Why Colorado is facing a massive budget deficit
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Facing a $1 billion budget deficit, Colorado lawmakers are debating why the state's budget is so out of whack: Is it a revenue problem or a spending problem?
Why it matters: The answer is both, economic reports reveal, and that means lawmakers are partly to blame.
State of play: Colorado's massive budget hole isn't the result of bad math, but rather clashing fiscal rules, rising costs and decisions lawmakers made when money was flowing.
- And even after a special legislative session and executive orders in 2025 to close a separate $1 billion budget gap, the state is still struggling.
The primary driver for the current deficit projections is the One Big, Beautiful Bill Act, or H.R. 1, nonpartisan legislative experts say.
- The Republican spending bill's sweeping tax breaks for businesses and wealthy individuals are contributing to the nearly $1 billion decline in Colorado's revenues.
- Now, Democrats are working to decouple those tax cuts from state law, but the effort won't cover the difference and will definitely prompt budget cuts elsewhere.
The big picture: At the same time, Colorado is experiencing what lawmakers called a structural deficit, where costs are outpacing revenues, in part because of the Taxpayer's Bill of Rights' cap on spending.
- Case in point: TABOR is forcing the state to issue taxpayer refunds now (from the 2025 tax year), even as revenues in the current fiscal year are decreasing.
On the spending side, Medicaid and related health care costs have ballooned to half the growth in discretionary spending from fiscal year 2019 to 2025.
- Much of the budget growth in the coming fiscal year will fund the program.
The intrigue: The financial picture is also shaped by how state lawmakers handled the influx of $8 billion in one-time money from the federal government during the pandemic.
- That money masked structural problems in the state budget for two fiscal years and boosted expenditures to new levels.
- Even though it was a one-time infusion, state lawmakers spent $400 million in federal dollars to fill ongoing needs and balance Colorado's budget.
Fast-forward, and these financial dynamics are now forcing lawmakers to cut deeper into the budget than initially expected.
- On Friday, legislative budget writers picked a more optimistic economic outlook provided by the governor's office to balance the budget, but it still leaves the state $389 million short of the 15% reserve in the current fiscal year and a $1.1 billion deficit in the 2026–27 fiscal year that starts July 1.
The bottom line: State Rep. Rick Taggert, a Republican budget writer, distilled the budget picture to eight words at a hearing Friday: "We're in just one hell of a predicament."