To pass their expansive legislative agenda, the new Democratic majority at the Colorado Capitol spent big this year. Real big. And now even Democratic budget writers are worried about how to make ends meet.
“There were a lot of bills passed last (session) that have continued spending … and some of those were very large,” said Rep. Daneya Esgar, D-Pueblo. “I don’t think we completely all truly understand what we have obligated ourselves to.”
The incoming chairwoman of the Joint Budget Committee issued the extraordinary warning about the forthcoming spending constraints Friday, two months before lawmakers will meet to craft the spending plan for the next fiscal year.
A preliminary estimate prepared for budget writers shows the legislation approved in the 2019 session will cost an additional $80 million to $100 million in the next budget. One factor is a low-ball estimate for the cost of full-day kindergarten, Democratic Gov. Jared Polis’ chief legislative priority in his first year.
The additional costs anticipated don’t include other major obligations that will come due, such as a projected $175 million to expand inpatient treatment for opioid and substance abuse under legislation approved in 2018 and another $30 million more for the state’s share in a federal children’s health insurance program.
Right now, projections show Colorado may not have the money to cover all the bills and continue spending at its current rate in other priority areas, such as education, transportation and health care.
The September revenue forecast released Friday by legislative economists shows lawmakers could have $833 million more to spend in the 2020-21 fiscal year but that figure doesn’t include required spending increases in law or inflation.
The more realistic scenarios: If the current $30.5 billion budget grew by only inflation plus population, lawmakers would have $421 million to spend. But this amount would need to cover the increasing costs of existing priorities before adding new programs. If the budget grew by the historical 6% rate, the additional money for next year’s spending plan is reduced to a mere $56.6 million.
“I’m very concerned,” said Sen. Rachel Zenzinger, an Arvada Democrat and budget writer. “I was concerned last year. And the fact that the estimates (for required spending) are coming in so much higher, just increases my concern.”
The rising costs for full-day kindergarten is a focus of concern
Much of the concern — or frustration — about the additional pressures on the state budget are aimed toward the Polis administration. Colorado lawmakers peppered the governor’s budget director, Lauren Larson, with questions at its meeting Friday about potential cost overruns in the full-day kindergarten program.
In the current budget, state lawmakers set aside $185 million to expand the program and expected 85% student participation. But early estimates show that 99% of districts adopted the program for this school year — meaning the state may not have budgeted enough money.
How many students will participate remains unclear, but if it’s near full implementation, it could cost Colorado an additional $30 million a year, according to legislative analysts. The governor’s office believes the adoption rate for students will exceed its initial estimates but land closer to 90% based on surveys of similar programs in other states. If this is true, it means the program’s budget is roughly $10 million short.
Polis initially asked for $227 million to cover the cost of the expanded kindergarten program, but agreed to a lower amount as lawmakers in his own party balked at the price tag. In March, the governor’s office told the budget committee that the adoption rate could get as high as 90%, but lawmakers still picked the lower 85% utilization rate to make more money available for other legislation on the Democratic agenda.
“I think the blame can be shared equally if there are any issues,” Sen. Dominick Moreno, a Commerce City Democrat and the outgoing budget committee chairman, said in an interview after the meeting. “Obviously, we are dealing with a very tight budget and a decreased revenue projection, so we were looking for money wherever we could find it to afford full-day kindergarten.”
State lawmakers reserved $40 million in an education account and raised taxes on larger retailers, but it’s unclear if the money will be enough to help offset the budget pain. State Rep. Shannon Bird, D-Westminster, expressed concern to Larson about whether full-day kindergarten would “crowd out other funding we are committed to providing.”
Larson acknowledged “there may be some marginal increase,” but she told lawmakers it won’t reach as high as preliminary estimates. She also suggested decreases in enrollment for other grades may offset the increase at the kindergarten level.
In terms of how to pay for it, the Polis administration argued that the cost of kindergarten could be covered by rising local property tax collections and lessen the cost burdens on the state. But Democratic budget writers rebuked the idea, suggesting it was irresponsible. “It’s not always certain that property values are going to go up, and to budget for an ongoing expense on something that is not certain, isn’t good budgeting practice,” Moreno said.
The two Republicans on the Democratic-led budget committee are not surprised by the concern about rising costs. Rep. Kim Ransom, a Republican budget writer from Douglas County, voted against full-day kindergarten, in part because she believes Democrats low-balled the cost estimates.
And Republican Sen. Bob Rankin lamented the idea that the state budget committee finds itself in the position of “going back and rationalizing programs that we added.”
“We are not supposed to add new programs without a way to pay for them,” the budget writer from Carbondale said. “That’s what’s troubling us right now.”
More funding obligations loom ahead of 2020 legislative session
The kindergarten program isn’t the only looming budget bomb. Colorado lawmakers earlier this year agreed to lower the annual debt it owes to school districts, through what is called the negative factor, by $77 million. But that also means lawmakers will need to dedicate that much more each year to avoid a debt increase.
Other legislation that won approval this year in the Democratic-majority House and Senate often masked the true cost to the state. To make their bills more attractive, lawmakers kept spending in the first year low and often pushed the cost into future years.
And still more spending is taking place now. On Friday, budget writers approved about $17 million in new spending — most of it state money — on an assortment of items deemed urgent, including $11.5 million on a child welfare case management system and $500,000 to test ground water for contamination from PFAS, or polyfluoroalkyl substances.
Looking to next year, the state will need to pay an increasing share of federal programs, including Medicaid and the children’s health insurance program, which was reauthorized by Congress at a lower level of support. The state also is seeking federal approval to expand inpatient treatment for substance abuse with Colorado covering a portion of the expense.
“There are a lot of big hits coming to the budget that we didn’t expect,” Moreno said.
The other complication for budget writers is the TABOR limit. In the 2018-19 fiscal year that concluded June 30, Colorado collected $428 million more than the state revenue caps allow under the Taxpayer’s Bill of Rights.
So unless lawmakers find ways to retain the revenue, it will get refunded to taxpayers in early 2020 — the same time lawmakers are trying to balance an overloaded budget.