Despite uncertainty over how federal policy changes could impact the national and state economy, Colorado’s state budget picture has not worsened beyond an already anticipated $1.2 billion budget gap, state economists told lawmakers Monday.

Members of the Joint Budget Committee were presented with the final economic forecasts before the state’s annual spending bill needs to be finalized and introduced in the Legislature for consideration. This year, the bill to set the budget for the fiscal year that starts July 1 will begin in the Senate.

The Joint Budget Committee, which comprises lawmakers from both parties and both legislative chambers, writes the state budget, which the House and Senate must approve.

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The state could actually have a bit more money to spend in the 2025-2026 budget than economists predicted in December. The nonpartisan Legislative Council staff put that increase at about $16 million, while the governor’s Office of State Planning and Budgeting says it could be around $79 million.

At the same time, economists with both the LCS and OSPB warned that tariffs, federal spending cuts and other fiscal policy from the Trump administration that deteriorates consumer confidence and could threaten the budget plan and state economic outlook.

“Our budget outlook changes are improvements,” LCS chief economist Greg Sobetski said. “But there’s a lot of uncertainty here, and when you make your decision about how the budget will run in Fiscal Year 25-26, you should be aware that there’s a risk that you could be in a much better position than what we’re showing you, and there’s also a risk that you could be in a much worse position than what we’re showing.”

The governor’s office now predicts a 40 percent chance for a recession over the next year.

Even though there might be more breathing room in the budget, general fund and cash fund revenue projections for this year were revised downward due in part to fewer collected corporate, income, sales and severance taxes.

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Both offices highlighted a sharp decline in severance tax collections in February as more oil and gas companies claimed record-breaking ad valorem tax credits, which let companies claim part of the amount of property taxes paid to local governments to offset the severance tax. High oil prices coming out of the pandemic resulted in high property valuations and high property taxes.

“This (decline) is solely due to credit claims, and not from the broader oil and gas market. Production in Colorado has grown year over year,” said Will Mixon with OSPB.

Economists disagreed on whether the state would be able to fully fund a homestead property tax exemption created last year for seniors and disabled military veterans. That is because they have different estimates for how much the state will collect above the revenue cap determined by population and inflation under the Taxpayer’s Bill of Rights.

LCS estimates a TABOR surplus of $108 million for the current budget year, which would be the smallest since 2020, when there wasn’t a surplus. That wouldn’t fully cover the homestead exemption, and the state would need to come up with about $104 million for the rest.

The governor’s office, however, estimates a TABOR surplus of about $300 million. That would fund the homestead exemption and leave some left over to refund taxpayers a bit.

The JBC will meet every day this week to make some of the largest decisions about budget cuts and finalize the shape of the spending bill, culminating months of work.