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Politics and Government

Colorado spared more budget cuts for now, but an additional $1 billion in reductions looms on 2021 horizon

The state’s reserve is so minimal the slightest change will force Gov. Jared Polis to take executive action to reduce spending.

The Colorado Capitol. (Jesse Paul, The Colorado Sun)
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No further budget cuts are immediately necessary as an economic forecast from the Polis administration shows a series of tax changes approved by Colorado lawmakers generated enough revenue to preserve the state’s slim budget cushion.

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Gov. Jared Polis’ office says a new economic forecast shows that tax revenue will allow the state to carry a reserve slightly above the $300 million required for next fiscal year’s $30.3 billion state budget, but warned that Colorado’s finances remain tenuous. If tax revenue drops by half, state law forces the governor to slash spending, which historically takes the form of state employee furloughs or pay cuts.

“The minimal reserve requires very careful management,” said Lauren Larson, the governor’s budget director. “A small reduction in our forecast could require midyear (budget cuts). We will be watching that closely.”

The new numbers provided a glimmer of optimism in an otherwise dismal budget year in which lawmakers spent $1.4 billion in discretionary dollars less than the prior year. The true budget cuts for the 2020-21 fiscal year that begins July 1 were closer to $3 billion when factors such as inflation and growth in demand for services were factored into the equation. 

MORE: Colorado’s $30.3 billion coronavirus-sickened state budget explained in 10 numbers

The state’s economy is beginning to rebound, but the depth of the current recession means there is more financial hardship for the state ahead. Many of the dollars Colorado lawmakers used to balance the budget this session were one-time tools, and new estimates from legislative economists suggest they will need to find about $1 billion in cuts or new revenue to maintain spending next year.

“We are not out of the woods yet,” Sen. Dominick Moreno, a Democratic budget writer from Commerce City, said. “COVID-19 remains a real threat to our communities and the economic impacts of the shutdown will have dire consequences for years to come.”

Looking ahead to the fiscal year that starts July 1, 2021, the Polis administration is asking state agencies to cut their budgets for the new fiscal year by 10% — on top of the 10% or more they cut for the coming year’s budget. The administration is hoping for more federal dollars to blunt the impact.

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“It’s drastic and dire,” Larson said of the additional anticipated cuts. “And I hope that the federal stimulus funds come through and we don’t need to actually end up proposing … such a large reduction. But because we don’t know where that’s going to end up, we need to have departments be planning accordingly.”

This year, lawmakers managed to spare more cuts with legislation at the end of the session to repeal a handful of tax breaks approved in the federal stimulus bill that applied at the state level. The move generated $180 million in additional revenue for the state.

The CARES Act also allowed taxpayers to file amended returns from prior years to deduct additional business losses. But in early June, the state Department of Revenue approved a little-noticed emergency rules to disallow amended state returns because it could result in potential revenue deficits in prior years. The change means the state can keep a projected $185 million in tax revenue it otherwise would have returned.


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