Predicting the future of the U.S. economy is an inexact science. As cities across El Paso County have finalized their budgets for 2026 in recent weeks, there are even more risks and uncertain factors with which to contend. Businesses and municipalities are adjusting to price increases driven by P resident Donald Trump’s tariffs, analysts say. Colorado is seeing slower rates of job growth and personal income growth. A recent poll by the Associated Press found that 68% of consumers felt the national economy was poor, a number that has been largely unchanged since last December. The economy is bending but not breaking, says Bill Craighead, economist at the University of Colorado Colorado Springs. “On the one hand, not breaking is good, but on the other hand we do keep seeing worrying signs and yet things like consumer spending continue to hold up okay. It feels a little fragile right now,” Craighead said. Cities and towns in the Pikes Peak region rely on accurate forecasting to estimate yearly revenue to budget for essential services. This year, caution has been the name of the game. Municipalities are consistently predicting small increases or no increases in sales tax revenue, which is typically the largest source of revenue for local governments.  The University of Colorado Boulder’s annual economic outlook released Monday was similarly mixed. The gross domestic product for Colorado is expected to increase by 2.9% in 2026, which is more growth than the previous two years. On the other hand, the state’s job growth is expected to be slower and may struggle to outperform other states. Slower job growth predicted for Colorado in 2026, but no recession Colorado chamber CEO sees warning signs for state economy  MAKING COUNTY AND COLORADO SPRINGS ‘RECESSION-RESILIENT’ Next year is the first since the end of the Great Recession of 2008-2009 in which Colorado Springs is projecting a general fund reduction. While economic indicators are not as austere as they were in 2009, area governments are staying thrifty with their budgets and revenue projections to prepare for uncertainty. The contraction is minor compared to the local reductions seen during the country’s last sustained economic downturn. For the 2010 budget, Colorado Springs cut roughly 10% in funding and made drastic changes, such as removing lights from streetlamps to save energy costs – which made the national headlines – and cutting weekend bus services. The general fund for the 2026 Colorado Springs budget, by comparison, is just 2.5% lower than the current year at $427 million. The city is expecting sales tax revenue to either stay the same or continue to slowly grow. On the county level, El Paso saw a sales tax revenue reduction of 4.46% in 2009 – equivalent to $3.16 million in funding. While the county did not institute major layoffs, it did pull from its Road and Bridge fund, which set back infrastructure projects. “It took us a while to rebuild that budget,” said Nikki Simmons, El Paso County finance director. Sales and use tax provides around $250 million in revenue per year in the Colorado Springs general fund. The latest monthly report showed that as of the end of October, the sales revenue was 0.01% higher than it had been at the same time last year — an increase of less than $28,000. Brian Risley, City Council President Pro Tem, speaks to the press after receiving the 2026 city budget from Mayor Yemi Mobolade during a press conference at City Hall on Oct. 6. “In a ‘normal’ type of year, we would be budgeting a 2% or 2.5% increase,” said Colorado Springs finance director Charae McDaniel, who set the city budget. “Because we are having that uncertainty, that is why we brought it down to that 1.4%.”  Tatiana Bailey is the longtime local economist from Data Driven Economic Strategies. Colorado Springs City Council leadership cited her forecasts for the economy when they suggested the city budget should reduce its expectations for a sales tax revenue boost next year. Colorado Springs has a track record of outperforming the state when it comes to job creation and economic stability, Bailey said. However, she said there were reasons to worry that the growth pattern would not continue. “If we are already not experiencing the job growth we have grown used to since 2013 and we also have Space Command leaving, I’m a little more cautious,” Bailey said. El Paso County has a slightly more optimistic outlook, forecasting a 2.3% sales tax increase. Simmons said that past years have seen increases closer to 7%. She said the budget, which includes adding no full-time staff, was meant to be “recession-resistant.”  “This is definitely a conservative projection compared to average,” she said. McDaniel said the initial national actions were following along with what the city forecasted. The city expected the Federal Reserve would continue to cut interest rates, which happened Wednesday. Anecdotal evidence McDaniel heard suggested that Christmas shopping was up slightly from last December, which would let the city end this year with a modest increase to revenue. The official report will not come out until February.  The cuts Colorado Springs made this fall to prepare for the lower budget largely involved layoffs, staff furloughs and shifting funds for major construction projects. The city did not touch its reserve funding, which McDaniel said would be an option if 2026 did not go well. “That is a sort of cushion. We don’t plan on using that but if we had to, it’s very healthy. We have a number of different ways we can adjust as needed, up or down, as we move through the year,” McDaniel said. Building materials are the second-largest category for Colorado Springs’ incoming sales tax revenue, after general retail stores, and have been one of the key reasons the fund was lower than expected. The building material taxes are coming in 12% lower this year compared to 2024. Construction can be an especially volatile category of tax revenue. Craighead said the construction market was caught between the demand for new or refurbished homes and the increased prices for building materials caused by tariffs. The Pikes Peak Regional Building Department’s budget, which is reliant on building and construction permits, was keeping its budget flat to reflect an expectation that demand would stay level. “The hope is that the bust in the boom-and-bust cycle has leveled off, so that would be good news. What would be better is if we see a bounce back, but that is going to be challenging,” Craighead said. Aside from generating revenue from construction, new developments also affect the retail outlook. Simmons said the county estimated about 1.7 to 1.8% of its sales tax revenue increase in 2026 would come from new commercial development, based on the pool of projects working through approvals and construction. She said that relatively stable number was boosting the overall sales tax forecast. OUTLYING COMMUNITIES Smaller communities in El Paso County are facing unique economic realities going into 2026.  To the south of Colorado Springs, Fountain has had a good year for budget standing. Scott Trainor, City Manager, said that the city was not expecting any major shortfalls for the new year.  “Unlike a large number of cities in Colorado, Fountain’s revenues for 2025 were stable and we are projecting more of the same in 2026,” he said. Fountain had steady retail sales revenue in the past few years, with 2026 expected to slightly exceed this year at over $18 million. The city is also party to new intergovernmental agreements with Fort Carson, including a multi-million dollar micro-transit project expected next year. The government contracts are a source of unrestricted revenue.  To the west, Manitou Springs has been in a months-long struggle to offset the loss of retail marijuana revenue. After Colorado Springs passed a ballot measure last fall allowing recreational sales, the tourist city lost its regional exclusivity in the market. The city responded to dropping sales in its two dispensaries by halving its special tax on marijuana.  Maggie’s Farm staff hang a sign for the incoming recreational marijuana shop in Manitou Springs in 2014. (Jerilee Bennett, The Gazette) Budget documents show the city has gone from over $9.2 million in overall sales tax revenue in 2024 to $5.6 million in 2025. The city forecasts $4.9 million in revenue next year. The city does not publicly disclose sales tax revenue from marijuana alone, since tax information on municipalities with fewer than three dispensaries is protected by state statute.  Colorado Springs has collected $1.5 million in retail marijuana sales tax revenue this year, according to a report released this month. To the north, Monument spent time this year consolidating its budget to make up for stalling sales tax revenue compared to previous years. According to Steve Murray, a Senior Accountant with Monument, the town is down about 6.6% in total sales tax from January to October of this year. For 2026, the town took a conservative approach, budgeting no increase in sales tax for the year.  With layoffs in town government and halts to capital projects, Monument has reduced its budget gap to avoid spending down reserves, though the town’s long-term outlook still sees some dip into the unrestricted funds municipalities usually try to keep from spending in case of emergencies.  For the time being, Manitou Springs does plan to dip into its reserves to maintain services through the beginning of 2026, as it already has this year. The city has multiple public meetings planned in February to talk about possible cuts to services.  This summer, Manitou Springs City Council members presented the public with several options for reducing expenses, including abolishing the city’s ambulance service or closing the fitness center. The cuts were presented as potential alternatives to raising the city’s excise tax on ticket sales, which ultimately failed with voters this fall. Manitou Springs mayor-elect Natalie Johnson has said that “everything is on the table” heading into budget discussions.  “I anticipate that we’re going to have to make some pretty significant cuts,” said Manitou Springs Mayor John Graham.  KEY NUMBERS Colorado Springs increase in sales tax revenue since 2024: $26,372 Colorado Springs’ expected sales tax revenue increase in 2026: $3.5 million El Paso County’s projected sales tax revenue increase in 2026: 2.3%  Monument sales tax revenue decrease in 2025 to October: 6.6% Manitou Springs sales tax revenue decrease since 2024: $4.3 million ...read more read less