forecast adjustments that push costs higher. He also described two large governor balancing options: a Pinnacle conversion to a private enterprise assumed to yield $400,000,000 and a proposal to reallocate about $306,000,000 in TABOR refunds across two years. Harper cautioned both carry legal risk and would require legislative action.

Committee members asked about forecasting accuracy and the risk of a recession. Sobetsky said forecasting is dynamic and estimates are sensitive to March and April tax-filing data; he offered a near-term recession probability in the neighborhood of 40%, similar to OSPB’s informal estimate. Members discussed whether the shortfall could trigger a special session or require midyear balancing actions, with staff noting that midyear cuts are difficult and disruptive.

Harper and Sobetsky said staff will continue refining assumptions as more receipts and data from the filing season come in; the long bill was scheduled to be introduced in the House the following week. The committee did not take formal budget votes in this meeting.