Colorado is teetering on the edge of a recession, governor's planning, budgeting director says

Mark Ferrandino, the executive director of the Governor's Office of State Planning and Budgeting, says the state has a 50-50 chance of going into a recession in 2026.

Ferrandino says changes in tariffs, immigration policy and federal spending have created uncertainty for businesses and consumers. Colorado's effective tariff rate, he says, has increased from 3% in 2024 to 21%.

Greg Sobetski, Colorado's chief economist, told lawmakers on the Joint Budget Committee the full impact of higher tariffs has yet to hit. 

"A lot of these impacts are being born at this point by firms because they can't pass that kind of price shock onto consumers," Sobetski said during the JBC meeting. 

Sobetski says the state's economy is growing, but there are signs of weakening. He says job growth has slowed; businesses have pulled back investments, consumer spending is sluggish, and Colorado has the highest level of debt per capita in the country. Tourism is also down, and the housing market is softening.

While the economic turmoil is being felt nationwide, Colorado's unemployment rate is increasing at a higher rate than the nation's, while wages are growing slower than the rest of the nation. Colorado had the 10th fastest-growing economy in the country two years ago. It presently ranks 40th.

The 2026 budget is already $850 million in the hole, driven largely by massive increases in Medicaid costs.

Ferrandino says Medicaid is expected to eat up an additional $644 million next year

"(That amount) is more than 13 departments' total general fund spending," Ferrandino said during the JBC meeting.

Ferrandino says Medicaid is growing at 9%, which is twice the rate of the general fund budget. He says its unsustainable and President Trump's Big Beautiful Bill Act, he says, will put the state on the hook for more Medicaid costs.

Republican state Sen. Barb Kirkmeyer, who sits on the JBC, says next year's budget was already in the red before the law was signed. She says Democrats are using the federal government as a scapegoat.

"Year-over-year increase in employees, year-over-year overspending above inflation. Year over year," Kirkmeyer told CBS Colorado. "They just kept doing that. They knew the problem. They wouldn't do anything to fix it."

With Medicaid costs soaring, tariffs kicking in and inflation creeping up, balancing the budget will be that much harder.

Democratic state Sen. Jeff Bridges, chair of the Joint Budget Committee, says this year's cuts will be even more painful. 

"We clearly have to figure out a way to either allow the state to keep more of the revenue that it brings in, or to dramatically reduce what it is we invest in," Bridges told CBS Colorado.