Colorado Economic Outlook

The Legislative Council Staff’s December 2025 forecast presents a mixed picture for Colorado. While the state is not in a recession, the economy is visibly slowing due to high costs, uncertain federal policies, and a softening labor market.

Here is what you need to know about the state’s financial health and what it means for residents.

1. The State Budget is Tightening

For the current fiscal year (2025-26), the state’s General Fund revenue is expected to decline by 1.8%.

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  Why? This drop is largely driven by a decrease in corporate income tax revenue, a result of slowing business activity and tax cuts from the federal "One Big Beautiful Bill Act" (OBBBA).

  
  
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  The Impact: The state is projected to end the year with a reserve of 12.3%, which is $398.6 million below the statutory requirement. This means lawmakers will have less money available to spend or save relative to what was budgeted.

  
  
  
  

2. No TABOR Refunds for 2026

For the first time since FY 2019-20, state revenue is expected to fall below the TABOR (Referendum C) cap for the 2025-26 fiscal year.

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  Result: There will likely be no TABOR refunds paid to taxpayers for the 2025-26 fiscal year.

  
  

• Future Outlook: This is expected to be temporary. Revenue is projected to bounce back in FY 2026-27, exceeding the cap by $500.8 million, which would trigger refunds again in the following year.

  
  

3. Economic Slowdown & Inflation

The report describes the economic situation as "cloudier than usual" due to delays in federal data and policy uncertainty.

• Jobs: The labor market is cooling. Businesses have reduced hiring due to high costs and uncertainty, and the unemployment rate is drifting upward.

  
  
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  Inflation: Inflation in the Denver area has ticked up to 3.1%, slightly higher than the national average. Housing costs are rebounding, contributing to this persistent inflation.

  
  
  
  

• Consumer Spending: Coloradans are tightening their belts. Retail spending is expected to grow by only 1.9% in 2026, which effectively means a decline when adjusted for inflation.

  
  

4. Housing & Construction

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  Home Prices: Home prices in the Denver area have been falling faster than the national average and remain about 3.1% below their mid-2022 peak.

  
  

• Construction: Residential construction is sluggish. The number of housing permits issued is expected to decline by 0.2% in 2025 and fall further by 3.6% in 2026.

  
  

5. K-12 Enrollment is Dropping

Student enrollment in Colorado public schools dropped by 1.5% (12,477 students) in the current school year.

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  Drivers: This decline is driven by lower birth rates, slowing migration into the state, and high housing costs pushing families out.

  
  
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  Forecast: Enrollment is projected to continue declining through the 2027-28 school year.

  
  

The Bottom Line

Colorado is entering a period of fiscal constraint. With revenue dipping and the TABOR surplus temporarily vanishing, the state budget will be under pressure. For the average resident, this economic environment means persistent high prices, a tougher job market, and a pause on TABOR refund checks for the coming year. However, a rebound in revenue is anticipated on the horizon for 2026-27.