Colorado Faces 2026 Recession Risk Amid $800M Budget Deficit, Medicaid Costs

Colorado's economic outlook is increasingly uncertain, with state officials warning of a possible recession in 2026 driven by factors such as rising tariffs, federal policy changes, and increasing Medicaid costs. The state's effective tariff rate has surged from 3% to 21%, contributing to slowed job growth, reduced consumer spending, and a softening housing market, while Colorado's economy has slipped from the 10th to the 40th fastest-growing in the nation. Budget forecasts reveal a significant shortfall, with projections of nearly an $800 million gap for the next fiscal year, despite expected general fund growth, largely due to Medicaid expenses growing at twice the rate of the general fund and the impact of federal legislation like H.R.1. Lawmakers have taken steps including a special session to address a $783 million revenue shortfall by cutting spending, ending tax breaks, and using reserve funds, but challenges remain as the state's rainy-day fund is below statutory levels. Democratic lawmakers emphasize bipartisan efforts to mitigate budget pressures and protect critical services amid these fiscal stresses, highlighting the ongoing economic challenges faced by Colorado families and businesses. Overall, the state faces a complex fiscal environment where rising costs and federal policies intersect to create risks of recession and necessitate difficult budget decisions.