Colorado forecast projects continued growth and higher state revenue

DENVER — Colorado’s economy is expected to continue growing through 2026, with state revenue coming in higher than previously forecast, according to the latest economic and revenue outlook presented by the Governor’s Office of State Planning and Budgeting to the Joint Budget Committee.

The June forecast projects revenue, subject to the Taxpayer’s Bill of Rights, or TABOR, will finish fiscal year 2025-26 just $15.3 million below the spending cap, compared with $229 million below the cap in the March forecast. The state also expects TABOR surpluses of $469.9 million in fiscal year 2026-27 and $52.3 million in fiscal year 2027-28.

State economists said Colorado’s economy remains resilient but is becoming more vulnerable as inflation, household financial pressures and a slowing labor market begin to weigh on growth. OSPB estimates a 40% chance of a recession within the next 12 months, unchanged from its March forecast. Rising oil prices tied to the Iran conflict were identified as a key risk factor.

“Today’s Colorado forecast is good news as it shows our economy is stable and revenue this fiscal year is likely higher than expected,” Gov. Jared Polis said in a statement. “Despite challenges like increasing inflation, costly tariffs, higher prices and the Iran War driving up gas prices, Colorado’s economy is steady.”

General Fund revenue for fiscal year 2025-26 was revised upward by $379.8 million, driven primarily by stronger-than-expected individual income tax collections. OSPB now projects the state’s ending balance will exceed the required 13% reserve by $469.7 million.

The forecast also found signs of weakening economic conditions. OSPB lowered its U.S. gross domestic product growth forecast for 2026 from 2.5% to 2.1%, citing higher inflation and increased costs for households and businesses. Consumer spending has remained strong, but economists said many households are relying on savings and taking on additional financial strain to maintain spending levels.

Inflation has accelerated in recent months. U.S. inflation reached 4.2% in May, while inflation in the Denver-Aurora-Lakewood region was 5.0%. Energy prices accounted for a significant share of the increase as oil markets reacted to supply disruptions.

The forecast also highlighted challenges in Colorado’s housing market. Active residential listings were up 53.6% from January 2024 levels, while home prices have softened. Office real estate remains the weakest commercial sector, with Denver office vacancy rates reaching 17.6%, among the highest in the nation.

Looking ahead, OSPB expects economic growth to slow in 2027 and 2028 but does not currently forecast a recession during the outlook period. Economists cautioned that risks remain elevated due to inflation, consumer financial stress, labor market weakness, trade policy uncertainty and ongoing geopolitical tensions.