State policymakers are grappling with the unenviable task of closing between a $670 and an approximately $1 billion deficit this coming legislative session – an amount equivalent to between 4 and 6 percent of last year’s General Fund. As we talk about here, Colorado is facing this dire fiscal situation, despite the state’s healthy economy, for a variety of reasons. While primarily driven by TABOR, the state budget is also strained by growing Medicaid costs, due in part to an aging population; the November passage of ballot measures, like Proposition 130; and recent property tax cuts that grow the state’s required K-12 contribution.

Cutting hundreds of millions of dollars from the state budget won’t be easy. Inevitably, programs Coloradans rely upon will be cut. The question now is simply which programs, and which Coloradans, will be harmed. 

The governor’s proposed budget, submitted at the beginning of November, offers one avenue to balance the state’s finances. As we explore below, this proposal is one of severity; full of cuts, forestalled investments, and one-time changes to temporarily balance the budget. 

When looking at the governor’s proposal, it’s important to keep in mind that there are no good choices when forced to make recession-level cuts to state services. To create a balanced budget, the governor’s team was faced with limited funds, but many competing priorities. An investment in one government service necessarily meant a reduction elsewhere. Without structural changes to forces like TABOR, all current and future lawmakers will be forced to make these same choices.

The governor’s proposal is not the final word on what will and will not be funded. State legislators now have the opportunity to craft a budget that reflects their own priorities. However, in doing so, they will be faced with the same impossible choices as to which of the state’s many essential services to prioritize – and which to cut. 

Maintaining – but not growing – last year’s investments:

Last legislative session, lawmakers made significant investments in K-12 and higher education by eliminating the Budget Stabilization Factor for the first since 2009 and increasing Department of Higher Education funding by $132 million. Importantly, research shows investments in education systems are critical for economic mobility.

The budget offered by Gov. Polis maintains these investments by continuing to fund K-12 at constitutionally required levels and limiting in-state higher education tuition increases to 2.3 percent.

The tradeoffs: Service cuts to maintain last year’s investments:

Maintaining last year’s investments come at a high cost: cuts and delays to numerous state services and programs. These include:

• Reduced K-12 funding: While the governor’s budget does not bring back the Budget Stabilization Factor, it does reduce expected K-12 funding. Last legislative session, lawmakers instituted a new public funding formula, which is intended to inject sorely needed funds into the K-12 system, especially in rural communities and districts where kids need more wraparound services to succeed. Budget constraints led the governor’s office to propose an extended implementation timeline for the new formula.This change, and several others within the proposal, contributes to $190 million less than previously expected for K-12 education in the governor’s budget.
• Static reimbursement rates: The state is heavily reliant upon private entities to provide a range of government-funded activities, from medical and behavioral health care to many types of social services. The government sets rates, many of which are recognized as far too low, to reimburse providers for this work. Notably, the governor’s budget does not propose an increase in these rates for most services, even to account for the higher cost of providing care due to inflation. This decision essentially acts as a cut in funding as providers would be asked to offer the same services for less money after accounting for inflation.
• An assortment of cuts: In addition to delayed and static funding, the governor’s proposal includes a number of outright spending reductions. These include cuts in reimbursement rates to select Medicaid providers and the elimination of funding for a range of programs including the Colorado Rural Healthcare Workforce Initiative, work to expand concurrent enrollment options, and the Teen Parent Drivers License Program. Many of these efforts were adopted within the past several years based upon recognized community needs.

Fiscal adjustments:

While significant, the above-mentioned reductions could have been worse. However, the governor’s proposal contains fiscal maneuvers, many of which are temporary in nature, to create additional room in the budget. These changes include:

• Converting Pinnacol Assurance, the state’s quasi-public insurer of last resort for workers’ compensation, into a private entity in exchange for $500 million over the next five years.
• Redirecting several cash funds and some American Rescue Plan Act (ARPA) money, which are currently earmarked for specific purposes, to cover General Fund obligations.
• Creating several new enterprise funds, or state-owned businesses (you can learn more about enterprises by reading this brief from the Bell). Notably, enterprises are not subject to certain TABOR restrictions. As a result, this action would create more space within the General Fund.

Collectively, these proposals cut the deficit by nearly $500 million. However, many of these are one-time actions, which can’t be taken in coming years, and dig a bigger hole for future legislators.

Takeaways

The governor’s proposed budget forestalls economic progress. It cuts essential programs, limits needed investments, and closes funding gaps with temporary measures. 

Yet, the governor and his team had little room to make improvements. TABOR has created unworkable constraints that necessitate the cuts and tradeoffs seen in this proposal. Even had the governor wanted, TABOR is preventing our state from simultaneously funding essential priorities – from child and health care to transportation and education. Policymakers will always be forced to make these impossible tradeoffs while living under TABOR’s restrictions.

The process to create next year’s state budget is far from over. State legislators will be taking the next several months to craft an alternative to the governor’s proposal. Undoubtedly, they will prioritize different areas of the budget. Yet, in doing so, they will be forced to live under the same constraints – and make the same difficult choices – as the governor’s office.