Expect to hear a lot of explanations over the next few months for Colorado’s $1 billion budget shortfall.
Cooling inflation will limit how much state spending can increase under the Taxpayer’s Bill of Rights revenue cap, after years of booming growth.
Medicaid costs are rising across the country, with state health officials pointing to an aging population simply needing more care.
The state also must spend more on K-12 education, because lawmakers eliminated the school finance shortfall and increased funding for programs like special education — all while cutting local property taxes multiple times, which help pay for schools.
This week, Joint Budget Committee Staff Director Craig Harper offered another reason: The state budget has been out of balance for years.
Thanks to a mix of aggressive state budget cuts in 2020 and the subsequent infusion of federal help during the pandemic, Colorado ended the 2020-21 fiscal year with a massive budget surplus: $1.5 billion leftover after maintaining a 15% reserve. By June 30, 2023, all but $431 million of that surplus had been spent.
Today, that surplus has disappeared — and then some. The state’s now on track to end the current fiscal year with a $314 million deficit that would be pulled out of the reserves.
A lot of those surplus dollars were spent on one-time expenses — not new employees or ongoing services — to avoid affecting the budget in the future.
But not all of it was, Harper said. Instead, lawmakers used some of the federal money to help pay for some of the legislature’s largest ongoing priorities, like eliminating the K-12 funding shortfall, expanding mental health and early childhood programs and boosting funding to higher education.
Much of that one-time money is now gone — including the Federal Medicaid Assistance Program, which allowed the state to reduce its share of Medicaid spending.
That cushion allowed state spending to rise at an unsustainable pace. Next budget year, Medicaid, K-12 and the Department of Corrections alone need an increase of $590 million in general fund spending just to maintain today’s levels of services amid rising caseloads. That alone is more than the $510 million increase the state has available to spend beneath the TABOR cap next year, according to JBC documents. And that does not account for pay raises owed to employees and contractors, or the array of private sector businesses and nonprofits that provide state-funded services like Medicaid, child care and preschool.
“We are essentially in a self-imposed recession,” said Sen. Barbara Kirkmeyer, a Brighton Republican who serves on the JBC. “This isn’t a result of not having enough revenues coming in. This is a result of over-expenditures.”
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CORRECTION: The lead item in Tuesday’s newsletter incorrectly reported which legislative races were close enough to qualify for an automatic recount. At the time, only the House District 16 race between Democratic Rep. Stephanie Vigil and Republican Rebecca Keltie fell within the threshold. However, the race between Republican Dan Woog and Democrat Jillaire McMillan now also qualifies for an automatic recount.
A LONG-TERM PROBLEM
The cause of the budget shortfall is important, because it will affect the decisions that lawmakers make between now and late March when they have to present their budget to the full General Assembly.
If it was a one-time economic shock, lawmakers could deploy the usual recessionary playbook: pull from the reserves, enact hiring freezes or employee furloughs, force colleges and universities to raise tuition and cut payments to the state pension.
But pulling those levers at a time when the economy is humming and the budget is growing as fast as it can under TABOR won’t solve the long-term problem. Instead, one-time cuts will just kick the problem to a future year, when the state will have fewer levers to pull and less reserves to rely on.
In early discussions, there’s a gulf between the JBC and the governor’s office in how to tackle the long-term challenge.
JBC members this week balked at the governor’s plans to cut spending on K-12, freeze Medicaid provider payment rates and reverse rate increases for autism treatment that the legislature approved earlier this year.
Instead, they want state agencies to cut more deeply into their operations by implementing hiring freezes, cutting programs and even eliminating staff positions altogether after years of government growth.
“If they (the department heads) don’t collaborate with us on that, we’re going to have to do it for them — and that’s not going to be fun,” said Rep. Rick Taggart, a Republican JBC member from Grand Junction.
Mark Ferrandino, the governor’s budget director, told the JBC that the administration was “open to conversations” about eliminating programs, but hiring freezes aren’t the solution this time around.
“A hiring freeze is a temporary, one-time savings,” Ferrandino said. “It’s not an ongoing savings, unless you’re permanently eliminating those positions.”
Polis said lawmakers — and voters — bear some responsibility for the growth of government over the past few years. The voter-approved family medical leave program alone, he said, required the state to add hundreds of full-time staff positions.
“We do pride ourselves at being as efficient as we can in fulfilling the will of the legislature in making programs successful,” Polis said. “It doesn’t do us any good if the legislature sets up a new program and funds it for us to leave the lead of that program un-hired and the program a failure. We would be hauled before this committee for a different reason.”
In lieu of cutting staff or programs, Polis said he focused on the “big-ticket items” like Medicaid to put the state back on financial track.
“I don’t see a lot of other things that can be put together to add up to $638 million,” he said.
WAIT — HOW BIG IS THE SHORTFALL?
Polis’ budget request includes $638 million in what he calls “balancing” proposals, like cutting transportation fees, privatizing the state’s workers’ compensation insurer and restructuring the state’s severance tax and a number of cash funds to create room beneath the TABOR cap.
Budget staff use a different figure to describe the shortfall — over $1 billion — because that’s how much the state actually needs to cut when you account for typical year to year growth in government spending. (That’s also the figure you’ll see us use at The Colorado Sun.)
Proposals to prevent regular increases in government spending, like freezing Medicaid provider rates, aren’t counted in Polis’ balancing requests, but do help close the true budget gap.
YOU HEARD IT HERE
Polis was repeatedly pressed by Colorado Public Radio host Ryan Warner this week on why Vice President Kamala Harris lost the presidential race. He refused to engage.
“I was excited to vote for Kamala Harris,” Polis said. “I’ve known her, I’ve worked with her. I think she would’ve been a terrific president and we won’t have the opportunity to do that. And so instead we’ll be working with President-elect Trump.”
Some other takeaways from Warner’s interview with Polis:
STORIES
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THE POLITICAL TICKER
PROPOSITION 130
Gov. Jared Polis this week proposed pulling money out of the state’s general fund reserve to pay for the $350 million law enforcement support fund authorized by voters through last week’s passage of Proposition 130.
The reserve, he said, would be paid back “over several years” rather than all at once.
Expect more details in January, when the governor releases his revised budget proposal.
CAMPAIGN FINANCE
The Colorado Supreme Court earlier this month declined to hear Republican Suzanne Taheri’s appeal of a finding that she improperly filed her personal financial disclosure as part of her unsuccessful 2020 campaign for a state Senate seat.
Taheri argued that the ruling was improper because the statute of limitations had expired. She filed her federal tax return instead of filling out the state disclosure form.
Taheri, a former deputy secretary of state, was fined $850 for the violation.
The Colorado Supreme Court’s decision to deny the appeal wasn’t unanimous. Chief Justice Monica M. Márquez and Justice Carlos A. Samour wanted to hear the case.
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THIS WEEK’S PODCAST: The data points that explain Colorado’s 2024 election results
ELECTION 2026
The Democrats who may run in the 8th Congressional District in 2026
We know, we know. You don’t want to hear it yet.
But the reality is the race to represent the highly competitive 8th Congressional District in 2026 is already underway.
Democrats are already launching their efforts to unseat Republican U.S. Rep.-elect Gabe Evans two years from now. And the party has a list of candidates who are eyeing an 8th District bid in 2026 or are rumored to be in the running.
Among them are:
There’s always a chance that Democratic U.S. Rep. Yadira Caraveo, who lost to Evans this year, runs again.
OBITUARY
A Colorado lobbying legend dies
Diane Rees, one of the first women to lobby at the Colorado Capitol, died Monday. She was 85.
Totsy Rees, one of her daughters, said the cause was dementia.
Diane Rees got her start lobbying as the head of governmental affairs for American Metal Company, a mining company that has since become Climax Molybdenum. She then went on to found her own firm, Friendly Persuasions in 1985. After that, she joined forces with former House Speaker Bev Bledsoe and former House Speaker Pro Tempore Frank DeFilippo to form the lobbying firm Bledsoe DeFilippo Rees.
Her client list included United Power, General Motors and AT&T.
Rees retired in 2006 and moved to Australia before returning home to Boulder, where she lived much of her life.
“She was full of integrity and she was always willing to help anybody,” said Totsy Rees, now a lobbyist at the Colorado Capitol herself. “She was pretty much a die-hard Republican, but understood that you need to work with people on both sides of the aisle — and she helped people on both sides of the aisle.”
Plans for a memorial are pending.
THE BIGGER PICTURE
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