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How Colorado lawmakers closed a $3 billion shortfall to balance the budget and why it led to tears

The Joint Budget Committee finalized how to spend $11 billion in discretionary spending ahead of the legislative session’s restart

A sparse crowd attended the Joint Budget Committee meeting March 16, 2020, amid fears of the new coronavirus. The committee plans to continue meeting even though the Colorado legislature temporarily shut down. (John Frank, The Colorado Sun)
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To address a $3 billion shortfall, Colorado lawmakers made a series of drastic spending cuts Thursday and moved close to finalizing a state budget battered by the coronavirus and the paralyzed economy.

The legislative budget committee cut $448 million from K-12 education — a 10% cut compared to a year ago. The actual cut is closer to $577 million for school districts, in part from increased costs this year.

Earlier in the week, lawmakers slashed $493 million from the state’s colleges and universities, a total that represents 58% of the higher education budget. 

In addition, the committee approved a 5% reduction — totaling $111 million — in the set-aside for state employee salaries and benefits, which may lead to furloughs, eliminating vacant positions or hiring freezes. The draft spending plan also is predicated on forthcoming legislation that will remove unspecified tax breaks to generate about $100 million in new revenue.

Sen. Dominick Moreno, a top Democratic budget writer, said the committee didn’t want to cut education, but given that it accounts for 40% of the state’s discretionary budget “we simply are incapable of balancing this budget without any changes.”

“We have held out just about as long as we could,” the Commerce City lawmaker said, “and we have made painful reductions in every department … with the bipartisan goal that we minimize as much as possible the impacts to K-12 education.”

The size of the budget shortfall in Colorado is unprecedented — 25% of current spending — and it took the Joint Budget Committee three weeks to make the necessary cuts to balance the budget. 

The total discretionary spending from the general fund for the fiscal year that starts July 1 is north of $11 billion, but the size of the entire budget — once federal dollars and other sources are included — is not yet settled. 

The committee attempted to make targeted cuts, rather than across-the-board reductions, and tried to protect spending on education and vulnerable populations. Outside groups lobbied fiercely to protect their priorities, and liberal organizations pushed for increasing taxes and fees rather than cuts. In the end, lawmakers — most of whom wore masks and talked in muffled voices inside an empty committee room — made the bulk of the significant decisions behind closed doors with little public discussion.

The political pressure made combing through the budget an arduous exercise and led to plenty of tears from lawmakers and legislative staff as they pared spending back to levels more closely aligned with the 2016-17 fiscal year, in effect negating many of the priorities Gov. Jared Polis and Democrats approved in the 2019 session. 

“I’m grieving every time I turn a page,” said Rep. Julie McCluskie, a budget writer and Democrat from Dillon, at one point.

The committee expects to make the final decisions Friday, ahead of the budget package’s introduction next week when the legislative session resumes after a 10-week hiatus because of the coronavirus.

Federal aid money may help offset cuts to education

Entering the final week of negotiations, the budget committee still needed to cut $2 billion after taking two weeks to trim along the edges, and at the last minute, maneuvered to close an $800 million gap.

The education cuts are softened by federal CARES Act money — a crucial tool lawmakers used to lower the budget deficit. Polis issued an executive order directing $500 million for K-12 education and $450 million toward higher education from the state’s share of the federal aid package. The money can’t backfill the budget shortfall, but it does offset some cuts.

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It remains unclear how the reduced spending on classrooms impacts the constitutional debt the state owes school districts — under the so-called negative factor. The factor appears to double to more than $1 billion, but Democratic lawmakers suggest it will stay essentially flat once the federal aid money is factored into the equation.

State Sen. Bob Rankin, a budget writer and Republican from Carbondale, said the committee “worked together to do our best to maintain funding for our teachers and our kids.”

Optimistic economic forecast and reserves lessened the pain

To ease the burden, the Democratic-led Joint Budget Committee picked a more optimistic economic forecast presented by the governor’s Office of State Planning and Budgeting to serve as the mold for the spending plan. 

The committee typically uses the one that shows less money to spend but deviated this year. The governor’s forecast estimated that lawmakers could spend $442 million, or 2%, more over the current and next fiscal years than if they picked the conservative projections from legislative economists.

The budget also lowered the required general fund reserve in the current year to 3.4% from 7.25% to allow for more spending. The committee decided to keep at least a small cushion in case the state’s fiscal outlook is worse than expected. For the next fiscal year, the unspent money set aside is 3.8% of total general fund spending.

To find additional dollars, budget writers sorted through numerous other bank accounts and transferred more than $400 million into the general fund, a common practice in bad budget years to reduce the size of the cuts. The transfers included BEST school construction money, assets in the unclaimed property trust fund, and oil and gas severance taxes. The two Republicans on the committee objected to some of the transfers because the money was dedicated to specific purposes, but the moves still advanced.

A major source of additional revenue for discretionary spending came from marijuana taxes. The $137 million diversion means legalized marijuana will help prop up core government services more than ever. 

One other action that is expected to help: The General Assembly is poised to declare a fiscal emergency soon after it returns, an action that allows lawmakers to divert tobacco tax dollars designated for other purposes under Amendment 35. The committee approved taking $17.8 million — out of the estimated $123 million in the account — and put it toward efforts to control the spread of the COVID-19 disease. 

MORE: Colorado lawmakers are looking at how to close a $3 billion budget shortfall. Here’s the roadmap.

A look at what lawmakers cut and what survived the budget ax

But the additional revenue didn’t negate the need for cuts to government programs. The other major spending cuts approved in the final days included: 

  • Suspending the senior homestead exemption, a property tax break for seniors and disabled veterans that amounts to $164 million next year
  • Diverting $50 million earmarked for transportation projects and pulling a related bonding referendum from the 2020 ballot
  • Eliminating a $225 million payment to shore up the Colorado Public Employees’ Retirement Association, known as PERA
  • Reducing the provider rate payments for government contractors in the fields of health care, prisons and other areas by 1% to save $25 million in discretionary spending and $60 million overall
  • Scheduling the 2021 closure of the smallest prison in the state, Skyline Correctional Center, a minimum-security facility in Cañon City with 252 beds, and cutting beds at La Vista Correctional Facility, a women’s facility in Pueblo. The actions saved $5.8 million.

Amid all the slashing, a handful of prominent state initiatives managed to survive the budget bloodbath. Two major priorities for the governor from the prior year — to lower health care costs through a reinsurance program and to provide state-funded full-day kindergarten — avoided the chopping block.

One option to divert about $8 million earmarked for affordable housing failed, with Democrats voting to protect the program created in legislation a year ago and the two Republicans on the committee voting to cut it.

In other places, the two parties united to preserve spending, including state services for people with intellectual and developmental disabilities, a children’s health insurance program, need-based financial aid for college students and a wildfire mitigation initiative run by the state forest service.

Elsewhere, such as in tourism marketing and substance abuse services, lawmakers decided to limit cuts or delay spending to keep programs alive with the hopes of restoring dollars in the future.

Sen. Rachel Zenzinger, a legislative budget writer, said it was “a painstaking process of picking apart every single item of the budget to find reductions.”

“It was through a series of tradeoffs,” the Arvada Democrat added. “We stopped all increases. We didn’t move forward with anything new. We rolled back a lot.”

MORE: Colorado is the only state without a rainy day fund. Now the coronavirus means it will pay the price.

Budget debate is expected to start next week at Capitol

The final budget package will include dozens of pieces of legislation — far more than most years — and start in the state House next week when the suspended session restarts. The debate is expected to become tense with plenty to contest. 

Republicans are fuming about the governor’s decision to spend most of the $1.7 billion in CARES Act funding without broad legislative consent, especially after Polis initially said he would let lawmakers make the decisions.

From the steps of the Capitol earlier this week, GOP leaders in the House suggested the cuts would right-size state government, but pledged to challenge education cuts and protect the senior homestead property tax exemption. 

“There is room to prioritize and make the cuts we need … but we don’t want to do it on the backs of our children and our seniors,” said Rep. Dave Williams, R-Colorado Springs. “It would be unfair — it would be heartless — to pull the rug right from out underneath them.”

Democratic leaders blamed the Trump administration and Republican-controlled U.S. Senate for the need to make the cuts after inaction blocked a federal relief crafted by the U.S. House.

Colorado House Speaker KC Becker, D-Boulder, and Democratic budget writers have urged Congress to approve more federal aid for states, saying a bailout is the only way to keep Colorado government operating at a reasonable level. It’s “a truly dire situation,” she wrote in a recent opinion column.

At the same time, liberal-leaning advocacy groups are expected to re-up their demand for an emergency tax hike to prevent budget devastation. But Democrats are skeptical of the move and Republicans — whose votes are needed for passage — oppose the idea.

Updated 10 a.m. May 22, 2020: The total transferred from marijuana taxes as part of the state budget was updated to $137 million reflect new information.

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