Joint Budget Committee [Mar 19, 2026 - Upon Adjournment]

. Thank you. Thank you. Thank you. Thank you. That's a weenie. The Joint Budget Committee comes to order, will come to order. We have gathered to hear the economic and revenue forecasts first from LCS and then OSPB. So Chief Sebecki, please kick us off.

Permission granted. Ms. Little.

finances are correspondingly weak. Vice Chair Bridges. Thank you, Madam Chair. So if about three quarters of the economy is driven by three

It's just under 70%. So 70% of the economy is driven by consumer spending. What percentage of that spending is driven by folks in the upper half versus the lower half? In other words, you know, that K-shaped economy, how much is that, I guess, how much could potential losses at the top through all those investments in AI potentially affect our economy moving forward?

Vice Chair Bridges. Thank you, Madam Chair. Do you have any information about where they're going for the last slide, where folks are going when they drop out of the labor force? Are they – is it people leaving the state? Is it people that are just deciding that they can't find a job and are giving up? Like, what's the underlying cause for those folks leaving the labor force? Ms. Little?

Seems a rather large warning sign.

Senator Amable.

Ms. Little.

How much of the spending is a substitute for the other? In other words, as we see the blue bar start to level off and even decline, is that because some stuff that used to be in the blue bar can now be done by AI and so it's sort of flipped and the blue bar looks worse, the sort of non-software information processing equipment looks worse than it otherwise would because that investment is still happening, is just happening through AI instead of through what it used to do before we had chatbots that

question is what's presented here. Note that these are annual data, right?

Vice Chair Bridges.

Chief Sobetsky.

Super helpful. Thank you.

So as Greg was kind of just saying here, we do expect this sort of increased investment in AI to be one of a few depressing factors on demand for labor alongside high tariffs as well.

But, I mean, we just heard of companies that are leaving Colorado kind of like in the dead of night, like Planetar and others. And I've heard from several folks that they're just not going to invest in business, in things in Colorado. I mean, look at the energy industry, other industries as well. Where do I find that on the chart?

Thank you, Madam Chair. Senator Kirchmeier, we have seen relocations of business headquarters. That's clearly the Palantir case is top of mind. I do think this is a national trend. The employment growth series that we presented back on slide four shows that labor market gains nationwide have struggled. Up until a few months ago, I think the story was Colorado's lagging the national labor market. I think at this point, the story is the national labor market is also in very poor shape, and job gains aren't really being realized. I wouldn't say anywhere in the country. I'm sure there are some leading markets out there that are in better shape. But on a national level writ large, I think that both the demand-side constraints and the supply-side constraints are present. The supply-side constraints we haven't talked as much about, but this is where Ms. Little was talking about discouraged workers. She was talking about departures from the United States. I think that those are, and then, of course, demography, right? Like people aging out of the labor force are all supply-side drags on the labor market. And then on the demand side, we talked about AI. We've talked about how difficult it is for businesses to invest given high interest rates and sort of sluggish consumer spending growth, meaning that it's, you know, revenues are growing maybe at a slower rate for firms in certain sectors. Total U.S. tariffs have increased over 240% in the most recent year to 260.8 billion.

Representative Tackar.

Ms. Little.

Yes, Chief Sobetsky.

Ms. Little.

Thank you, Madam Chair.

Senator Kirkmeyer

Thank you Madam Chair.

SENATOR KIRKMAYER.

THANK YOU, MADAM CHAIR.

For corporate?

Madam Chair?

We'll get it for you, Senator Kirkmeyer.

Rob Taggart.

That is a bit surprising to me given HR1 had very positive impacts on business, particular investments and research. I have forgotten, did any of those impact from a positive standpoint 2025, or are those impacts more in tax year 2026 and going forward? Chief Sabetsky.

Representative Taggart, I want to make sure I understand your question. You're suggesting that OBA had positive impacts on the business environment, on what businesses are able to do in the economy because of the tax cuts. I agree with that. The revenue decreases that we're anticipating here are because those tax cuts also impact our state corporate income tax collections.

Thank you. and I understand that, but we also, in the special session, did quite a bit to decouple ourselves from that rolling conformity that we've had for years and years and years with federal tax bases. And I would have thought some of that would have counteracted that, unless that didn't – I've forgotten when that was to go into effect.

Thank you, Madam Chair. Thank you, Representative Taggart. So the Colorado Constitution requires that changes to the definition of taxable income not be enacted in the year when they first apply. So there are changes to require add backs to federal taxable income that were enacted during the special session to the extent that those caused decoupling from OBA. They first accomplished that in tax year 2026 when those add backs were first allowed to apply under TABOR. That said, I ought to make sure of this before saying it into a microphone, and yet here I am. I understand that most of the taxable income additions that came out of the special session were to passer entities as opposed to C corps. And so the downward revision to our C corps forecast is maybe not as impacted by those. Madam Chair, this is our TABOR outlook. You're familiar with this at this point in the sense that we now expect to be well below the TABOR limit for FY25-26. I wanted to highlight the forecast period and in particular FY26-27, your budget year, where we expect revenue to be $276 million in excess of the Tabor limit for that year. That is small. It enough like I said to just about fully fund the homestead exemptions for FY27 and not much more than that I want to communicate that this is minuscule within the space of normal forecast error You can hear the magnitudes of the revisions that we making right now It's possible that revenue will be well above this point and that we'll have a much larger taper surplus. It's possible that we'll be back below the referendum C cap. I also want to note what this means for balancing because some of the ways that you've balanced the budget in the past few fiscal years have involved changing the state's relationship to the Tabor limit. There are ways to do that that are fairly straightforward. For example, cutting cash fund revenue subject to Tabor, right? If you pass a bill that requires an agency to reduce a fee, then you're reducing the general fund obligation to pay TABOR refunds. And you're doing that because that fee was generating a general fund obligation because of how the general fund is obligated by TABOR. In an environment where revenue is below the TABOR limit, those sorts of balancing options no longer assist the general fund. Another example is the Tabor over refund correction Request item that I've discussed with the committee previously That's an item that provides budget space in a case where It's borrowing against some future Tabor surplus but if there is no future Tabor Surplus then it's not it doesn't accomplish a Balancing action for the general fund I do have the numbers for Senator Kirkmeyer and I'm glad glad that I requested them from my staff because they're not what I thought they were. So I was thinking of our cash basis estimates, our accrual basis estimates, which are the numbers you care about, is a downward revision of 183 million to corporate income in FY25-26 and then 343 million, which is the number that I remembered for FY26-27. So that's how that impacts. The rest of the revision is to individual income tax and sales tax. Our forecast has some policy outcomes. The first is for triggered tax credits. So I know that I've addressed the committee on this multiple times in the past. I'm going to do it again because I think it's important to remember these things. I find them challenging. The way that the trigger tax credits work is they care about the December forecast that precedes the income tax year. So the December 2025 forecast determined the disposition of these two credits for tax year 2026. That is over and done with. Those credits were triggered off by the December 2025 OSPB forecast, and the credits are at zero for tax year 2026. For tax year 2027, the credits depend on the revenue forecast from December of 2026, so nine months from now, from the agency whose forecast you select for budgeting now as your part of your balancing process. So if you select the LCS forecast, it would be the December 2026 LCS forecast. If you select the OSBB forecast, it would be their forecast from December 2026. So we don't know, as a matter of fact, what the disposition of those credits will be, nor do we know what the disposition would be depending on which forecast you pick. You have to wait until December in any case. THAT SAID THE WAY OUR FORECAST WORKS IS WE ANTICIPATE BASED ON OUR CURRENT EXPECTATIONS HOW THOSE CREDITS WILL RESOLVE UNDER CURRENT LAW AND SO BECAUSE OF OUR EXPECTED COMPOUND AVERAGE ANNUAL RATES OF GROWTH IN STATE REVENUE SUBJECT TO TABOR WE EXPECT THAT FOR BOTH TAX YEAR 2027 AND TAX YEAR 2028 THAT THE CREDITS WILL BE FULLY TURNED OFF NOW I TOLD YOU ALREADY WE HAVE HUGE AMOUNTS OF CURRENT YEAR uncertainty in our forecast because we don know the actual impacts of OBA yet Once we have filing season data which we have to some extent for the June forecast we be able to make adjustments to this And it may well be the case that we expect that these credits would be turned on because we rebase our expectations for revenue accordingly. but our forecast assumes that they're off and it adjusts or increases revenue to account for the fact that the credits aren't there that means that if the credits were to be turned on we would have lower revenue that is currently in our forecast document and notably if the credits were to be available at a moderate to high level in tax year 2027 we would not have a taper surplus in our our forecast throughout 26th, 27. Healthy school meals for all. This is one area where we've made a large upward revision to our forecast on the basis of this program requiring larger levels of additions to taxable income than we had anticipated certainly before OBA but even back in the September and December forecasts. So the December forecast was when we debuted as part of our revenue forecast, our expectations for Prop MM.

House bill. Rep. Taggart. Oh, Rep. Taggart.

COUNTERINTUITIVE TO ME CHIEF ZABETSKY THANK YOU MADAM CHAIR THANK YOU REP TAGRET FOR THE QUESTION I am not confident in this number is my answer to that question. I am confident in very few of the numbers in this forecast, but this one I'm particularly not confident in because we will... Because first of all, this is not a time series for which we have much of a history, right? Our models look at the historical relationship between economic circumstances and revenue collections. This isn't one for which we have much of a historical relationship. So our model intrinsically is poor in that sense. Additionally this is a strange revenue raising mechanism as I know you know because it is sort of looking at an opportunity to try and scrape together money from between the definition of federal taxable income and the definition of state taxable income And so we care about taxpayers in a very specific income group, and we care about their federal deductions, which is not something that we've ever had to independently forecast. So for those reasons, I have never had great confidence in these revenue estimates. I will say because I have low confidence in them, I am very willing to revise them. And so that's maybe counterintuitive, but when I'm more confident in an estimate, I have stronger priors and I don't want to change it in response to a single new data point. In a case like Healthy School Meals for All, we get a new data point and we're like, wow, we've just upgraded our knowledge of this program by like 15%. And for that reason, we're very quick to make those adjustments. So the data that we do have for early season filings, which as you pointed out, is probably not well representative, does suggest that they're coming in above our expectations when we revised up accordingly. Fortunately for the Tabor impact of this, we're a long way away from having to go back to voters or refunding the money. It's just that won't be known until after the end of June of 2027. one number that I'm more confident in quite confident in some would say is the next bullet on this slide which is that because of these big revenue increases and the upward revision to the revenue forecast healthy school meals for all program revenue is projected to exceed the 35% reserve threshold that's in the the House Bill 24, 1274, 25, 1274, as amended by something from the special session, that causes that program to essentially be fully turned on in terms of the amounts of grants that are paid out and reimbursements to school districts for meal programs. Also, even after fully funding the program, we don't do the expenditure estimates. So this is working with the department and with Ms. Bickle to put these numbers together, but there's projected to be $268 million available in that fund to do, among other things, SNAP pursuant to special session legislation and yeah. Now let's talk about school finance. So stage setting here, the new school finance formula has a phase in, you all know that. THE PHASE IN IS ESTABLISHED IN PERCENTAGES WHERE A DISTRICT THAT IS GOING TO RECEIVE MORE MONEY UNDER THE NEW FORMULA GETS A PERCENTAGE OF THE DIFFERENCE BETWEEN THE OLD FORMULA AND THE NEW FORMULA FOR SOME PERIOD OF TIME UNTIL THE NEW FORMULA IS FULLY PHASED IN AND THEN SCHOOL FINANCE IS ACCOMPLISHED THROUGH THE NEW FORMULA. THE PHASE IN PERCENTAGE IN FY25-26 IS 15% AND UNDER CURRENT LAW IT'S SCHEDULED TO INCREASE to 30% for FY2627. Current law from the bill that created the new formula directs the phase-in to be stopped if the JBC determines that any of three conditions have been met. Two of those conditions are property tax conditions and we don't expect either of them to be met. The other condition has to do with the expectation for the level of growth in revenue to the state education fund in the forecast in March that is selected by the JBC for budget balancing and that is for either the current year or the budget year a projected decrease of greater than or equal to 5%. As I mentioned earlier, a lot of the budget year is a lot of the budget year. LCS is forecasting that Amendment 23 revenue to the SEF will decline by 5.3% for FY2526. And if you were to choose the LCS forecast for balancing, then that would have the impacts of stopping the additional phase-in, which would cause the phase-in percentage to remain at 15%. It doesn't go to zero. We don't go back to the old formula. We stay where we are in the phase-in process. and the retention of four-year pupil averaging. We worked to figure out what that would mean for your school finance funding obligations. That would reduce relative to what we've expected FY2627 to require for total program. That would reduce the total program amount by 52 million for 2627. About 3 million of that would be accomplished Through changes to mill levies and totally locally funded districts and the other 49 million would be a reduction in the state aid obligation

THANK YOU, MADAM CHAIR. REPRESENTATIVE TAGER, I'M SORRY, I DON'T KNOW. MY CHIEF SCHOOL FINANCE OFFICER AND MY PRINCIPAL SCHOOL FINANCE ANALYSTS ARE SITED IN THE FRONT ROW AND PERHAPS THEY COULD ANSWER THAT QUESTION.

Anna Gerstel with Legislative Council staff. Currently, under 1448, districts are held harmless to their fiscal year 24, 25 total program amounts. That's scheduled to switch to them being held harmless to the amount calculated under the old formula, plus 1% starting in 27, 28. So our current understanding is that with this trigger being met in 26-27, districts would still be held harmless to 24-25 total program, and that they would be held harmless to that amount moving forward until such time as the General Assembly decided to restart the pahazin.

So we're going to move into discussions now of your general fund budget bottom line. I'm going to start by talking about FY2526. And I'm going to present changes relative to the December forecast. So in December, we had expected that you would end the year with a $2.05 billion reserve. THAT'S A $399 MILLION DEFICIT RELATIVE TO YOUR 15% STATUTORY RESERVE REQUIREMENT. WE HAVE UPDATED EXPECTATIONS TO THE DEFICIT TO ABOUT A BILLION DOLLARS THAT AN 8 RESERVE THAT A MILLION DOWNGRADE RELATIVE TO THE DECEMBER FORECAST EXPECTATION to about a billion dollars That an 8 reserve That a million downgrade relative to the December forecast expectation About million of that is the forecast That our reduction in general fund revenue expectations, changes to transfers in and out that resulted in a small decrease, and rebates and expenditures change that resulted in a small increase. The other $253 million of that is changes that were made during the supplemental budget process in terms of increasing current year appropriations, which requires a 15% reserve requirement, and then one small transfer to capital. Note here, you obviously didn't increase appropriations by $253 million in the supplemental package. One thing that we had done in December and also in the September forecast is in response to the governor's executive order from the fall, which restricted certain department spending, we had anticipated a reversion amount for the current fiscal year that would reflect the underspending of those agencies. And we at the time noted that during the supplemental process, we assumed that the supplemental appropriations would reflect the downward adjustments that were directed by the governor. now that the supplemental package is current law we have removed that reversion expectation from the forecast so that's no longer baked into our set of forecast expectations for the budget for FY 26 moving ahead to FY 27 you have not enacted a budget for FY 27 I'm as always going to present you with two scenarios scenario a is here to be apples to apples across forecasts it it shows you the amount, ostensibly it shows you the amount available to be spent or saved next year compared with your level of spending in the current fiscal year. In the current budget environment, the amount available for the next fiscal year has been less than zero dollars and for that reason we are still showing it this way though it's a little outside of its scope of initial intent. In the December forecast we had expected that you would have a 2.28 billion dollar reserve or 164 million below the 15% reserve requirement. We've downgraded expectations by 800 million such that you have a 1.66 billion dollar reserve or 9.9% reserve. Changes. 262 million of this is forecast changes. This is smaller than the FY26 change, the fiscal year 2025-26 change, excuse me. The reason why it's smaller is because on its own, it's we are actually modestly upgrading the forecast for FY 2027. You just happen to have all of this bad stuff from FY 26 that's carrying forward to that year. In FY 2027, however, we're reducing our forecast for cash fund revenue subject to TABOR, which reduces the TABOR refund obligation, but doesn't reduce the amount of available general fund budget space. And so for that reason, you have a little bit of a reprieve in terms of budget flexibility there. The other 381 million so 381 of our 807 or of our 643 381 of our 643 million dollar change is just budget changes. So this is the supplemental package. It's resetting our expected level of FY27 appropriations to equal general fund appropriations for FY26 with the supplemental package and then carried forward your appropriations into this year. Vice Chair Bridges.

Thank you, Madam Chair. Senator Bridges, no, actually, it does assume Homestead. So the homestead, the hit from Homestead is already here.

Madam Chair, Senator Bridges, it's not a change relative to December. We had also assumed that end of December 4th. Great. Thank you. Okay. Scenario B. So scenario B is an endeavor. Scenario B is an intense joint project of myself and Director Harper, and I can't thank him enough for his help with this. It wouldn't be possible without him, and I know that it was a huge lift. Something that he stressed to me is that this was uniquely difficult this year because of the decisions that are all still before the committee, right? What we're trying to do is say, what if our forecast, but in the world of the decisions you've made, well, we still have to include some placeholders for places where you haven't made decisions, and that's where we get into these more difficult judgment calls. So I'm going to give you very explicit information about what's in scenario B. We start with scenario A. So what if we had the same amount of appropriations and then we deviate from that according to the following assumptions. For both long bill supplementals for the current fiscal year which are not current law and therefore they're not in scenario A and for FY 27 long bill appropriations if you have acted we take your actions. If you have not acted we mostly use staff recommendations I wanted to explicitly lay out everything that we're doing here in cases of large items that may be of interest to you for total comp first of all anything that you did on Tuesday or yesterday isn't included here because we didn't have that information when we did this for total comp we're assuming the executive request in the wins agreement for Corrections were including a 34 million dollar staff rec for capacity which means we're not including the executive requested four million dollar capacity amount we're also not include including anything discussed in the OSPB come back yesterday about purchasing a new prison for school finance we are assuming the executive requested 50 million dollar general fund increase for higher ed institutions we are assuming flat levels of appropriations relative to FY 26 for homestead to the vice CHAIR'S POINT WE ARE ASSUMING CONTINUATION OF THE CURRENT PROGRAM STAFF HAD RECOMMENDED THAT YOU NOT DO THAT BASED ON THE COMMITTEE'S RESPONSE TO THAT WE'RE INCLUDING THE PROGRAM IN THIS SCENARIO AND THEN FOR HICKPUF WE DO NOT CURRENTLY INCLUDE AN ACROSS THE BOARD PROVIDER RATE CUT SO SENATOR MOBLEY WHERE IS PINNACLE IN THIS CHIEF SEBETSKY THANK YOU MADAM CHAIR SENATOR MOBLEY PINNACLE IS NOT INCLUDED FOR THE REASON THAT IS HERE WHICH IS that for budget package legislation and legislative content we are only including what you have approved for introduction. So not only are we not including Pinnacle, we are also not including the affordable housing transfers from Prop 123. So the reason to give all of this explicit information about what is and is not baked in is because I know you all have in your heads, well, we're definitely going to do that and we're definitely not going to do that and because those are in your heads and aren't formal committee actions yet, I wanted to make it clear how you could adjust these sets of expectations to match what you think the likeliest course of balancing is I should shout out since we here Mr Brosa is in the room We do have an update to our budget simulator that fully updates for Scenario B So online you can make your own budget that includes whatever adjustments you want to make and accomplishes balancing under the parameters that are available to you. For capital transfers, we are using the CDC and JTC recommendations. There are some balances in the capital construction fund and so we are only assuming the additional transfers needed to accomplish the product project lists net of the amount that's already in the cash fund. And then as you know, legislative council staff is not opining on the merits of the assumed budget actions. These are your decisions. We support the committee wherever it wants to go but we don't have any opinions about what is and isn't good budgeting. So here's scenario B. We start with that $800 million deficit under scenario A. And the first thing we do is we layer on FY25-26 budget actions that are included in scenario B. So that's about $122 million in transfers that you have acted upon that would create new money in the general fund. However, you have also approved about 73 million in long bill supplementals and about 10 million in placeholder appropriations. And we leave those out because those are additional spending beyond what's included in scenario A. Changes to total funds available. So here this is now in FY2627. We have 72 million in additional transfers in on top of the 122 million. So we're up to about 200 million in total in transfers into the general fund. We also have about a 37 million dollar reduction in the Tabor refund obligation. 17 million of that is a cut to a fee somewhere and the other 20 million is a change to the level of the Tabor limit based on a different inflation calculation. For appropriations, these are changes relative to scenario A, where scenario A is what if you spent the exact same amount next year as you are spending this year with the supplemental package. So this is not necessarily inclusive of the many cuts that you've made even in the agencies that are shown here because it's year on year how much are appropriations changing. I've only shown four departments it turns out if you add these four departments together you pretty much get to the exact net change there are many agencies that are seeing year-on-year cuts those are included here and they net out increases to other agencies so the four where we're scenario b is currently identifying significant year-on-year increases are hic puff at about 370 doc at about 100 judicial about 60 and cde at about 40 million We then layer on transportation and capital transfers. So I mentioned the CDC and JTC recs and then you also have approved a 10.5 million dollar reduction in a general fund transfer to the multimodal transportation mitigation options fund. We've accounted for that money here. So net of all of those changes you need to increase your reserve requirement for your 15% reserve because again you haven't acted on a different reserve amount this would increase your reserve requirement by 85 million because of the additional appropriations so under this scenario you end up with a 1.4 seven billion dollar budget deficit relative to the 15% reserve requirement. If you were to go to a 13% reserve requirement, you would be at a $1.1 billion deficit. If you were to go to the reserve requirement that would be needed to accomplish a 0% deficit, you would go to a 6.5% reserve.

Chief Sabetsky. Thank you, Madam Chair. Thank you, Senator Kirkmeyer. The best source of information for how the two forecasts compare to each other is eventually going to be the overviews that you get from Director Harper. The next order of business for me after I leave the dais here is going to be working on reconciling the two forecasts with one another to help Mr. Harper prepare, Director Harper to prepare the overview for all of you. A few notable differences between us and OSPB. I'll, Madam Chair, with a little bit of discretion, I'll kind of riff on what I see the differences there as being. First of all, they were pretty different in December. So the fact that they're different now in terms of whether they perceive the request as being in balance is I think not surprising. We're also not scoring the request. We prepared scenario B to the governor's request for the December forecast. We provided Director Harper with an updated version of our December forecast document that included the January 2 request for his use back in January. But at this point, from our perspective as your nonpartisan staff, WE'RE NO LONGER SCORING THE GOVERNOR'S REQUEST, WE'RE SCORING WHAT WE THINK YOU ALL ARE DOING AS A COMMITTEE IN TERMS OF YOUR COMMITTEE ACTIONS. THE DIFFERENCE IN THE TWO FORECASTS, I THINK, IS ACTUALLY LESS ABOUT SCENARIO B, BECAUSE SCENARIO B IS TRYING TO LAYER ON A BUNCH OF DECISIONS THAT THE COMMITTEE HAS MADE TO TRY AND CONTEXTUALIZE THE FORECAST TO THE BUDGET THAT YOU'RE WRITING. THE FORECAST BOTH WOULD REFLECT THE SAME COMMITTEE DECISIONS IF THEY WERE USING THE SAME scenario assumptions. So the differences between the two forecasts are what are your expectations for revenue, what are your expectations for the TABOR refund obligation, what are your expectations for rebates and expenditures and for transfers that are outside of the control of the committee. With respect to all of those things by far the most important is expectations for current year revenue FY 26. The reason why that matters more than FY 27 is because both Both forecasts have a taper surplus for FY27. So the change is to revenue expectations for the current year. We're about $480 million below the OSPB forecast for current year revenue expectations. You should have a one that shows those differences That number FY26 differences forecast between the two forecasts is the most 481 is the most important number on that sheet If you look above that number you see the differences in terms of where they shake out in our general fund revenue forecast and your mind immediately goes to the individual income tax amount. We've spent time, so we shared this comparison sheet between our two agencies yesterday afternoon. My team has spent time looking into that number. I know that the OSPB team has as well, and we've had one conversation with them about it already. There's individual income taxes are complicated. I think the most important, in my opinion, difference between the two forecasts are actually what we think about tax year 2025, the year that's already over, which should tell you just before I even talk about those differences how uncertain the forecast is, right? Because we're now talking about a tax year that is completed, and I think that the most important difference between these two forecasts are how we are both viewing this completed taxpayer. We both are expecting cash with returns, that's payments of tax by taxpayers over the rest of the filing season, and refunds, that is payments by the state to taxpayers on returns over the rest of the filing season. And LCS on net is expecting net payments to taxpayers that shake out to $420 million less, meaning refunds minus cash with returns, over the next four months, just the rest of the current fiscal year, right? March, April, May, June. That $420 million difference between our two forecasts explains, you know, 420 of the 480 million. That's the entire discrepancy between the two forecasts. So the good news is you'll know who was right in the June forecast. The bad news is you have to write your budget right now. And I would say I am not confident that we're right or wrong, right? I think that the hard part about the current forecast, and this is the next slide, is talking about risks. is that the highest probability risk to our forecast is error in the way that we're accomplishing adjustments to the forecast for OVA. We saw this huge level of refunds to individual income taxpayers in February. That amount could be, hey, people are just filing their returns earlier. And we know, in fact, that many people are filing their returns earlier and the Department of Revenue got more returns processed in February. So that's definitely part of it. but if you just look at the volume of taxpayers it also suggests that refunds are very high well is that because only the highest refund taxpayers file their returns early or is that going to be everyone through the filing season we don't know that yet is it because OBA impacts that we expected were shifted forward to February and are not going to be as great in March or April or are they going to be bigger in all three months than we thought that they were going to be in December we don't know that yet is it just well people are now more aware of the FATC and so more people are claiming it we don't know that is it everyone's aware of the FATC and it's the same volume of claimants as last year but they're doing it in February instead of March and April because they know that they can get those refunds back earlier that's possible too so those are the kinds of things that are driving I think a little bit of a difference between the two forecasts between FATC and the expanded ITC being big tax credits, between OBA being huge changes to the level of taxable income for individuals and pass entities and corporations And the fact that all of this is still layered on top of pretty uncertain understanding of the economy in terms of what would be driving revenue collections even without all of this policy change. Those are the reasons for so much uncertainty and discrepancy. Even with all of that, like I said earlier when I was talking about the revenue outlook, these aren't actually like major changes to the revenue outlook writ large. They just feel big now because you're below the Tabor limit. We've made changes in this direction of this magnitude in March in prior presentations. They've just not had the same gut punch blow to the committee because you're now in a very different budget environment being below the limit than you were in those prior cases. Since I'm here that's the highest probability risk I'm confident that we're wrong in some direction by some magnitude about OVA The highest magnitude risk though is to the economic forecast That's what every forecast is Every forecast is wrong The highest magnitude risk is to the economic forecast and that's where cross apply all of the questions that the committee posed of Ms. Little and myself during the economic outlook presentation, changes to the economic trajectory could very easily put us back under the taper limit for next fiscal year. Or they could not, right? Like we're stressing downside risk because that's the part that is more salient for your budgeting. I think that there's upside risk to the forecast, both for revenue collections and for the economy. I think focusing on the downside risk makes sense because that's what is going to hurt you more but we're trying to produce a midpoint estimate for the forecast so there's a coin flip chance that things could be a little bit better or a lot better than what I presented you with I'm trying to give you the midpoint of where we think the outcomes are this is your midpoint Madam Chair, yes

Chief Sovetsky. Thank you, Madam Chair. Thank you, Senator Bridges. One of the lessons, so in terms of upside risk for your budget, I'll start there and then I'll spin out to a broader risk for upside risk for the economy. One of the things that we learned during COVID is that it's very possible for the economy to experience growth and resiliency just on the backs of the top half of the income distribution, right? Like look back at what your question was of Ms Little at the top of the presentation in terms of top earner contributions to consumer spending right We at a point now where we see significant tax cuts especially for that end of the income distribution Those are stimulative right Like we saw stimulus from the Tax Cuts and Jobs Act, the CARES Act, ARPA, putting a bunch of federal money into the private economy through tax cuts has a stimulative impact on economic activity. In this case, it's concentrated at one end of the income distribution, but those folks are also the drivers of much of private sector activity in the United States. So that's item one. Mr. Vice Chair.

So, Mr. Vice Chair, Senator Bridges, I – my recollection of the COVID episode is, yes, eventually we got all of this money out into, you know, household across the income distribution, and I do think that that was stimulative. But I also think that LCS, certainly, and I would say also OSPB at the time, were far too pessimistic about the economic consequences of a weak labor market. Right. Like we we mapped the economic or excuse me, the employment losses, the job losses from covid on to the Great Recession and said, well, this level of employment growth occurred during the Great Recession and had this level of impacts on income taxes and sales taxes and all of the revenue streams that drive your budget. and we said it's even going to be worse. COVID job losses are going to be worse than they were during the Great Recession and we should plan for similar or worse impacts on your revenue streams and even before all of the stimulative effects that the government the federal government put into the private economy that didn't happen because the composition of job losses from COVID was very different than the composition of job losses from the Great Recession. Great Recession it was everybody. COVID it was leisure and hospitality right and lots of other places but primarily concentrated at the low end of the income distribution. So I think you're right that broad-based stimulus has, you know, effects across the economy, but also top-end stimulus can have effects across the economy. I mentioned the Tax Cuts and Jobs Act before. That's another instance where we did see stimulative effects on the economy from tax cuts. I expect that there will be, and in fact, in our baseline forecast, there's an expectation that we're going to see continued business investment for example that is brought on in part by the stimulative effects that representative taggart mentioned earlier on business coming out of oba so that's one piece of the puzzle but it's not just policy right we're at a point where we had a lot of apprehension in 2025 about tariffs we have I would contend, at least to some extent, a clearer picture of trade policy than did a year ago when trade policy was up and down and up and down every day. And if anything, especially because you're asking me to spin you a yarn about upside risk to the forecast, I'd say there's a world where businesses feel that they can make more long-term investment decisions because they understand what trade policy in the United States looks like going forward. So that's another piece of the puzzle. The easiest piece is just we're wrong about the near-term revenue picture, right? Like OBA just didn't hit the budget as hard as we thought it was going to. The refunds acceleration that we saw in February was just that. It was just people filing their returns early. It's borrowing against March and April. You shouldn't downgrade your forecast relative to what you published in December. Maybe that's even true for corporate. Maybe our corporate income tax forecast is too low because those estimated payments, That was people just borrowing against the need to make final payments in the spring, and now they're going to make those final payments, and then we're going to be fine. And that's kind of the OSPB forecast in the sense that they're above ours with a lot of current year strength. That could happen. And I'm sure that they will tell you that risk to their forecast also include upside risk, even from the point where they're at on the trajectory. So I definitely don't think you've got to look at this number on the page and say that's the max. we could be above that.

Thank you, Madam Chair. To that last point on are we seeing the companies that have the most to get filing early, wouldn't it make sense that they would do that just from like a net present value perspective that if you have a bunch of money sitting there, you'd rather get it out early so you can do something with it and make more money on it as opposed to waiting until later in the year to file that refund when you're not actually making any money or making less money than you would otherwise on those refunds.

Yeah, a bird in the hand is worth two in the bush for sure. I think that it makes sense if you know you're going to get the money back later, you'd rather get it back right away. That said, I've been burned by that before, right? The March forecast is kind of maddening because it is the most important forecast for you. We know that. We take it very seriously because we know it's the most important forecast for you. But we have some data, like we have information that we didn't have in December. We know a little bit about filings, but we don't know how much we know about them. We also don't know if the data are sort of tricking us, which has happened before, where we get this February report, and it sends a signal that's actually directionally the opposite of what ends up happening over the rest of filing season. So I would say that there are ways that that could be mitigated, by the way. Like if there was a, and this isn't like necessarily in your power to fix, but if there was a consistent filings open on this date every year, returns our process beginning on this date every year, we would have more of a consistency in terms of the percentage of tax returns that come out at each time. The other thing that would make it easier to forecast is if there weren't so many changes to tax policy From both the federal and state governments But we we roll with the punches as we need to Thank you

I come from a school of thought that that the timing of Getting returns back early when it comes to a corporate side does not come into our thinking very much and for a couple of reasons One for larger corporations we have a much more complex set of taxation that we have to be concerned about because we do business all around the world B, we want to make absolutely certain that what we file will stand up in an audit because we also are audited. And if we rush it, we have potentially a managerial letter that's going to come to us from the audits that are going to list A, B, C, and D, which we aren't going to like. So I can only speak for a larger corporation that was international. we take our time and in many cases we're going to push it absolutely to the limit in terms of the deadline because we want it to be absolutely correct for a variety of reasons. So I'm only speaking from my experience, but doing things early was not ever in our thought process.

Thank you, Madam Chair. I just – I think it's important to note that I know, Mr. Sebecki, first of all, thank you for all of your work. Thank you to your team. This is a really excellent product, even while it is a terrible product, if that makes any sense. I will just say that I think that there is a significant harm to missing the upside risk. I know you said downside risk is more dangerous, and I think that's intuitive. I will just say that if we are missing upside risk, if you will call it, and we are balancing to a number that is too low, then we are hurting Coloradans and that we are cutting programs that really help people that do not need to be cut. So for what it's worth, I don't know if you want to respond to that at all, But I just, for what it's worth, I know you and your team are not trying to lowball anything or be unnecessarily conservative. But I do think it is important to just note that I want to budget to the best number, to the most accurate number, because I think that's what I think the people of Colorado appreciate about us. And I appreciate the integrity and the work of your team in helping us to do that.

Thank you, Madam Chair. Representative Brown, I think that's great perspective, right? I agree, first of all, I want to be forecasting the best and most accurate number. That's what our team strives to do. And I'm sensitive to, I think, the policy point that you're making, which is that it's detrimental to underfinance government on the basis of a forecast that's overly pessimistic. um that also reminds me of the covet episode um what happened there is we and ospb for that matter ospb was higher than we were both of us were too pessimistic about the level of revenue loss that would be um that would emerge from covet and the level of appropriations that came out of the committee was much lower than could have been accomplished with revenue that the state ended up collecting. Now, in that case, it wasn't purely just the forecast got it wrong. There were a whole bunch of other things that happened in terms of both the federal government making direct money available to states but from our perspective as economists the federal government making money available in the private economy that stimulated a bunch of additional consumer spending income etc that resulted in tax revenue to the state. So we missed low in that case. It's not clear to me that we missed low just because we misunderstood the economy, as opposed to we also failed to foresee big changes to law, which we wouldn't have forecasted anyway because we forecast current law. In this case, I just told you about scenario B and I said that we were in a 147, 1.47, excuse me, 1.47 billion dollar deficit um that amount is the the upside risk to that amount is still taper constrained even though we're below the taper limit there's no upside risk that puts you back into balance um even under the best case scenario like a unbelievably you know 0.1 percentile case for the forecast because the maximum amount of upside risk to this is just you hit the table limit in FY26. In that world, you have all of that revenue that's available for expenditure, and you have that revenue available to pay for Homestead if you were to exceed it. I don't think that's going to happen, but it could. There's upside risk there, and so that's sort of what you're trying to score against. Beyond FY26, our forecast is already a best-case scenario for FY26. 27 and FY28 because you're Tabor constrained in those years. And so changes to the revenue outlook in those years don't have downstream effects on your budget. In fact, we cut our cash funds revenue forecast by quite a bit. And if we were to revise that forecast up,

you said the bigger risk was the economic risk. And I know in the last forecast, you gave us a percent likelihood of a recession. And do you have that for us today too? And has it changed? You said 50%, I think. Thank you. For a mild recession.

Thank you.

Chief Zabetsky.

Well, we thank you for your cheery forecast and all the work from your team, Chief Sebecki. We're going to take a short recess while we reset for OSPP's forecast. So stay tuned. Thank you. Thank you. . Thank you. Thank you. The Joint Budget Committee will come back to order We are now with the OSPB team to present their economic and revenue forecasts. Director Farrandino, would you like to start?

Deputy Director Cook.

Vice Chair Bridges.

Director Cook.

Thank you, Madam Chair.

I guess, Deputy Director, give it a shot.

Senator Kirkley.

Thank you, Senator Kirkmeyer.

Well, along the lines of the drought, do you anticipate that having any impact on tourism and what's happening in the mountains perhaps over the winter? Deputy Director.

It certainly is a concern. When we have talked with people that work in the tourism sector and that work at DIA, We have heard that largely there is still a good amount of travel coming in through DIA, but that's based on data that's a couple months old. It might not include the recent developments that have happened, and so we can go back and look into that more. okay so for wage growth um we do see deceleration from what we've seen um in the heights of 2022 so both the u.s and colorado we expect to be below the 20-year average with colorado being slightly above the u.s because jobs growth is expected to be better in colorado So an interesting thing on U.S. personal income is that wages are making up less a share this year of total personal income to the U.S. That 4.7% growth amounts to $1.2 trillion added in 2025. In last year, the reason why it maintained relative stability is in part because of government transfers. It was about $400 billion out of the $1.2 trillion that made up that component. That's the highest number since we saw in 2021 when ARPA was taking place during COVID. It is a different reason why, though, this time. This time, the reason why is because of old-age Social Security rolls being increasing at a relatively quick rate. So 2.2 million people were added to the rolls in 2025. That's 3.6% growth. That's the highest growth rate we've seen since 1973. Looking at consumption, we do see that retail trade is somewhat stable. It's lower than it has been a couple years ago, but it's still not falling off too much. And it is kind of a different story depending on what industry you're looking at. On the positive side, you see health and personal care stores, which are the biggest driver to the U.S. economy at 7% growth. But even though we have stable consumption, we are seeing consumer sentiment fall. Part of the reason why we think consumer sentiment has fallen, per the University of Michigan surveys, is because inflation expectations have been outpacing actual inflation since tariffs were implemented during last spring. And I think that that has a negative impact on how consumers are feeling about the economy This was also something that LCS used in their presentation So I glad to see you know we looking at the same indicators here But these are some of the other indicators we looking at for household finances. We do think that they are tightening. 90-day delinquencies for most loan types are elevated, but relatively stable. But as was mentioned in the previous presentation, the rising rate of credit card delinquencies is concerning. Combining that with a 3.6% savings rate at the end of 2025, that's below the 20-year average, but it's not significant. It's not the lowest we've seen. We saw it at 2.5% back in 2007. So we don't expect that this year we're going to see the real ratcheting down of consumer spending, but it is over the course of the year going to lead to that sort of exhaustion I mentioned at the top, which is going to lead to households either decreasing their spending outright or shifting to more affordable products. Inflation thus far has also been relatively tame compared to our previous expectations last year, and that might also be supporting where consumption is still relatively rolling on. One of the major things, so this is for January of 2026, year over year. The reason we're using January is because that's the most recent data point we have for Denver, and we want to do apples to apples with the U.S. So Denver in that report was 2.6% growth relative to 2.4% growth for the U.S. One of the major drivers is the services contribution, removing the shelter contribution from that services portion. And one of the subsectors that we looked at that we noticed was that health care inflation has grown 6.7 percent in Denver, but only 3.2 percent nationally over the last year. On the other side of the spectrum, we see that energy prices have actually been putting downward pressure on inflation in January for Denver relative to the nation. That's because back in September, Colorado retail gas prices and the U.S. retail gas prices were about the same. U.S. gas prices didn't really change through the end of the year. In Colorado, they dropped 70 cents. And so that's one really major reason why we're seeing that negative 9.1 percent there. But we do expect, turning to March, that with what's happening with the war in Iran, that that will add additional pressure to energy inflation and inflation overall. We expect our overall headline inflation in 2026 to be 0.2 percentage points higher as a result of what's happening with the energy market right now. And so with that additional adjustment up, we're at 3% CPI growth for the U.S. in 2026, 2.9% for Denver. Even with those upward revisions based on energy, we're still revising down overall, and that's because the effective tariff rates are significantly lower than we expected them back in December. Additionally, it looks like businesses in certain industries are taking longer to pass along the costs of the increased tariffs on their products to consumers. And so for some industry retail sectors, as of October of 2025, the Harvard Pricing Lab estimated that there was only 24% of the tariff costs passed along to consumers at that point in time. So because of that slower path we expecting that will put downward pressure on inflation in 2026 but upward pressure in 2027 as it takes longer for that full impact to get passed through onto the consumer prices Looking at oil prices. So a couple months ago, it was about $60 a barrel for WTI. It spiked to over $100 a barrel. has been relatively variable but sustained at elevated prices. It's also interesting. What we're partially doing is looking at the futures market here as a guide of what the market expects to have happen, and they do not expect prices to revert back to $60 a barrel anytime soon, and so neither do we. In the futures market, they expect that in July to September that it would be $80-ish a barrel. Another thing happening here is that the retail gasoline prices in Colorado over the last month jumped 41% as a result of these increases in oil prices. Turning to the housing market, there is a high supply, low demand discrepancy happening here, and that's putting downward pressure on overall prices. So you can see active listings in figure 19, which are continuing to tick up. But because prices have remained relatively high and interest rates are high, there's less demand. And so Colorado home values have actually dropped just over 1% over the last three years. Rental prices in Denver multifamily units has actually dropped more than that by about 3%. And that's out of step, actually, with what's happening in the U.S., where you continue to see increasing prices. Part of the reason for the low demand here is because of what's happening with a typical mortgage payment. So you can see the big tick up that started in 2022. That's because of interest rates going up. And so if you bought a new home after mortgage rates started rising, then your costs are going to be significantly higher. The mortgage rates right now sit around 6%. According to some of the data that we've compiled, it's about 85% of homeowners that are locked in at mortgage rates below that amount. And so all of those people are disincentivized to look for a new home. To close up my section, we still see the chance of a recession over the next 12 months is elevated, but we are revising it down to 40% over the next 12 months. Part of the reasons we're revising it down is because we have lower tariffs. We have increasing productivity gains that we did not expect to occur in December forecast. And there is tax relief to support consumer demand and business investment. We do think that 2027 recession risk is going to be higher on that weakening labor market and weakening consumption that I mentioned earlier. And some of those downside risks include the war in Iran, which is going to potentially have even additional upward pressure than what we've included in our forecast on oil prices as well as supply chains. There's also vulnerabilities in equity markets as the price to earnings ratio looks relatively elevated compared to historical levels. And also trade barriers could possibly increase as well. But those are things that are not incorporated into the baseline economic or revenue forecast. Those are just things we're keeping an eye on. And before I turn it over to Mr. Mixon to talk through the revenue side, I'll open it up

Thank you, Madam Chair and committee. Will Mixon, OSPB. I going to turn now to the revenue forecast and TABOR outlook The main takeaway from this forecast is that our revenue forecast does remain below the Tabor cap in FY25 So turning to the next slide to provide a little bit of history of where we've been with the Tabor surplus expectations this year, if we look back to when we were sitting here last March, we were at a Tabor surplus of 643 million that we expected. After that, quite a few things have changed that outlook. It started with the quote-unquote liberation day where there was broad-based tariffs enacted back in on April 2nd. And so when we came back in June, we revised down the forecast to 289 million of a Tabor surplus. After that, HR1 was signed into law on July 4th. And so that we came to you in August with a update based upon that, a revenue update, and we projected that to be 742 million below the cap. Since then, special session took place and that helped the Tabor deficit, if you will, when we came back in September to 219 million below the cap. And since then, we've been pretty stable around there. And so what we present to you today is we're 229 million below the cap for FY26. Of course, there is still a lot of uncertainty in this fiscal year in the midst of tax filing season, which I'll get more into. So looking at overall general fund revenue, we are marginally revising it up in the current year by about 50 million. We've seen some better income expectations than what we previously thought, not by much, but by a little bit. And then looking at FY27, that's revised up quite a bit by 432 million. That's despite weaker economic assumptions because we assume that the family affordability tax credit and expanded earned income tax credit would be unavailable in tax year 27. I'll get more into that. Overall, for the current fiscal year, we expect a general fund revenue decline of 1% before growing by 8.4% in FY27. So then if we turn to the overall TABOR revenue, the TABOR outlook, so as I mentioned, we expect to be $229 million below the cap for FY26. That is about a $79 million revision up from the December forecast. For FY27, we expect to come back above the cap by 711 million and that's a 500 million upward revision again because those tax credits would be assumed to be unavailable and so we see higher revenue because of that. And then in FY28, expect a TABOR surplus of 516 million. So this next slide, I'm going to spend a little bit of time on this because I know there's a lot of discussion in the prior forecast presentation around this and so I just want to spend some time on it. So individual income tax, certainly the most important revenue stream. It comprises around 60% of general fund revenue, more than half of all TABOR revenue. And there are still significant amounts outstanding with March and April tax returns. So the chart shows you the four components of individual income tax. And to start with the two that are a little bit more, that aren't going to impact the forecast as much in these next couple of months, withholdings is pretty stable month to month. That's what's taken out of an employee's paycheck to remit for income taxes. Estimated payments are done on a quarterly basis, and so you see that kind of bump every third month. But refunds and cash with returns, the bulk of that revenue action takes place from February through April. So refunds are very high in February and in March and in April. And then cash with returns, what is due with tax returns? And so if you file and you owe taxes, that's what the cash worth returns are. Those really peak in April. So you're really estimating with cash worth returns that one month. that's really going to drive the whole forecast. So that second bullet there, out of $10.7 billion of total individual income tax revenue projected in the current year that we project, $2.4 billion in cumulative refunds are still expected to come in March and April. $1.5 billion in cash with returns are projected over March and April. And so that's nearly $4 billion of a revenue impact to that $10.7 billion just in those two months. So, and I know LCS has talked through this quite a bit too about the uncertainty, and that's really where it lands is in those couple months how that shakes out. And then that third bullet point just kind of gets at just what a small miss even means, a 5% miss above below in just those two components over just those two months equates to nearly $200 million. So, you know, when you think about where we are in the Tabor, relative to the Tabor cap, about $219 million below. If it comes in above what we expect, then we're right there at the cap. Of course, if it comes in below that, you know, 5% missed below, then we're more like $420 million below the cap. So just wanted to get at some of that. And I also wanted to mention, too, kind of what our assumptions are with, starting with refunds. We've been tracking the federal individual refunds data to see how that's coming in to kind of project out what are and what Colorados might look like. So federal individual refunds are up about 11% through March 6th. We currently have, for the tax season in this fiscal year, so for February through June, we have Colorado refunds at about 20% up year over year. So we're taking a conservative tact here because we do think Colorado income or Colorado refunds will be a little bit higher. The FATC and EITC will grow some so that 11 percent will be that this federal refunds are at might be a little will likely be a little higher. So we are penciling at about 20 percent growth year over year of total refunds in these next few months. And then with cash with returns, we do expect a decline over February through June of about 13.4%. So we are building in some pretty conservative estimates on how we view this. And I think also we have weaker expectations on estimated payments just relative to the LCS forecast. And so that's playing a role, too, where the cash returns and refunds might be slightly more divergent. But estimated payments, because we're weaker, kind of makes the forecast a little bit closer. So I just wanted to highlight some of that uncertainty and that risk there. Turning to the overall individual income tax forecast, expect 6.9% growth in the current year. That's a revision up of $135 million. We saw a strong quarterly payment that beat our expectations, so we revised up some. And refunds, we are generally thinking are coming in as we expect. There were significant refunds in February. However, we're trying to tease out the timing. As there were in January, there was about 140,000 more returns in January relative to last year, so about 136% increase. So we think there is some taxpayer activity happening where they're incentivized to file earlier And so so that that's a lot of what's underpinning this forecast is that we still think refunds are going to be high However we do think there are some pull forward that taking place and that we saw in that February revenue data Senator Mobley Thank you Madam Chair I remember from last year that you the two do this differently

It is in both. It is in both. We handle that the same way.

Thank you, Madam Chair and Senator Kirkmeyer. I think there are two main differences without fully knowing what their exact expectations are here, that there are – generally speaking, we expect the combination of cash with returns and refunds. We expect that the state will retain, like there won't be as many refunds and that there will be a little bit more cash due with tax returns. That is largely driving the difference.

That's correct.

Thank you, Madam Chair.

And so I mentioned the family affordability tax credit and expanded earned income tax credit. Those in this forecast are assumed to be unavailable in tax year 27. And that is a difference from our December forecast. So just to focus on the table there, again, for tax year 2025, for returns being filed currently, those tax credits are fully available for qualifying taxpayers. 2026, that was deemed unavailable from the OSPB December 2025 forecast. So that will be unavailable for tax year 26 for next tax season. And then tax year 27, as I mentioned, now assumed to be off because the CAGR revenue growth of 3% is not met. We expect it to be at 2.5%, so it doesn't meet the revenue growth requirements. And then in tax year 28, the further out year, we do assume it to be partially available at 3.3%. So that gets kind of the middle ground of those tax credits. So then turning to corporate income tax revenue, it's another important revenue stream. as over these next couple months, it can be pretty volatile, but it has another importance to the forecast. It only comprises about 10% to 15% of general fund revenue, but those March and April tax returns, especially April, can really swing how this forecast comes in. April collections alone have been anywhere from 20% to 50% of all the fiscal year revenue in the past four years, so we're really, that April month is really important for this stream as well. And we did see significant refunds, taxpayer refunds here in the February filing data. To the degree that they are related to H.R. 1, that is kind of bringing that forecast, that year-over-year forecast down, except we do have similar expectations because we really revised that forecast down back in December. As you can see on the next slide, we do expect a decline of 39.1% in the current year for corporate income tax revenue. That's largely from the H.R. 1 business expensing provisions bringing that revenue forecast down. And then in FY27 and 28, we do expect growth, but they are revised down both on weaker corporate profits growth expectations, but also because we have reallocated how the tax credit redemptions related to HB 25B 1004 and 1006. This has no net impact on general fund revenue, but previously we had it all in the insurance, general fund insurance revenue stream, and now it's partially allocated to corporate as well. It nets itself out, but just wanted to note that that's part of the revision down. Representative Taggart.

Thank you, Madam Chair and Representative Taggart for the question. It is surely to say with certainty. However, underpinning this forecast is that we do expect fiscal stimulus from HR1 to help consumer spending. Certainly over the first half of the year, as taxes are filed, these refunds are taking place. As I mentioned, we know on the federal side, refunds are up around 11%, and so that's money in taxpayers' pockets. that will be spent within the economy. And so we do, and that is part of this forecast, we do expect some stimulus from that, that later in the year as that rolls off is where we kind of begin to see maybe that there might be some more spending weakness. But we do have that bill with them, but can't say for certain yet.

Thank you, Madam Chair and Senator Kirkmeyer. We do have a tax year 24 number. I wouldn't be able to say it right now with certainty. We can get it to you, certainly. um and then uh and then for for tax year tax year 25 i i we we probably need to get that to you as well we have that built in the um in the forecast as far as like uh increasing you know refunds and and things like that that are built into it but i i can't uh can't recall the exact number we have

Mr. Mixon. Thank you, Madam Chair. Senator Kirkmeyer. The H.R. 1 has no impact on the tax credit for tax year 25. That was that was fully available. Those are being refunded or distributed to taxpayers now. What did happen, though, because of the FY27, so tax year 2026, with those lower revenue expectations for FY27, that was part of not all, but that was part of turning off the tax year 2026 credits.

Okay, so now turning to the other general fund, major general fund revenue stream, sales and use tax. We've seen some weakness over the past three months in sales and use tax revenue collections. Overall we do expect growth of 2.7% in the current fiscal year. That is higher than the past couple of years. what we've seen of 0.9 and 1.3. However, these are revisions down across the forecast period on just weaker retail sales expectations, but we do expect slow growth between 2.5% and 3%. So then turning to a couple of the other excise taxes looking at cigarette and Prop EE. So cigarette, the chart on the left, the blue bars represent cigarette demand. Sorry, I just, Senator Mobley pointed out,

Yeah, so part of that is the main revision down in the current fiscal year is from that 55.8 is from the revenue, largely from the revenue we've actually collected the past few months. And so that was, you know, there would be no kind of fiscal stimulus impact from HR1 related to that given that was before. April through June is kind of where we expect some better spending. But generally speaking for FY26, that revision down from the collections we've gotten in the door. then looking at FY27 and 28, we expect that to be pretty short lived, that kind of spending lift. And so for FY27 and FY27, so beginning like July and onward, we don't expect that same kind of tailwind, if you will, to spending that we might see over the course of these next few months as people do get those refunds.

Thank you, Madam Chair and Senator Mobley. That's correct. We'll get that sales tax data over the next couple months, and we'll have a better handle on that. We did, you know, part of, you know, the revision down is, like, we did already expect some stimulus impact from those refunds. So, like relative to December, there's not much change in what we expect in that regard. And so we're really just bringing it down because collections have been a little weaker than what we expected.

Mr. Mixon. Thank you, Madam Chair and Senator Kirkmeyer. So we expect refunds to be higher this year. I think I was comparing that to when you were asking about the difference between LCS and us. We expect refunds to be 20% higher this tax season than last tax season.

Mr. Mixon. Thank you, Madam Chair.

Mr. Mixon. Thank you, Madam Chair and Representative Taggart. So part of it is there is an inflationary component to the FATC that makes the year-over-year be a little bit higher. I think it was 2.6%, 2.6%. So that gets you part of the way there. And then I think beyond that, we have seen – so like a couple of – the IRS reported a couple weeks ago, and the refunds were a little under 10%, and now they've gone up to 11%. And so we're then kind of building in a little bit of like, well, they might – over March, they might go up a little bit more. And so we're kind of building that in as well.

So turning back to the presentation here, just a couple slides on other excise tax revenues, cigarette and Prop E. So the chart there on the left provides the excise volume of revenue. The blue bars are basically the packs sold, and then the orange bar shows the revenue. As you can see, it has been declining. As demand has declined, revenue has declined. And then on the right, Prop EE, just kind of an interesting component of where we expect the Prop EE revenue forecast based on current law. That's the orange bar. We expect 8.5% CAGR growth from FY24 to FY28. A large part of that has to do with tax rate increases in FY25 and another one taking place in FY28. While if there were no tax rate increases, it would be much slower growth of 1.4%. And so those tax rate increases are really part of the growth there. And despite the lower cigarette demand, there has been higher nicotine demand, which has kind of made that growth, just that slow growth take place.

Mix in. Yeah. Thank you Madam Chair I think we should increase advertising Yeah we should need some advertising right

So then turning to alcohol and other excise tax. So it's been pretty flat since FY22. You can see 55 million in FY22, 54 million in FY25. The alcohol excise tax is based on a per-unit basis. Price doesn't play a role in it. So beer and cider are taxed by the gallon, spirits and wine by the liter. So for tax revenue to grow, demand has to increase. So it has grown since FY17, but a lot of that has to do with spirits demand increasing while beer and wine have remained relatively flat. And the final part on the general fund side, prior budget actions that this committee took has helped to stabilize general fund interest income earnings. Last regular legislative session with SB 25, 262, and 317 diverted certain cash fund interest revenue to the general fund. And we see in FY26, we're estimating that's going to be about $60 million diverted to the general fund and then going to $18 and $11 million in the out years. So then turn to cash fund revenue. Overall cash fund revenue is relatively stable in this forecast outside of any sources impacted by the oil and gas markets. Overall not a ton of changes here and they're all driven largely from severance tax expectations up in FY26 and up in FY27 by 18 and 28 million and then down in FY28 as we do expect lower oil prices as we get into 20, later into 27 and 28. And on severance tax, we saw a pretty weak first half of the year from July through January that included two net negative months, both in November and January. But then in February, we saw a strong collection month. It was the highest month of the fiscal year thus far. And we do expect a strong end to the fiscal year. April, this is another tax stream where April is the strong, most important revenue month. And so we expect that to be pretty strong in the year. And then on top of that, of course, we have higher oil prices as well. And so that will provide some upward pressure to this revenue as well. So we have $83 million collected year to date, but expect to end the year at $180 million with not including the interest revenue. So then just to zoom out on the severance tax revenue forecast, we do expect it to be basically just above average over the forecast period. That orange line of about $175 million is the 20-year average. So we expect it to kind of hover right around average. Underpinning this forecast, we do expect prices to be – the elevated oil prices we're seeing today to be in the three- to six-month range as Mr. Cook walked through. We're looking at the futures market, seeing that kind of through September, expecting those elevated prices, but then expecting at least what this forecast assumes. Expect them to normalize after that, of course, what takes place related to the straightforward moves, and supply disruptions will dictate where those prices go.

Now, it's a good question. And so part of this is that it's just we just don't know how it's going to play out. And so we are looking at the market indications. And the futures market if you look beyond April to May to June July August September they do have prices coming down And so as best as we can do for this forecast without of course knowing what will take place with the geopolitical situation there and the war there, that's just about as best as we can do for this forecast. Now, if the longer it goes and if it is a protracted war that takes place there, oil prices will remain high any oil and gas related revenue forecasts will go up accordingly.

Thank you, Madam Chair and Senator Bridges. So this is the commodity trading, not looking at any of the prediction markets.

So now turning to transportation revenue. Expect relatively moderate growth in this revenue stream, pretty limited growth in gas and diesel expected, and that's the largest share of overall transportation revenue. But we are seeing stronger growth in other HUTF revenue, and a lot of that has to do with statutory fee increases. And so what is largely driving that growth are statutory increases to the road usage fees. So the chart on the right gives you the blue is the current law. With those fee increases, you see more growth. And without those fee changes, you would see much flatter growth. So that's where a lot of the growth is coming from. And then turning to miscellaneous cash funds, in the current year, there's kind of a lot of one-time action taking place that's driving the miscellaneous cash fund forecast up $200 million in tax credit sales per HB25, B-104, and 1006. and then about $125 million from the health insurance affordability enterprise disqualification. Outside of that, expect pretty moderate growth over the forecast period. So turning back quickly to the TABOR refunds by mechanism. So, of course, in FY25, there was $306 million. $120 million of that is going out to taxpayers and through the sales tax refund. And then looking, of course, no refund expected for FY26. And for FY27, expect a $711 million refund of that. that would lead to a 0.07% income tax rate reduction to 4.33. And then in FY28 with the 516 million surplus, that would lead to a 0.04% income tax rate reduction to 4.36. And then turning to a few of the exempt revenue streams, marijuana revenue, this forecast expected to stabilize with muted growth in the marijuana tax cash fund throughout the forecast period. So as you can see, after the very strong year-over-year growth in 2019 through 21, we saw the big declines over 22 and part of 23. And over the past couple of years, we've kind of seen more stable, just slightly negative year-over-year growth. But it has stabilized quite a bit. We expect that slight negative growth to kind of continue through the end of this calendar year before we begin to see some more positive, slightly positive revenue growth. And, of course, Marijuana Enforcement Division did just recently publish their average market rate for this upcoming quarter. That was the lowest on record at $607 per pound. It was $648 beforehand. It's hovered around $650 since October 2024 before this drop we're seeing in this upcoming quarter. So, you know, this forecast, we do kind of expect it to be in that $600 to $650 range. This forecast does revise revenue down and more on the excise tax side where that gets hit. directly in total MTCF revenue revised down by 3.3 million in FY 26 1.9 and FY 27 relative to the OSPB January 2nd budget submission that does that does keep that fund in balance even with the downward revisions and then looking at k-12 in the state ed fund so we we have seen some reduced total program expense expectations and that's looks to provide the SEF some temporary relief also the SEF diversion we have revised that by 13.9 million in the current year this corresponds to a 2% decline year-over-year in FY 26 and then we do we do have some down revisions for the out years so we expect this year the SEF to ending fund balance to be at 643 million and then by the the end of this forecast period at 259 million. Of course, underpinning this is significant general fund contribution for FY28 of 175 million. So that is part of what's built into that expectation. And then looking at healthy school meals for all revenue, starting on the right side with the revenue forecast, in the current year, we expect about 215 million in total HSMA revenue between Prop FF and MM. But then if we look at FY27, when we get that full year impact from Proposition MM, you see we have income or revenue expectations of $269 million. Of that, $109 million is what is expected toward Prop MM. So that's $14 million or so above the revenue limit that would have to be refunded to taxpayers under current law with similar expectations for FY28. Then on the left, that table gets at fund summary estimates for the Healthy School Mills for all fund. So, at the end of this fiscal year, we expect 99 million in funds to be left over there, and then about 120 million left over in FY27 after accounting for all of the HSMA expenses and the reserve that could be used towards SNAP. And then looking at the Prop 123 diversion, it's upwardly revised in the current fiscal year by 4.2 million and revised down in the out years as part of the OSPB budget submission, of course, with revenue below the TABOR cap and a healthy diversion in FY26, there is a 110 million proposed reduction to the OEDA diversion in the current fiscal year. And then this is the first time that we've formally forecasted the oil and gas production fee this went into effect on July 1st 2025 and these fees are based upon oil and gas production and the quarterly average of oil and gas spot prices so in the current year we expect total revenue of 82.2 million but that is lower largely because we expect the clean transit enterprise revenue to be capped due to limitations for prop 117 and then in FY 27 when the full collections can be made we expect about 154 million in collections total between the clean transit enterprise and CPW over the three-year forecast period expect 275 million to the clean transit enterprise and 90 million to Colorado Parks and Wildlife and then finally just turning back to the revenue uncertainty that we've talked through it's it remains for the current fiscal year with those two months left in the bulk of tax filing and so what are the downside and upside The downside risk, as we've discussed, are do taxpayer refunds come in higher in March and April than what we have penciled into this forecast? That would result in lower revenue. Of course on the upside the flip side of that is that taxpayer refunds could be lower than what we have penciled in That 20 could come in lower and we would have better revenue than expected from those H tax policy changes And then, of course, another upside risk is that we could see higher cash due with tax returns than estimated for both individual and corporate from what we have penciled in. And then higher oil prices, as we mentioned, if they're for a sustained period, that would lead to increased revenue in the oil and gas streams. There would be a downside to that as well, though, with demand destruction for retail goods, as that energy inflation would squeeze household balance sheets. So with that, that concludes my section. I can take any questions, and if not, I can hand it to Director Farandino for the budget section.

Thank you, Madam Chair. So as we look at this forecast, ultimately with the January 2nd submission lined with this forecast, all the pluses and minuses end up about netting out to where we are in the current year. Not inclusive of the, just to be clear, because that was done February 15th, the HICPF updated forecast. We would be at 13.7 with this forecast above the 13% cap. This is assuming all the supplementals that have taken, passed, and signed into law, but does not include the, I believe, roughly $70 million supplemental forecast for Medicaid in there. So that would put us below that from where we are. And then when we look at next year, this would put us about $21 million below a balanced budget. This is assuming all the components within our budget request. I will say and note a few things. One, this is assuming a 2.3% inflation rate. You are working on legislation. We worked with you in the Office of Legislative Council on the adjustment to that to move it to 2.4%, which nets and gets you very close to zero there. In addition, one of the things that's driving this is significant revision up in severance tax. If you were to hold most of the severance tax similar to where we were in the March forecast, somewhere in the $30 to $50 million could be swept additional based on this forecast from where we were to be able to deal with the balancing. So overarching, we are in – from our forecast, if you do everything that we had asked for, which I know that is not the case, we would be balanced. And we're going to go through a few of those big items. First, Pinnacle, just wanted to reiterate the importance of this both from a budget impact that we feel strongly about but also from a policy impact, as you can see, where –

We're not forecasting forward at this point.

That's a huge delta.

Thank you, Madam Chair.

There's a few components, and I'll try to highlight some of them. So the biggest difference between our – for this current year, between where we are and say we are balanced to where they are to say we are basically a 10 percent reserve, a 3 percent difference. The biggest component is that we are projecting revenue that is, what are we, $685 million higher than where they are from the REFC cap. And so that is driving the significant portion of that differential is the 2526 revenue estimate for the current year. So we're building it on our revenue estimate. we think we're 229 million below the ref c cap uh they believe their council's forecast is 900 million below the ref c cap if i'm looking at this sorry the general yeah so the general fund difference thank you because the cash thank you there's 481 million dollar difference so that is what's driving most of that difference that we would balance and why we say we're at 13 roughly or a little above 13% and they're say we're at the 10% is that $481 million differential in what we say is general fund revenue in the current year. Now, on top of that, and I don't know if they factored, if Ledge Council factored in the $70 million forecast, we, when we do this, this has been historic, we don't both the positive or negative on the February 15th forecast for HICPF. We as OSPB for time, as long as anyone can remember, has not updated that into this forecast here. So it is outside of that. That $70 million does put us in a hole for this year. It doesn't impact next year because as we talked about yesterday, as we talked in the letter, our approach on that one, at least from how we look at it, is we need to get to a 5.6% growth rate in Medicaid. So if Medicaid growth is higher, we need to do additional cuts to get to that 5.6%. So that's why that's a one-time hit of $70 million in our mind as we think about this. That does put us out of balance there. And so the biggest issue is the reserve, I'm sorry, is the revenue adjustment. And that's where, as Chief Sobetsky talked about, once you're above the cap and both of us are above the cap in the following year, that revenue doesn't have as much of an impact. Our cash fund revenue has a difference and an impact of how much general fund is pushed out. But because we're above the cap both times, the constraint is that cap, not the revenue.

and you're showing that it would be a 13% reserve.

going to a 13 versus 15 as well as the 400 roughly million dollars of difference in revenue assumptions for the general fund. So that's probably how that total of 800 differential is there. But when we are showing these, this is assuming a 13% reserve. So we are already about $300 million below the statutory reserve of 15%. Okay, moving on, Pinnacle, just to highlight from a policy perspective, the concerns we have from the market share reductions in Pinnacle and how that will long-term have impacts on the Pinnacle to be able to compete in the marketplace and be able to continue to provide affordable insurance to issuer of last resort and that's why we both from a financial perspective also from a policy perspective believe that the conversion is the right approach to be able to both make sure Pinnacle is solvent for the long term. Second is I would just say that I think there remains to be a question whether or not you think that Pinnacle needs to become independent for the long term is a separate question as as to whether or not the state is entitled to any payment due to any privatization of Pinnacle and whether we should be balancing to that because of the timeframe in which any of that might take place if a bill that hasn't been introduced were to be able to be passed and not tied up in a lawsuit.

we feel very strongly that and from all of our conversations that state has an interest in Pinnacle, state created Pinnacle, state has put money into Pinnacle. Pinnacle has benefits from being an entity of the state in many different ways, including $80 million of funds transferred to Pinnacle. Even if you just take that and do investment, if you take net present value of what that rate of return would be, that is in the $300 to $400 plus million, plus all the other benefits like not paying premium tax or other things. There's a significant benefit we think that the state is owed if there is a conversion. As I've said before, as the caretakers of the state's assets have a responsibility to make sure we are getting fair compensation for items as we get rid of those assets to the state. I acknowledge the risk of litigation, but I think we try to make decisions here knowing that lots of issues could get litigated. We try to make decisions based on what we think is the right decision, and we'll see where if someone sues, someone sues, if that does move forward. Speaking of another one, Tabor over refund. We do believe that HR1 had an impact on revenue for 24-25. I think no one disagrees on that issue. The question is, can we adjust it or not? We have... have taken the information, we had conversations with lawyers, then took the information that your staff and legal counsel provided to you within the documents, they're reviewing and getting back to us. And so we will have an update on that. We are hopeful to get that very soon. But we do think that will be something we can and feel we should move forward with. The other piece, and just to highlight, and it's not, you know, I think throughout the presentation, we talked a lot about healthcare. We've talked a lot about Medicaid in this budget, given the growth of Medicaid. As you can see, and as you've seen, the growth of healthcare expenditures in this country is driving a lot of what is going on. Colorado, as a share of healthcare, as a share of the state, is growing faster than what's happening in the nation, same as total share of jobs in Colorado are growing faster relatively to where US jobs are. So we are seeing significant investments in healthcare. In addition, we are continuing to see significant growth of Medicaid as a portion of the state's budget, very much in line, if not faster than what we are seeing in the private sector of healthcare costs. And as we've showed before, the sustainability and the...

Director Farandina.

So we are seeing significantly higher rates of growth at a consistent level after the pandemic. than other states. Everyone saw significant growth in the pandemic. Other states are seeing growth faster than revenue, but at a rate. So for example, Colorado, if we didn't make any cuts or anything, we would be in the double digits to middle, so 10 to 15% growth rates, where most states are in the 5 to 10% growth rate. So significantly still above where their revenue growth is, but not to the same level. So if you remember back to the Manat presentation that was done, there's a few things that also are important when you think about Medicaid. One is we are a rich state with a poor budget, is I think how Manat kind of put it, because we have a very affluent state on a per capita income basis. But because of that, we get a 50-50 match on base Medicaid, where the average in the country on that F-map is in the 63%, I believe, when you look at what the average for base Medicaid, not the expansionary of those. So base Medicaid, the average is about 63%. It's based on state's income and per capita income, and that's why we are very low. But because of our – because of Tabor, because of tax rates and all of that, our revenue that we have is lower on an average basis per capita than we have than most of our other states It impacts us at a much higher rate because we have low FMAP and we have low income that is in the general fund as well So that drives why it such a tight issue for Colorado where we can't address it like some of the other states who when they're seeing 8% growth, let's say 60 or 70% of that is paid by the federal government. When we see 10%, 15% growth, We're paying almost 50% of that because of the difference in that FMAP.

And slide 53 just talks to this slide you've shown and seen before about if we don't do anything, this is why we think it is important. But we also, too, your staff did a really good job around, and Director Harper, as always, did a really good job around the structural deficit. it. We tried to copy it a little bit and look at if we were to grow, and this is assuming expenditures both for things like education and others are growing, not just what they are, but we project that they would grow, what the need, for example, the $175 million general fund need to implement the formula. So it's an informed calculation. But you can see if we are able to keep Medicaid at a rate that is tied to the Tabor growth rate, which is a significant change in policy where we are, not saying that that is easily done, we would long term be in a better place, but we would still have a structural deficit with the budget. If we let it grow at what the 10-year average was, which was 8.8%, which which is not what we're seeing right now. We're seeing even higher growth than that. You can see that by the end of this decade, we have a significant structural deficit. And what that would mean is if you, for those who want all the data and the backup of this, it's on page 55, which is the next one, it would mean by the end of the decade, doing nothing, we would have no, we'd have a negative reserve of $600 million. And so it is why, given how big this part of the budget is and growing as a part of the budget, it is so important that we get our hands around Medicaid because it will drive the future of the state's budget and our ability to make investments into the future. The last thing I will just say is to Representative Taggart, your question yesterday about the chart. We are – I have it. We are reviewing it. I will get you that chart, breaking it down either tonight or tomorrow and get it to the entire committee on that. And with that, happy to answer any questions.

Have you lost your mind yet?

Thank you. Rep Taggart. There's lots of questions there. Thank you, Madam Chair. We'll see you for another four hours tomorrow, hopefully. Could we go back to slide 54 for a second? under the parens of the 8.8% growth, you have caseload average. Is it really caseload average or is it, I don't know what the other term is that I want, utilization average?

So it is. And caseload is the last, you know, caseload is a small component of the increase. the utilization is where we seeing the much higher increase And so that is a combination of both utilization and caseload But usually when we say caseload fortunately the quick comment is caseload and that usually encompasses both but it good to clarify Thank you And the 8.8% is an annual average. It's not 8.8% for the 10 years. We know that for a fact. So it's per annum? Okay. Madam Chair, Representative Tiger, that is 8.8 per annum. And it does include, just to be clear, it's the last 10 years from 2025 to 2015. That has years where we had negative growth in the end of the teens. So like 2017, 2018 had negative growth in expenditures. And then it also includes years with COVID where it was plus 20% growth. But then it did shrink after that as the F-MAP, because this is just general funds. The F-MAP shifted as the federal stimulus. So it is not like we're trying to show this as illustration. we are above this average still within the next this year and next year. I think our forecast into the out years because there is I think in the original in the forecast that comes in February looks it starts to get below that average with the caseload just base caseload and utilization but we still on average will be even above the 8.8 in the if you look at three year forecast period.

Thank you. Committee, I think we are not going to attempt to do any of the comebacks today. We will save those for a different day. So the Joint Budget Committee will stand in recess. Thank you. Thank you. Thank you Thank you. Thank you. . Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. . . Thank you. Thank you Thank you. Thank you. .