As new tax credits reroute money from budget, lawmakers brace for less certain budget growth

Even as Colorado enacts drastic changes to its tax policy, economic forecasters still expect the state to hit the constitutional cap on revenue collections in coming years.

But, the state could flirt with falling below the cap, set by the Taxpayer’s Bill of Rights, for the first time in half a decade during the adjustment period. The TABOR cap grows based on population growth and inflation, and money collected over it needs to be refunded to taxpayers.

Greg Sobetski, the chief economist for the Legislative Council Staff, didn’t raise any red flags during a forecast Thursday but acknowledged “a new set of budget circumstances” for state officials to navigate after years of explosive growth in state revenues. That growth resulted in billions of dollars being refunded to taxpayers in recent years, most notably through direct payments in fall 2022 and through tax returns this year.

Lawmakers this past legislative session, however, passed more than 30 bills either adjusting or creating new tax credits, according to a tally by the governor’s office. They include expansions to the earned income tax credit for the lowest-income Coloradans, senior housing tax credits and, if certain economic triggers are met, a new credit potentially worth thousands of dollars to families.