Colorado budget writers voted Wednesday night to introduce a state spending plan that eliminates a number of social programs, dramatically reduces transportation spending and leaves the state’s new K-12 funding formula in jeopardy in order to close a $1.2 billion shortfall.
The Joint Budget Committee also cut into the operations of state agencies, while shifting some costs onto local governments in order to balance the annual budget for the 2025-26 fiscal year, which begins July 1.
The six-member budget panel was supposed to finish its proposal a week ago, a timeline that would have had it on the Senate floor by now for debate. Instead, lawmakers blew past their legislative deadlines – a sign of just how complicated this year’s balancing act has been.
At one point, the budget panel had drafted more than 80 bills to run alongside the budget legislation, most of which were ultimately approved for introduction.
The cuts will enable the state to absorb the rising costs of Medicaid – driven primarily by long-term care for older adults and disabled people – and fully fund K-12 school districts for another year without dipping into the state’s reserves.
But – lawmakers cautioned – they didn’t eliminate the state’s structural deficit, which will require ongoing cuts to government operations for years to come.
“Next year, I see our fiscal challenges compounding,” Democratic Rep. Shannon Bird, the committee’s vice chair, said during one hearing. “The problems we’re having with our budget, I believe, will only increase.”
The spending plan isn’t final; it’s set to be introduced in the state Senate next week, then has to pass in both chambers of the Legislature before Gov. Jared Polis can sign it into law.
Expect this year’s debate to be especially lengthy. The JBC’s budget package typically includes multiple bills in addition to the main spending document, officially known as the Long Bill. But this year’s sprawls across dozens of pieces of legislation, after the committee’s balancing act led to rewriting and eliminating programs the Legislature previously created in state law.
But while lawmakers traditionally offer more than 100 amendments to the budget bill across days of debates, the other 94 members of the Legislature rarely override the major decisions made by the six-member budget panel.
For all the talk of cuts, the $16 billion-plus in general fund spending under the JBC’s proposal still represents an increase over this year. The budget just isn’t growing enough to cover the rising costs of state programs – especially Medicaid.
And while lawmakers have wide discretion to determine what services they cover under the federal health care program, the biggest drivers of the spending increase are low-income seniors and people with disabilities – vulnerable populations that lawmakers are loathe to cut services for.
But Medicaid isn’t the only place where costs are going up. In the wake of the pandemic, lawmakers used a mix of rising tax collections and federal aid to spend heavily in areas they felt had been neglected since the Great Recession.
In recent years, they boosted spending on higher education in order to keep tuition increases below inflation. They eliminated the state’s K-12 funding shortfall, and increased funding for charter schools, at-risk children and special education. They increased pay for state workers and medical providers in a bid to combat workforce shortages in government and health care. And they expanded a number of programs, including making all kids eligible for publicly funded preschool and school lunches.
The state could afford it all while federal funding was flowing and local property taxes were rising far faster than inflation. Then reality set in. Rising Medicaid cost overruns busted last year’s budget, leaving the state in the hole before the current fiscal year even began. In the coming years, those costs are expected to continue to rise.
In November, Colorado voters added to the financial crunch, by passing Proposition 130, a mandate that the Legislature spend $350 million on grants to support law enforcement. But even though financial alarms were going off by that point, there was no organized campaign from state leaders to oppose it, or to highlight the trade-offs they knew were coming: cuts to health care, schools and transportation projects.
Earlier this week, lawmakers were briefed on a plan to pay out the grants over the next decade, but they ultimately delayed taking action until after the budget’s introduction.
If Colorado were any other state, cuts might not have been needed at all. Next year, the state is expected to collect about $600 million more tax dollars into its general fund than it is allowed to spend on public services. Add to that the income tax cuts and tax credits for low-income families approved last year, and the true budget surplus could have been north of $2 billion – more than enough to cover the $1.2 billion gap lawmakers faced in balancing the upcoming spending plan.
But Colorado voters have put unique constitutional limits on public spending, limiting government revenue to the equivalent of 2008 levels after adjusting for inflation and population growth. In years like this one, when tax collections rise faster than the cap allows the government to grow, the Taxpayer’s Bill of Rights requires the state to refund the additional dollars to state residents through various tax rebates set by the Legislature.
Next year, the TABOR cap will only allow state revenue to grow by 3.6%. But the costs of programs like Medicaid and K-12 education are rising much faster than that. As a result, lawmakers found themselves backtracking on many of their efforts in recent years to build up public services.
“When the economy is booming and the state is tightening its belt, that just doesn’t make sense, and I don’t think it’s what the people of Colorado want,” JBC Chair Jeff Bridges, a Greenwood Village Democrat, told The Colorado Sun in an interview. “It’s like, ‘why are you making these cuts?’ And the answer is TABOR.”
About a dozen departments will see a year-over-year reduction in their budgets, after lawmakers pared back or eliminated a number of programs the Legislature had created or expanded in recent years. They cut funding for a property tax deferral program and a judicial ombudsman that was never hired. They repealed a task force on kidney disease and slashed a number of workforce programs that help high school graduates get job training or free college credits.
State workers will still get a planned 2.5% pay bump next year, but they’ll have to chip in more for their health benefits than they initially agreed to in their latest collective bargaining agreement. The union, Colorado Wins, also agreed to a 1.5% cut in the state workforce – savings that will come primarily from leaving open positions unfilled, rather than through layoffs.
Lawmakers won’t be given much of a leash to add new programs this year; the JBC set aside just $7.5 million for new legislation.
This year, health care eclipsed K-12 education as the biggest expense in the state’s budget for the first time since the Department of Health Care Policy and Financing was created in the early 1990s. Under next year’s budget proposal, those costs will continue to grow faster than other departments.
Medicaid premiums alone are expected to rise $208 million next year – a 5.7% increase from this year. Child Health Plan Plus, the state’s insurance program for children whose families make too much to qualify for Medicaid, will see its costs go up 20%.
The hospitals and clinics that treat Medicaid patients won’t get much of an increase in their payments, even as they struggle with financial challenges of their own. The JBC proposed a 1.6% increase to the state reimbursement rate for Medicaid providers, rejecting a plan from Gov. Jared Polis that would have cut payments for many medical providers.
The JBC entertained a number of cuts that would have either kicked some people off Medicaid or reduced the services it covers. But ultimately, budget writers said they weren’t comfortable cutting Medicaid eligibility without more input from the rest of the Legislature.
At a hearing last week, Bridges put lawmakers and the department on notice to come back next year ready to make major changes to the health program.
“The fastest growing part of our state budget is Medicaid,” Bridges said. “We’ve already seen the consequences this year. It’s just going to get worse.”
The JBC also voted to restructure nursing home fees and disability insurance premiums in order to exempt them from the state revenue cap. (The state already does so with a much larger health care charge – the hospital provider fee, which helps fund the state’s Medicaid program.) The maneuver reduces taxpayer refunds, but frees up over $80 million beneath the cap that lawmakers didn’t have to cut from state services.
The committee deadlocked 3-3 over a vote to trigger a provision in state law that would have delayed the state’s new school finance formula and prevented it from being implemented until the 2026-27 school year.
But while the JBC declined to pause the new formula, they also didn’t provide enough money to pay for it – not without putting the State Education Fund in jeopardy.
Instead, the budget committee agreed to increase general fund spending on K-12 by $150 million next year, leaving it up to the rest of the Legislature to decide how to deploy it.
To fully fund the current school finance formula, the state would have to increase its contribution to schools by $186 million next year. The new one would cost even more – requiring the Legislature to pull an additional $100 million from the State Education Fund to pay for it. That would put the school operations fund at risk of insolvency within the next few years, according to budget staff projections.
Sen. Barbara Kirkmeyer, a Brighton Republican on the JBC, said allowing the new formula to take effect could put the state on a path to creating a new budget stabilization factor – the balancing mechanism the state used to underfund schools by $10 billion over the past decade.
“I just don’t think it’s responsible to look at this and not say ‘maybe we should take a pause and figure it out,’” Kirkmeyer said.
Instead, that and other major decisions were left to the rest of the Legislature to negotiate as part of the annual School Finance Act talks – like whether to cut funding for schools with declining enrollment, as Polis has proposed.
“We will know what schools receive this year when the School Finance Act passes,” Bridges said. “I can guarantee that what that school finance act looks like will not be what the (budget) bill looks like. This is not the end of the story.”
The JBC’s budget proposal would leave the fate of Colorado’s free school lunch program up to voters.
The budget panel cut about $34 million from the Healthy School Meals for All program, leaving $8 million – just enough money to keep the program going through December.
That will buy legislative Democrats time to ask voters two proposed ballot questions to raise the tax dollars the program needs to cover its costs. Demand for the program, which provides lunches to all public school students regardless of income, has blown past the funding levels voters approved when they created it in 2022.
“We have made a lot of promises to kids, and there needs to be more funds in the system to meet those promises,” said Bird, the Westminster Democrat.
The panel approved a 2.5% budget increase for higher education at a cost of $39.8 million. Under the proposal, colleges and universities would be allowed to increase tuition by up to 3.5% for Colorado residents and out-of-state students alike. That’s in line with the 2% to 5% tuition increases the Legislature has allowed each of the last five years.
Transportation absorbed some of the largest cuts of all.
The JBC cut $64 million that had been earmarked for transportation in this year’s budget, and another $50 million in the 2025-26 budget.
The cuts – which scaled back a 2021 law requiring the state to spend $100 million a year on transportation – would eventually be paid back under the JBC plan, but not until 2033.
The JBC also cut road safety fees charged on car registrations, saving drivers $22 million and further reducing funding for transportation. That would also reduce TABOR refunds owed to taxpayers by the same amount, freeing up space beneath the state revenue cap for lawmakers to spend on other services.
The panel slashed a number of grant programs for local governments.
The JBC voted unanimously to claw back about $71 million in transportation grants that had been awarded to local governments – money that had already been approved for multimodal transportation projects, like bike lanes and transit, but wasn’t yet under contract. Bustang, the state commuter bus service which is set to receive $3.6 million from the same fund, was exempt from the cuts.
The JBC eliminated a $7 million Revitalizing Main Streets grant program that helps communities redevelop their downtowns. The panel scaled back and delayed a bipartisan effort to help county governments increase the pay of district attorneys. They also swept around $40 million out of a cash fund that helped school districts buy electric buses – effectively ending the state’s support of the program.
For all the committee cut, they rejected dozens of other ideas to balance the budget.
They rejected a budget staff proposal to cut $3 million from child welfare services. They rejected a plan, supported by the committee’s two Republicans, to eliminate a program that has provided health coverage to about 10,000 children without legal immigration status. Known as Cover All Coloradans, it’s expected to cost the state $19.2 million next year.
They also rejected a plan from Polis to privatize Pinnacol, the state-owned workers' compensation insurer. The move could have generated an estimated $600 million in one-time funding to balance the state budget, but it also would’ve left Colorado businesses without an insurer of last resort.
“There’s still a lot of work to be done both on a policy level and on a political level that has not been done,” Bridges said of privatizing the insurer.
There’s an unusually high chance the budget proposal could be knocked out of balance before next fiscal year even begins.
State economic forecasters last week told the JBC that recession risks are growing, amid escalating trade wars.
Moreover, major federal cuts to Medicaid – and countless other programs currently being targeted by the Trump administration – would upend a spending plan that gets nearly 30% of its money from the federal government.
“There certainly are a lot of indicators that would suggest that we might end up having to come back,” Sen. Judy Amabile, a Boulder Democrat, said last week.
If that happens, lawmakers may have to undo one cut they already made. In the bid to find savings, the General Assembly’s executive committee – which sets the legislative budget – cut the funding set aside for special sessions.
