State of Colorado Budget Growth in Perspective
Executive Summary
The Governor’s Office recently submitted their budget request on October 31. The request was for $50.7 billion in total funds for fiscal year 2026-27, a 5.65 percent increase over the current fiscal year’s budget. Colorado’s fiscal outlook includes stagnating state revenue and a decrease in federal spending that the state will be required to backfill or cut. The majority of the spending increase is driven by the Department of Health Care Policy and Financing, HCPF, while several departments’ budgets are declining or held flat.
As the State of Colorado navigates considerable budget challenges, a central question that has arisen with renewed intensity is whether the state primarily has a “revenue” problem or a “spending” problem. How that question is answered usually is anchored in political ideology with selective focus on data to support one’s position. This report provides an evidence-based analysis of this question, with a broad look at five key measures to assess the rate of growth in revenue and state appropriations.
Key Measures
Rate of growth in Colorado’s budget – Total appropriations grew at an average inflation-adjusted rate of 2.8% from FY1999-00 through FY 2024-25, while General Fund appropriations grew by 1.8%. When not adjusted for inflation, total appropriation growth averaged 5.6%, while General Fund appropriations averaged 4.6%.
Per capita spending – Over the past 25 years, Colorado’s per capita budget expenditures grew at a 1.1% annual average, the same rate as the average of all states. Colorado ranked 42nd among all states in 2000 and 41st in 2022.
State spending in comparison to the state’s GDP – In fiscal year 2000, total state appropriations were 6.5% of GPD and 7.7% in the past fiscal year. The 25-year average is 7.4%.
State spending as a share of personal income – In fiscal year 2000, total appropriations were 8.0% of personal income; the current share is 8.8%, and the 25-year average is 8.4%.
Rate of growth in state employment – In 2000, Colorado had 30,700 state employees, which increased to 58,900 state employees in 2024, growing at an average annual rate of 3.8%. Over this same period of time (2000 to 2024), statewide employment overall in the private and public sectors grew at an annual rate of 1.5%.
State Budget Overview
The Governor releases his budget request to the Colorado General Assembly by November 1 each year, commencing a five-month process of reviews, hearings, discussion, and, ultimately, passage of the Long Bill usually at the end of March. The passage and signing of the Long Bill started roughly a year prior, when executive branch departments began having internal discussions about the following year’s budget to submit their budget requests to the Governor’s Office of State Planning and Budgeting by August 1.
The Fiscal Year 2026-27 budget was presented on October 31 this year. It requested a total of $50.7 billion, which represents an increase of $2.7 billion or 5.65% over current appropriations for FY 2025-26. This total funds request includes revenue from the General Fund, which are flexible to spend; cash funds, which are typically earmarked for specific purposes; and federal funds, which are also only available for specific purposes. The total request from the General Fund was $17.6 billion, a 3.67% increase over the previous year. This represents just 35% of total appropriations.
This year’s budget, similar to last year’s, does not have sufficient revenue to maintain the growth of past years. Colorado, like all states, received billions of federal dollars in stimulus and to support additional need during the COVID-19 pandemic. In addition, state revenue grew at the fastest rates ever in the early 2020s, as consumer demand and incomes rose. Budgetary pressures concurrently increased, with worker shortages pushing state salaries and state-contracted service costs higher, and inflation putting pressure on state expenditures.
Discussions around budget shortfalls raise the question of what is normal growth for state government revenue and budget? How fast should state government grow? This report uses the best available data and points of comparison to present information on how Colorado’s budget has grown over time.
State Budget Components
State Revenue
State expenditure and employment is largely a function of the revenue collected by the state government. The state collects funds from taxes, fees, and the federal government allocations. For state fiscal year 2025-26, which runs from July 1, 2025, through June 30, 2026, state appropriations of all funds total $46.7 billion. The breakdown of state funds by source is shown in the chart below.
Source: Joint Budget Committee Staff. [1]
The General Fund revenue is the most flexible in how it can be spent. It is also the most susceptible to fluctuations in macroeconomic activity. About 30.2% of General Fund revenue subject to the Taxpayer’s Bill of Rights limits is collected from sales and excise taxes on goods like cigarettes, while 64.6% is collected from individual and corporate income taxes. [2] These revenue sources are tied to employment levels, wages, business performance, and consumer spending. If Colorado businesses stop hiring or lay off employees, wages decline causing consumer spending to decline, which impacts the State’s General Fund revenue.
According to Legislative Council Staff’s September 2025 forecast, preliminary data suggest that General Fund revenue declined by 0.4% in fiscal year 2024-25, which ended on
June 30. [3] This decline was driven by a decrease in income tax revenue, which fell by 1.7%. General Fund revenue is expected to remain flat in the current fiscal year, 2025-26, due to a 3.0% decline in income tax revenue and a 3.1% increase in sales and excise tax revenue, which is essentially flat when adjusted for projected inflation.
Cash Fund revenue, funded by state taxes, fees, and fines with the revenue allocated to specific funds, declined 1.0% this fiscal year and is projected to increase by 11.3% next year. This revenue only totals about 18% of General Fund revenue, about $3.1 billion for the current fiscal year compared to $17.1 billion in the General Fund. Federal Funds appropriated by the state are mostly allocated to one of three departments: healthcare/Medicaid, education, and transportation. Those three departments receive more than 87% of all federal funds received by the state.
Additional ties to the federal government result from Colorado’s adherence to federal taxable income as the basis for Colorado income tax and the passage of federal legislation H.R. 1, One Big Beautiful Bill Act. The passage of this bill is estimated to result in a
$1.2 billion reduction in state revenue during state fiscal year 2025-26 and a $720 million reduction the next fiscal year, according to Legislative Council Staff. [4] In addition to reduced tax revenue, responsibility for funding programs previously paid for with federal dollars is shifting to state government. The largest impacts to the state budget will come from Supplemental Nutrition Assistance Program, Medicaid work requirements and eligibility provisions, and changes to the hospital provider fee. While these impacts are modest, under $100 million, in the forecast years, they are projected to grow to close to $1 billion by state fiscal year 2031-32, according to the Office of State Planning and Budgeting. [5]
These impacts, paired with worsening macroeconomic conditions, resulted in Governor Polis calling a special legislative session to address the state budgetary shortfall.[6] At the same time, the Governor called for a state employee hiring freeze from August 27, 2025, through December 31, 2025, with limited exceptions. Legislation passed during the August special session closed a portion of the gap, but spending cuts likely will be needed as well. The Governor’s budget proposal for state fiscal year 2026-27, released on November 1, 2025, requested an increase of 0.33% of full time-equivalent (FTE) employees for fiscal year 2026-27, which totals 222 additional state employees.
State Appropriations
Total state budget appropriations have grown at a compound average growth rate of 5.6% since FY 1999-2000 on a nominal basis, which drops to 2.8% when adjusted for inflation. With the rise in inflation during the early 2020s, state appropriations have leveled off in real terms after FY 2021-22.
Total General Fund appropriations is similar to that of total appropriations, but with more muted growth. Over the past 25 fiscal years, annual General Fund appropriations grew by 1.8% when adjusted for inflation and 4.6% when not adjusted.
Most general fund and cash fund revenue growth have been constrained by the limitations imposed by the Taxpayer’s Bill of Rights since FY 1993-94. State revenue is allowed to grow by a rate equal to the sum year-over-year percent change in total state population and the consumer price index inflation measure. This does not apply to federal funds, revenue approved by voters, or state-run enterprises, which collect less than 10% of their total revenue from state sources. This also does not include the Referendum C General Fund Exempt revenue, as approved by voters in 2005, which reset the TABOR limit.
As total appropriations include TABOR-exempt sources, total appropriations not adjusted for inflation are typically higher than the TABOR limit, as seen in Figure 3. Additionally, cash fund and federal fund revenues are typically less reactionary to economic activity and economic downturns than General Fund revenues, so the declines in revenue are more lagged and less severe for total appropriations.
While the total budget appropriations declined twice by 1.0% and 2.6% over the last 25 years, General Fund appropriations declined three times, by 0.9%, 11.5%, and 7.2%.
The chart below shows how Colorado’s budget priorities and demands have shifted over the past two decades. The share of total appropriations going to the five largest departments has shifted from K-12 education case load requiring the highest levels of appropriations to Medicaid caseload and medical costs comprising the largest share. The most striking trend is the sustained growth of Health Care Policy and Financing, which has more than doubled its share—from under 20% in FY 1999–00 to about 36% in FY 2021–22—driven largely by Medicaid caseload growth, medical inflation, and federal policy changes. In contrast, Education’s share has gradually declined from the low-20% range to about 18%, reflecting pressure from constitutional constraints, competing budget demands, the rising cost of other programs, and shifts in the local share. Higher Education has remained relatively stable around 13–15%, while Human Services has slowly declined over time. Transportation shows the steepest proportional drop, falling from around 10% in the early 2000s to under 6% in recent years, illustrating how Colorado’s fuel-tax-dependent funding model has not kept pace with population growth or infrastructure needs. Overall, the chart highlights structural shifts in the state budget that make long-term planning increasingly difficult.
One reason for the shift in Transportation funding is the increasing use of state enterprises. State enterprises in Colorado are government-owned entities legally separated from the state’s TABOR revenue limits because they receive less than 10% of their funding from state or local tax revenues. Examples include the Unemployment Insurance Enterprise, the Healthcare Affordability and Sustainability Enterprise, and various higher-education enterprises. The chart below illustrates the rapid growth of Colorado’s state enterprise revenue over the past three decades, especially after the mid-2000s. TABOR is the primary reason for the use and proliferation of state enterprises. There was relatively modest enterprise revenue through the early 2000s, followed by sharp increases tied to the creation of new enterprises and federal interventions—most prominently during the Great Recession and the COVID-19 pandemic. The inclusion of higher-education enterprises dramatically increases total enterprise revenue, underscoring how enterprise designation has become a key fiscal tool for managing large, fee-supported programs outside TABOR constraints.
State Budget in Perspective
One way to gauge the size of state government appropriations is by comparing it to the state’s gross domestic product (GDP), which is a broad measure of the economy. GDP is a sum of consumer spending, private investment, government expenditures, and net exports, with consumer spending on both goods and services comprising roughly two-thirds of all economic activity. Over the past 25 years, Colorado’s GDP has only contracted twice, in 2009 and in 2020 during the Great Recession and the COVID-19 pandemic brief recession.
In the fiscal year ending in 2000, total appropriations as a share of GDP were 6.5%. The share peaked in 2020 at 8.7% and has since declined to 7.7%. Over a 25-year period, the average share was 7.4%. The share typically increases during economic downturns and decreases as the economy recovers.
Another comparative metric is personal income, which includes wages and salaries; proprietor’s income; dividends, interest, and rents; and transfer payments from the government (Social Security, unemployment, etc.). Total appropriations as a share of personal income shows a similar pattern to GDP. Over 25 years, the current share is 8.8% and the average share is 8.4%
Many of the factors contributing to increasing budgetary pressures are not unique to Colorado. All states face cyclical changes in revenues and expenditures, albeit not always on the same timeline. In this light, Colorado’s budgetary expenditures can be compared to expenditures in other states when adjusted for each state’s population and inflation.
According to U.S. Census Bureau data [Ref] [7], between 2000 and 2022 Colorado’s per capita budget expenditures grew by an average of 1.1% annually, the same rate as the average of all states. When comparing state expenditures during a single year, Colorado ranked 42nd (with 1st being the highest expenditures per capita) for inflation-adjusted budget expenditures per capita in 2000 and 41st in 2022.
The same dataset can be compared over time for Colorado and the total state average for the U.S., as shown in the charts in Figure 8. Average U.S. per capita revenue and expenditures were consistently higher than Colorado expenditures from 2000 to 2022. Once the data is indexed to 2000 to see how revenue and expenditures change over time relative to the level in 2000, expenditure growth in Colorado outpaced U.S. spending, while revenue remained mostly on par with U.S. averages.
Ref: US Census Bureau Annual Survey of State and Local Government Finances, 1977-2022 (compiled by the Urban Institute via State and Local Finance Data: Exploring the Census of Governments; accessed 01-Dec-2025 04:05)
[Ref] [8]
State Employment
State government employment outside the education sector expanded by 3.5% in 2024 and has continued to rise, increasing an unadjusted 2.7% through August 2025. With a hiring freeze in place and tight budget conditions, that pace is expected to hold, leaving 2025 employment growth at roughly 2.7%. Looking ahead, staffing levels are projected to tick up by just 0.4% in 2026, reflecting limited funding for new positions across both fiscal years. When revenues tighten, state leaders tend to avoid direct personnel cuts, opting instead to trim broad programmatic spending or reduce grant funding.
Notably, Colorado’s state workforce has not posted a single year of decline since the 2008 recession. From 2008 to 2024, state government employment grew at a compound annual rate of 3.8%—more than double the 1.5% average annual pace of overall statewide job growth.