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September 2025 | Legislative Council Staff

Economic & Revenue Forecast Presentation to the Joint Budget Committee September 22, 2025

Economic Forecast

The U.S economy continues to expand but key economic indicators remain fluid Real U.S. Gross Domestic Product

Trillions of Dollars, Adjusted for Inflation $26 $25 $24 $23 $22 $21 $20 $19 $18 $17 $16 $15 $14

Projected Growth

Annual Growth 2022: 2.5% 2023: 2.9% 2024: 2.8% 2025*: 1.6% 2026*: 1.4% 2027*: 1.7% *Forecast

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

Source: U.S. Bureau of Economic Analysis and Legislative Council Staff projections. Real GDP is inflation-adjusted to chained 2017 levels and shown at seasonally adjusted annualized rates. 3

Consumer spending continues to support economic growth but has been slowing Retail Trade Sector Sales (Nominal) Year-over-year Percent Change 20% 15% 10%

Colorado

5% 0% -5%

3.6%

U.S. 2008

2010

2012

2014

2016

2018

2020

2022

1.6% 2024

-10% -15% Source: U.S. data from U.S. Census Bureau, seasonally adjusted through July 2025. Colorado data from Colorado Department of Revenue through May 2025. Data seasonally adjusted using a 12-month moving average.

Business investment in nonresidential construction is down U.S. Nonresidential Construction Year-Over-Year Percent Change 30.0%

CO Nonresidential Construction

Year-Over-Year Percent Change 12-Mo. Average 40.0%

25.0%

30.0%

20.0%

15.0%

10.0%

0.0%

5.0%

-10.0%

0.0%

-20.0%

-1.1%

-5.0% -10.0%

2019

2021

2023

2025

-4.2%

-30.0% -40.0%

2019

2021

2023

2025

Source: U.S. Census Bureau, data through July 2025; F.W. Dodge, data through July 2025. Note: U.S. data represents year-over-year percent changes in the seasonally adjusted annual rate of value. Colorado data represents year-over-year percent changes in the 12-month moving average value of nonresidential construction starts.

Residential construction is mixed but generally weak Colorado Residential Building Permits

Thousands of Units, Three-Month Moving Average 7.0 6.0

Multifamily, +14.3% in 2025 YTD

5.0 4.0 3.0 2.0 1.0 0.0

Single Family, -10.3% in 2025 YTD 2007

2011

2015

2019

2023

Source: U.S. Census Bureau and LCS calculations. Data are three-month moving averages through July 2025.

U.S. household savings remain below the historical average Personal Savings Rate Percent 35% 30% 25% 20% 15% Historical Average

10%

5.6%

5% 0%

4.4% 2000

2005

2010

2015

2020

2025

Source: U.S. Bureau of Economic Analysis. Note: Data are shown as seasonally adjusted annual rates. Data are through July 2025. The personal saving rate is calculated 7 as the ratio of personal saving as a percentage of disposable personal income.

Loan delinquency rates are rising in the US U.S. Serious Delinquency Rates by Loan Type Percent of Loans 16% 14%

Credit Card

12%

Student Loan

10%

Other

8% 6%

Auto

4% 2% 0%

HELOC

Total Debt

Mortgage

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Source: New York Fed Consumer Credit Panel/Equifax. Data are through 2025Q2. Serious delinquency rates are the percentage of total debt that is delinquent by 90 days or more. “Other” refers to retail 8cards and consumer finance loans

Colorado and U.S. employment growth expected to decelerate into 2026 Year-over-Year Nonfarm Employment Growth Percent

13% 9%

U.S. 0.9%

5% 1%

0.6% Colorado

-3% -7% -11% -15%

2000

2005

2010

2015

2020

2025

Source: U.S. Bureau of Labor Statistics. Data are seasonally adjusted. Data are through August 2025. 9

Labor market turnover activity is flat U.S Job Turnover Millions 16 14

Job Openings

12 10 8

Hires

Quits

4 2 0

Layoffs and Discharges 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS). Data are for total nonfarm employment and are seasonally adjusted through July 2025.

Share of foreign-born workers in the labor force has declined Share of U.S. Foreign-born Workers in the Labor Force Percent

20% 19%

18.8%

18% 17% 16% 15%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: U.S. Bureau of Labor Statistics. Data are not seasonally adjusted. 11

Colorado’s unemployment rate ticks down in August, with decline in both unemployed and labor force Unemployment Rates Percent 16% 14% 12% 10% 8%

U.S. 4.3%

6% 4%

Colorado 4.2%

2% 0%

2000

2005

2010

2015

2020

2025

Source: U.S. Bureau of Labor Statistics. Data are seasonally adjusted. Data are through August 2025. 12

Tariffs paid soar to near-century high Effective Tariff Rate

( Customs Duties / Imports ) * 100 10 9 8

Q2 2025: 8.2%

7 6 5 4 3

U.S.

2 1 0

Denver Area 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 2024

Source: U.S. Bureau of Economic Analysis. Federal government current tax receipts: Taxes on production and imports: Customs duties / Current payments to the rest of the world: Imports of goods. Retrieved from FRED, Federal Reserve Bank of St. Louis. 13 Data through Q2 2025.

Tariff Policy Changes in the Second Half of 2025 Product-Specific

Country-Specific

• 8/1/25 – 50pp increase in tariff rate on copper • 8/18/25 – extension of steel and aluminum tariffs to aerosol containers • 8/29/25 – end of the de minimis exemption • 9/8/25 – added and removed product exemptions from countryspecific reciprocal tariffs

• 8/1 – increase to 35% tariff rate on USMCA non-compliant goods from Canada • 8/6 – additional 40% tariff rate on select goods from Brazil • 8/7 – reciprocal tariff rates imposed on over 70 different countries, ranging from 15-50% • 8/27 – increase to 25% tariff rate on most goods from India • 9/17 – tariffs on Japanese automobiles reduced to 15 percent • 11/1 – end of 90-day pause on scheduled 30% tariff rate for Mexican imports • 11/10 – end of pause of 125% tariff on Chinese imports 14

Inflation ticks up in July, muted tariff signals so far but near-term upward pressure expected Headline CPI-U Inflation

Year-over-Year Change in Prices 10% 9% 8% 7% 6% 5%

U.S.

US: 2.9%

4% 3% 2%

2.1% Denver Area

1% 0%

2019

2020

2021

2022

2023

2024

2025

Source: U.S. Bureau of Labor Statistics. U.S. inflation through August 2025. Denver area inflation is measured using prices in the Denver-Aurora-Lakewood metropolitan area. Data are through July 2025. 15

Federal Reserve has cut key interest rates and more are expected but inflation expectations remain high Effective Federal Funds Rate

Year-Ahead Inflation Expectations

Percent

Percent 8

20%

7 6

15%

5 10% 5%

Sept. 18, 2025 4.08%

Historical Average: 3.2%

Sep 2025: 4.8%

3 2 1

0% 1960 1970 1980 1990 2000 2010 2020 0 2000

2005

2010

2015

2020

2025

Source: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates. Bureau of Economic Analysis (left); University of Michigan Survey of Consumer Sentiment (right).

The forecast anticipates a continued, slowing expansion, with risks now tipped to the downside Downside Risks:

• Uncertainty, persistent inflation

• Deteriorating labor market conditions (reduced productivity) • Federal policy changes, esp. trade policy • Geopolitical tensions Upside Risks:

• Clear and stable federal policies • More monetary policy easing

• Faster labor market response to monetary policy easing

Supplemental Slides

Housing continues to lead the difference in inflation contributions between Denver Area and the U.S. Contributions to Inflation

Percent / Percentage Point Contributions 3.0% 2.5% 2.0%

2.9% 0.5 0.1 0.4

2.1%

1.5%

0.8

1.0%

0.1 0.2

0.5%

1.8

0.8

0.0% -0.5%

U.S.

Other Transportation Food and Beverages Housing

Denver Area

Source: U.S. Bureau of Labor Statistics. Denver area inflation is measured using prices in the Denver-Aurora-Lakewood metropolitan area. Data are for July 2025.

Current U.S. Investigations of Imported Goods

Active Trade Negotiations

 Semiconductors

 Vietnam

 Timber/lumber

 Pharmaceuticals  Critical minerals  Heavy trucks  Aircraft  Drones

 Polysilicon

 Foreign digital services  International seafood

 Indonesia

 Philippines

 South Korea  Japan

 Mexico  China

 Canada  India

 Wind turbines

Colorado’s real personal income growth hovers at the historical average Real Per-Capita Personal Income Year-over-year Percent Change

Colorado Historical Average: 1.7%

Source: U.S. Bureau of Economic Analysis, U.S. Census Bureau, and LCS calculations. Data are adjusted for inflation using the national PCE price index. Data for the U.S. are through Q2 2025. Data for Colorado are through Q1 2025.

Energy offsets part of the upward pressure from housing on Denver area prices over the past year Contributions to Denver-Aurora-Lakewood CPI-U Year-over-Year Change in Prices

Selected Components, August 2025 Headline

2.9%

Core

3.1%

Energy

0.4% 3.2%

Food

4.0%

Housing Apparel Transportation

0.3% 1.1% 3.4%

Medical Care Recreation Education Other

Source: U.S. Bureau of Labor Statistics and LCS calculations.

2.3% 3.5% 3.9%

Denver home prices remain below peak, continue to grow nationwide; Colorado home sales improve Home Price Indices

Colorado monthly home sales

Index 100=July 2012

20.0

300

18.0

275 250 225 200 175 150 125 100 75

Thousands of homes

16.0 CO-Denver 10-City Composite 20-City Composite

14.0

Condos/Townhomes

12.0 10.0 8.0 6.0 4.0 2.0 0.0 2017

Single Family Homes 2019

2021

2023

Source: S&P Dow Jones Indices LLC. Data are seasonally adjusted and are through March 2025 (left). Colorado Association of Realtors. Data are seasonally adjusted by LCS and are through April 2025 (right).

2025 23

Housing price inflationary pressure remains sticky, ticks up in recent data Contributions to U.S. Consumer Price Index (CPI-U) Inflation Year-over-Year Change in Prices

Selected Components, May 2025 2.4%

Headline Core

2.8%

Food

2.9%

Energy -3.1% Housing Apparel

Transportation Medical Care

Recreation Education

Other

Source: U.S. Bureau of Labor Statistics and LCS calculations.

-0.9%

-1.2%

4.0%

2.5%

1.8%

3.7%

3.8%

Crude oil prices down, expected to impact production Crude Oil Production

Crude Oil Price - WTI Dollars per Barrel

Millions of Barrels per Month

$160

460

420

$120

380 340

$80

United States (Left)

14 12

300

$63.26

$40

Colorado (Right)

260 220 180

8 6

Source: U.S. Energy Information Administration. Weekly average prices (left). Monthly production (right). Data are shown as three-month moving average and are not seasonally adjusted.

2025

2023

2021

2019

2017

2015

2013

4 2011

2025

2022

2019

2016

2013

2010

140 2007

Market volatility recedes after April spike, consumer sentiment still down Consumer Sentiment Index

CBOE Volatility Index

Index Value 1996 = 100

80 70

100

17.35 50

10 0 2019

Historical Average: 83

2021

2023

2025

40 2010

May 2025: 50.8 2015

2020

2025

Source: Chicago Board Options Exchange via FRED, data through the week ending June 13, 2025; University of Michigan Survey 26 of Consumers, data through May 2025.

Revenue & Budget Forecast

Forecast Highlights

General Fund Revenue Forecast

• revised up in FY 2025-26 • tax credits triggered down or off for TY 2026 • OBBBA contributes to forecast uncertainty

TABOR Outlook

• Controller confirms FY 2024-25 TABOR surplus • no TABOR surplus expected in FY 2025-26

Budget Bottom Line

• FY 2025-26 deficit expectation revised to $307M • scenarios for FY 2026-27

School Finance Preview Budget Simulator Preview

General Fund revenue expected to fall in FY 2025-26 and rebound in FY 2026-27 5.5%

7.4%

0.0%

$18

11% 7%

$14 $12

14%

$20 $16

11%

10%

-4%

-13%

13%

-2%

-15%

Change Relative to July Forecast Update FY 2025: +$6 million, 0.0% FY 2026: +$347 million, 2.1% FY 2027: -$59 million, -0.3%

-0.4%

24%

Billions of Dollars Percentages show year-over-year changes

-4.1%

Gross General Fund Revenue

$10 $8 $6 $4

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028

Forecast

$2 $0

Source: Colorado Office of the State Controller and Legislative Council Staff September forecast. FY 2024-25 collections are preliminary.

Special Session General Fund Impacts Dollars in Millions Bill Number & Title

FY FY FY 2025-26 2026-27 2027-28

HB 25B-1001 Qualified Business Income

$45.9

$95.5

$101.6

HB 25B-1002 Foreign Derived Intangible Income

$35.6

$72.2

$73.0

HB 25B-1003 Regional Home Offices

$44.1

$91.1

$97.0

HB 25B-1004 Sale of Tax Credits

$100.0

-$75.0

-$50.0

HB 25B-1005 Eliminate Sales Tax Vendor Fee

$26.3

$54.6

-$75.0

-$50.0

$251.9

$163.4

$226.2

HB 25B-1006 Health Insurance Affordability Enterprise Total

• HB 25B-1006 also disqualifies the Health Affordability Enterprise for FY 2025-26 only, increasing the Ref C cap and CF revenue subject to TABOR for one year. • Proposition FF revenue is projected to exceed $150 million in FY 2025-26 under current law.

Certain tax credits depend on revenue forecasts Electric vehicle, E-bike, and heat pump credits (HB 23-1272) • Credits will be reduced by 50% in TY 2026 only • Determined by June forecasts

Workforce shortage tax credit (HB 24-1365)

• Credit cap will be reduced from $15 million to $7.5 million in tax year 2026 only • Determined by September forecasts

Family affordability tax credit (HB 24-1311) and expanded earned income tax credit (HB 24-1134)

• Credits expected to be unavailable in TY 2026, partially available in TY 2027 and TY 2028 • Determined by the December forecast from the agency selected to balance the budget in March 31

Revenue expected to fall below Referendum C Cap in FY 2025-26 Revenue Subject to TABOR Billions of Dollars

$22

TABOR Surpluses

$20

Percent of Revenue TABOR Surplus 1.5% FY 2025: $296 million Referendum C Cap -1.1% FY 2026: -$215 million 3.3% FY 2027: $706 million 4.3% FY 2028: $966 million

Referendum C Five-Year Timeout Period

$18 $16 $14 $12 $10

TABOR Limit Base

$8 $6 $4

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25p FY 26f FY 27f FY 28f

Forecast

Source: Office of the State Controller and Legislative Council Staff. p = preliminary; f = forecast

$2 $0

General Fund required to fund property tax exemptions in FY 2026-27 TABOR Refund Mechanisms Millions of Dollars $1,200 $1,000 $800

FY 2026-27: Homestead: $194.5 million SB 24-111: $3.5 million Total: $198.0 million From GF:

$198.0 million

$600 $400 $200

$705.8

$965.8 $376.4

$381.6

Income Tax Rate Reduction: 4.33% in 2027 4.25% in 2028

$201.1

$207.8

Property Tax Refunds

2026-27 2027

2027-28 2028

$270.0 $293.3 $111.2 $182.1

$0 Refunds for: 2024-25 Refunded in Tax Year: 2025

$234.7 $0.0 $0.0 2025-26 2026

Six-tier Sales Tax Refunds

Property tax refunds include the homestead exemption for seniors, veterans, and Gold Star spouses, and for TY 2025, property tax reimbursements to local governments under SB 24-111.

FY 2025-26 budget outlook has improved since July General Fund reserve deficit relative to requirement Dollars in Millions June July September 0

-100

-$84 million

-200

-$307 million

-300

Reversions +$103M

-400 -500 -600 -700 -800

-$692 million HCPF Overexpend -$69M

Revenue Forecast +$347M

FY 2026-27 Scenario A | General Fund Reserve Reserve $2.5 Requirement $2.0

-$116 M

Change since the July forecast update (Scenario A) Net +$416 million change in GF reserve relative to requirement

-$532 M

What Changed?

13.5% Reserve

$1.5

$1.87 Billion

$1.0

$0.5

$0.0 Billions

July

Increased beginning balance

+$385 mil.

Increased TABOR limit

+$52 mil.

Increased cash funds subject to TABOR

-$50 mil.

Decreased rebates and expenditures

+$36 mil.

Sept

Source: Legislative Council Staff forecasts based on current law.

FY 2026-27 Scenario B | General Fund Reserve $0.1

-$0.3 -$0.4 -$0.5 -$0.6 -$0.7 -$0.8 -$0.9

Capital Transfers

-$0.2

Appropriations

-$0.1

FY 2026-27 deficit under Scenario A -$116 million FY 2025-26 Balancing Actions

$0.0

Deficit under Scenario B -$841 million

State share of school finance preliminarily estimated to increase $334M in FY 2026-27 Total Program: +$253 million

$7,000 $6,000 $5,000 $4,000

State Share $5,592

State Share -$124 million $5,468

Local Share $4,187

Local Share +$377 million

$4,563

Total Program: +$295 million

State Share +$334 million $5,802

Local Share -$40 million $4,524

$3,000 $2,000 $1,000 $0

Actual FY 2024-25

Budgeted FY 2025-26 Projected FY 2026-27

Forecast Takeaways The economic outlook has weakened and a near-term recession is possible Budget outlook is unusually sensitive to the revenue forecast Revenue forecast is uncertain, with bidirectional risk Different FY 2025-26 balancing decisions impact FY 2026-27 budget differently

Preview: LCS General Fund Budget Simulator

NOTE: FY 2026-27 and FY 2027-28 values shown here are simulations to demonstrate the functionality of the tool. They are not part of the LCS forecast.

Questions? Greg Sobetski Chief Economist

Greg.Sobetski@coleg.gov | 303-866-4105

Louis Pino

Principal Economist

Louis.Pino@coleg.gov | 303-866-3556

Interested in the Budget Simulator? Thomas Rosa Data Scientist

Thomas.Rosa@coleg.gov | 303-866-3140 42