Colorado's fiscal outlook has improved dramatically, with fiscal year 2026-27 now showing a $148 million surplus despite March 2026 forecasts projecting $806.6 million less available to spend compared to the previous year. The Independence Institute published its analysis on June 19, 2026, following presentations by legislative and gubernatorial analysts to the state's Joint Budget Committee. The turnaround comes after lawmakers balanced what they called catastrophic billion-dollar budget shortfalls over the past two years.
The revenue improvement stems from better-than-expected tax collections and balancing measures enacted during the 2026 legislative session. Lawmakers lowered the statutory reserve from 15 to 13 percent, raided the Unclaimed Property Trust Fund, recouped TABOR refunds, and transferred money between cash funds and the General Fund to close the gap. The state budget itself grew by nearly 7 percent. Current forecasts still project a $315 million shortfall for fiscal year 2027-28 if the state returns to its 15 percent reserve requirement, though the report suggests legislators should feel more confident about balancing that budget given their recent track record.
According to the Independence Institute, despite the improved outlook, lawmakers are pursuing tax increases through Proposition NN and a graduated income tax measure while maintaining special interest tax credits for film festivals and electric vehicle subsidies. The report describes a legislative pattern it views skeptically: increase the TABOR spending limit by billions of dollars, eliminate business tax breaks while imposing higher taxes on wealthy residents, expand special interest tax breaks, then "scream poverty" if revenue approaches the new cap or wealthy people leave the state. The analysis notes that the Healthy School Meals for All program continues to exceed revenue expectations.
The Independence Institute frames the situation as a political strategy that relies on fear of budget shortfalls to justify tax increases. The organization argues that progressive legislators want to simultaneously expand the state's spending capacity through Proposition NN, raise taxes on businesses and high earners, and preserve tax credits that benefit specific constituencies. This approach, the report suggests, narrows the tax base while creating room for significantly more government spending. The analysis points to what it calls an "explosion of special interest tax credits" during Governor Polis's tenure that intentionally reduced state revenue by handing out favors to preferred industries and behaviors.
The report's bottom line is clear: Colorado's legislature will continue pushing for more revenue despite the fiscal turnaround, using temporary budget concerns to justify permanent tax increases. The Independence Institute warns that voters should look past short-term deficit rhetoric and recognize a longer-term pattern of expanding government size and scope. With the state having navigated billion-dollar shortfall warnings to reach surplus territory in just months, the report suggests the real question isn't whether Colorado can balance its budget—it's whether lawmakers will use improved conditions to grow spending or provide relief to taxpayers.