Colorado Gov. Jared Polis unveiled his fiscal year 2023-24 budget proposal Tuesday as constitutionally required, warning that the legislature will have little money available for new spending when it reconvenes in January and that the state needs to beef up its reserves given the strong possibility of a national economic downturn.
“There’s very little room in this budget for new programs,” Polis told reporters during a news conference at the governor’s mansion in downtown Denver. “We need to maintain strong reserves, more than ever before, in the face of global economic uncertainty. Otherwise, the legislature will be in a position to make major slashes to the budget should a recession occur.”
The proposal — which focused on public safety and affordable housing but doesn’t continue all of the government fee relief adopted by lawmakers this year — comes a week before the Democrat hopes to win reelection to another four-year term. Polling indicates he’s headed toward victory.
The $40 billion-plus budget plan for the fiscal year beginning July 1, 2023, will be presented to the legislature in the coming weeks, which will decide how much — or how little — of the governor’s wishes to pursue. If Republicans win back power in the Colorado General Assembly — it’s possible they secure a majority in the Senate — the likelihood of state lawmakers going along with Polis’ proposal will be greatly diminished.
Here are six big takeaways from Polis’ plan:
A $2.2 billion rainy day fund
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The governor’s proposal calls for setting aside 15% of the state’s budget, or $2.17 billion, as a reserve that can be used as a rainy day fund.
“We don’t recommend record reserves for fun,” Polis said. “We recommend record reserves because of great global (economic) uncertainty. There’s a risk of greater uncertainty and we need to prepare for that. Not always a fun thing to do, but it’s a fiscally prudent and a sound thing to do.”
The legislature’s Joint Budget Committee, a bipartisan panel that drafts the state budget, was told in September by nonpartisan legislative staff and the governor’s office that the risk of a recession is high. The JBC was also informed that it’s facing an inflationary budget crunch and that it may have less than $100 million to allocate to new programs next year not because of limited cash flow but because of the Taxpayer’s Bill of Rights cap on government growth and spending.
TABOR, the 1992 constitutional amendment passed by Colorado voters, limits increases in government growth and spending each year to the rates of inflation and population growth. But the inflation rate used to determine the cap comes from the previous calendar year, or six months before the start of each fiscal year.
The TABOR cap for the 2022-23 fiscal year, which began July 1, was set using a 3.5% inflation rate when the inflation rate in the 2021 calendar year in the Denver-Aurora-Lakewood area is more like 8%. While the 2023-24 fiscal year TABOR cap will reflect that higher rate, it only builds off the TABOR cap set using the 3.5% rate.
Given high inflation rates, some JBC members have complained that the TABOR cap is lagging and thus constraining the budget, a problem that compounds over time as inflation keeps rising. There is interest among lawmakers in decoupling inflation from the TABOR cap formula, but Polis said Tuesday he wasn’t aware of such a push and thus couldn’t comment on it.
“I would really recommend that if legislators have ideas for new programs, they offset them by eliminating or reducing (existing) programs,” Polis said Tuesday. “If legislators from both sides of the aisle have ideas we can work with them to find potential offsets if they can show that their ideas will drive success more for the state of Colorado.”
No money for continued gas fee relief
The legislature this year spent $45 million to delay implementation of a new, 2-cent-per-gallon fee on gasoline purchases enacted through a measure championed by Polis and Democrats at the Capitol in 2021. The bill raised more than $5 billion over 11 years for transportation projects.
The governor and Democrats used the $45 million to pause the fee until April. Polis’ budget proposal unveiled Tuesday didn’t include money to keep it going beyond then. (The fee is set to go up to 3 cents per gallon in July.)
Polis said Tuesday that he’s “very open” to extending the gas fee delay.
“I think what we, as well as the legislature, will want to see is where are gas prices,” he said. “We’re very open to any and all the relief that the legislature is willing to consider. And we have some time before the legislative session to look into that.”
Colorado businesses are required to begin charging a 10-cent fee on plastic and paper bags starting in January. The governor’s proposal didn’t include any relief for that new charge.
Polis’ plan does call for setting aside $8 million to continue making it nearly free for people to start businesses in Colorado, as well as to reduce background check fees for people becoming licensed child care providers or trying to expand a child care business.
More K-12 dollars, but college tuition would go up
The governor’s budget proposal calls for a $705 million increase in K-12 education funding, which would represent a 3% reduction in the budget-stabilization factor, the Great Recession-era deficit owed to Colorado schools.
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The spending would represent an increase in the state’s average per-pupil funding by $861.
“We need future (tax revenue) forecasts and to see what the money is,” he said, “but we would be hopeful that with this budget we would be able to do an additional buy down (of the deficit) the following fiscal year.”
When it comes to higher education, Polis is recommending the legislature spend $86 million. That would lead to a tuition increase at state-run institutions of about 4%.
The governor also wants the legislature to spend $6 million to extend an initiative offering children free sessions with a mental health care provider, known as the “I Matter” program.
The governor’s budget proposal calls for a 5% raise for all state employees, with targeted base pay increases for workers at agencies that are struggling to recruit workers.
“Department of Corrections, our 24/7 facilities, State Patrol, we have significant increases in the 10% to 15% range,” the governor said.
The budget specifically calls for $7.3 million to boost state trooper pay.
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Affordable housing and public safety
The governor wants the legislature to spend $42.1 on public safety, specifically aimed at combating car theft and recruiting and retaining officers.
The proposal calls for spending $12.6 million over two years to boost car theft-prevention technology and support task forces and prosecutors in areas of the state where car theft has been particularly bad. More than $5 million would go under the governor’s plan to bolster the state’s investigative capacity, including through the creation of two new Colorado Bureau of Investigations units that would have an emphasis on fentanyl investigations and for an expansion of the state’s toxicology lab.
The governor also wants to spend $38.3 million on wildfire prevention and response, including $13.8 million on bolstering seasonal aerial resources and to purchase a second firefighting helicopter for the state, as well as $3.2 million to boost the state’s fire investigations capability.
Polis wants the legislature to spend $15 million on public-private affordable housing projects, including a plan to build 80 affordable housing units on state-owned land near Vail.
It’s possible that the legislature will have a lot of money in excess of the TABOR cap to refund to taxpayers again this year. That’s where the money came from for those $750 or $1,500 checks you received in the mail in recent weeks.
Legislative Council Staff expects revenue above the TABOR cap to be $3.63 billion in the current 2022-23 fiscal year, while the governor’s Office of State Planning and Budgeting expects the cap to be exceeded by $1.9 billion in the current fiscal year.
The governor’s budget proposal Tuesday did not include plans for how to refund that money.
If the legislature doesn’t act, the money would first be refunded by reimbursing local governments for property tax exemptions for seniors and disabled veterans. Then, if there’s still TABOR surplus, the state income tax rate would be temporarily slashed. Finally, if there’s still money to be refunded, it would be distributed through checks to taxpayers based on six income tiers, with higher earners getting a larger refund and lower earners getting a smaller refund.
The legislature and Polis last year changed the final refund mechanism to make the checks flat — $750 for single filers and $1,500 for joint filers. Polis didn’t commit to trying to pass that change again should there be enough TABOR surplus this fiscal year or next for checks to be sent out.
“My priority would be to reduce the income tax rate,” he said Tuesday.
The governor now has to present his budget to the JBC on Nov. 15. Amendments to his proposal are due to the committee Jan. 2.
The next economic and tax revenue forecasts will be presented to the JBC by the governor’s office and nonpartisan staff Dec. 20.