Perhaps no revenue forecast has been more anticipated—and more worrisome—than the March 2025 estimate from legislative economists and the governor’s office, which came out Monday.

As it turns out, some of those fears were realized, with expectations of higher inflation, partly due to tariffs imposed by President Donald Trump and higher transportation costs, higher unemployment, a worsening home market, and a decline in consumer confidence with increased consumer debt.

“The word of the day is ‘uncertainty,'” said Mark Ferrandino, director of the governor’s Office of State Planning and Budgeting.

Greg Sobetski, the Legislative Council’s chief economist, said the economy is responding negatively to that uncertainty during the March forecast presentation to the Joint Budget Committee.

Of particular note: multifamily housing construction was in steep decline in 2024, and single-family home construction growth was “tepid,” according to the legislative council forecast.

Economists said risks to the economy are leaning negative. They pointed to significant federal policy changes, international trade policy, deteriorating labor market conditions, persistently high prices, and tighter monetary policy that hurts consumption and investment.

According to the Legislative Council economists, the economic outlook has worsened, and they downgraded the state’s revenue forecast accordingly.

Combined with a declining severance tax situation, the economists said a General Fund revenue downgrade means a small TABOR surplus, or no surplus, in FY 2024-25, to be paid in 2026. That also means there is not enough to fully fund the property tax homestead exemption for seniors, disabled veterans, and Gold Star surviving spouses for 2025-26. The forecast showed the state could cover half of that $213 million obligation.

The budget writers will have slightly more general fund revenue for the 2025-26 state budget.

“The general fund is a tricky thing,” Sobetski told the Joint Budget Committee. “It doesn’t always move in the same way as the economy.”

The forecast from the governor’s Office of State Planning and Budgeting started with this statement: “Economic growth continues to outpace expectations; while we expect to avoid a recession, individuals may increasingly report feeling like they are experiencing a recession as certain sectors are expected to falter.”

A recession occurs when two consecutive quarters of harmful gross domestic product and other factors exist. The state planning and budgeting forecast showed GDP growth slowing to about 1.5% for 2025, which is lower than expected in the December forecast.

According to Bryce Cooke, the Office of State Budgeting deputy director, that was attributed to tariffs and uncertainty.

Cooke told the JBC that the state expects strong Colorado wage growth but slowing consumption and sales due to drops in consumer confidence. Consumers and businesses pull back in times of uncertainty.

That also means less investment and hiring by businesses and a desire to boost inventory from imports to avoid tariffs, Cooke explained.

Tariffs impact the economy in two ways: even if they are temporary, there’s uncertainty, and that could drive higher inflation expectations. For forecast purposes, Cooke said, any tariffs in place as of March 10 are expected to remain in place for the near future, primarily for tariffs against Canada, Mexico, China, and aluminum and steel.

State officials estimated that the chance of a recession in the upcoming year is 30%, with concerns such as new supply chain shocks and increasing shipping costs, high interest rates, which have damped consumer demand, residential construction, and business investment; increased consumer debt, less government spending, the risk of a partial government shutdown, and continued global conflicts.

The state budgeting office also estimated lower general fund revenue in the current fiscal year, to the tune of $142 million, and slightly higher revenue for 2025-26, at about $76.7 million. That will drive higher TABOR refunds in the current fiscal year. That hike in general fund revenues is based largely on higher individual income tax revenues.

That’s part of why state budgeting and the legislative council differed on their forecasts. The State Planning and Budgeting Office believes the state will be able to fully fund the homestead property tax exemption and cover a sales tax refund (part of the TABOR refund mechanisms), while the council economists believe the state won’t be able to fund the homestead exemption fully and will have nothing for other TABOR refund mechanisms.

Gov. Jared Polis pointed to the Trump administration for much of the economic woes in a statement.

“Today’s forecast confirms what Coloradans are already experiencing. The President’s devastating tariffs are creating market chaos, hurting business investment, and damaging our economy, all while increasing fear over rising inflation and an economic recession. This economic forecast shows that Trump’s tariff tax is bad for Coloradans and businesses. Despite the expectation of a weaker economy due to tariffs, the projected General Fund balance is still good news in a difficult budget year,” Polis said.

The budget shortfall for 2025-26 remains unchanged at $1.2 billion.