Colorado state budget writers are in a race against the clock to spend $1.5 billion in leftover federal pandemic aid before the end of 2024 thanks to new guidance from the U.S. Treasury Department.
The deadline is two full years sooner than state lawmakers and Polis administration officials had expected. That has set off a mad scramble to rewrite the budget for the current fiscal year, which ends June 30, to allow the state to spend federal American Rescue Plan Act dollars faster than lawmakers intended.
The time crunch arose from shifting guidance from federal officials on how they define “obligated,” a term that doesn’t exist in state law.
Federal law has long required ARPA recipients to “obligate” all of their funding by the end of 2024, but the final spending deadline is not until the end of 2026. That led state officials to assume they could spend their $3.8 billion allocation through 2025 and 2026, as long as they had passed legislation committing to do so by this year.
“The state had been operating under the understanding that it would have some ability to define that term itself,” Amanda Bickel, a Joint Budget Committee staff analyst, told lawmakers in a hearing this week. “Now that is absolutely not the case. Legislative staff and the executive staff all agree that what we need to do is expend this money as fast as possible.”
Under the new federal guidance, the state is generally prohibited from spending ARPA money beyond the 2024 deadline, with limited exceptions.
That’s left the Polis administration and lawmakers looking to swap out the funding sources for at least 36 programs in order to get the money out the door before the federal government requires Colorado to give it back.
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Here’s how the funding swap would work: State agencies would spend the pandemic aid money as soon as possible on qualifying government services, a broad category that includes employee salaries. Doing so will free up state tax dollars that can be spent at any time. That money would be redirected to the programs the state had planned to use the ARPA money for in future years, such as behavioral health care, teacher stipends and wildfire prevention projects.
But the clock’s ticking. The JBC on Wednesday directed its staff to present the funding swap plan by mid-February. It would then need the full legislature’s approval. Meanwhile, the JBC must submit its 2024-25 budget proposal to the legislature by mid-March.
The fear of losing the federal money has been a constant theme on the budget committee in recent months. Colorado budget writers this fall asked every state department for a detailed accounting of how they were spending ARPA dollars and how much they had left.
“We knew that there was a self-destruct time on those funds,” said Sen. Jeff Bridges, D-Greenwood Village, who serves on the JBC. But no one was sure what the 2024 “obligation” deadline actually meant.
Colorado’s not alone in facing a time crunch. As of June 2023, states had only spent about half the money the federal government provided, according to the Economic Policy Institute, a Washington, D.C., think tank.
The stakes are high. Lawmakers don’t want to risk losing federal money — the leftover dollars represent 40% of the state’s entire ARPA allocation. So if the new spending plan doesn’t work as intended, there could be pressure to call a special session later this year.
“The more thoughtful the General Assembly can be in tackling this issue in a bill, the less likely a special session will be required in fall 2024 to fix ARPA-related problems,” Bickel wrote in a briefing document.
Bridges told The Colorado Sun he doesn’t think it will come to that. Other states have already done similar funding swaps of their own to work around the deadline, he said, indicating that Colorado’s plan should pass federal muster.
“It is a well-trodden path,” Bridges said.
Colorado Sun staff writer Jesse Paul contributed to this report.