More than $250 million down, and $530 million more to go.
That’s how much of a projected $783 million state budget hole the Colorado legislature filled by the time a special session called to address the impact of the federal tax bill ended Tuesday afternoon — and the larger amount that still remains. Erasing the rest of the red ink will fall to Gov. Jared Polis, who plans to rebalance this year’s budget in the coming days through a mix of cuts to state funding and a big dip into the rainy-day fund.
Over six days, the legislature’s majority Democrats fulfilled their part of a plan worked out with the governor’s office: to pass legislation that is expected to generate enough revenue to close about a third of the shortfall projected for the state’s budget in the current fiscal year, which began July 1. They ended tax breaks and found other ways to offset declining state income tax revenue, while leaving spending cuts largely for Polis to decide.
“What we did here in this special session is soften the blow,” said Sen. Jeff Bridges, a Greenwood Village Democrat who chairs the legislature’s budget committee. “But when the federal government cuts $1.2 billion in revenue from the state with a stroke of a pen, after we’ve already cut $1.2 billion (from the budget) in the regular session, that’s a tough deficit to come back from in a way that doesn’t impact the people of Colorado.”
The special session ended with 11 bills going to Polis for final approval. Five sought to fill the budget gap, largely by ending tax incentives for businesses and high-income earners.
The single largest revenue-raising measure, House Bill 1004, will auction off tax credits that can be claimed in future tax years for a discount. Backers expected that bill to bring in an additional $100 million to state coffers this year, at the expense of about $125 million in future years.
Together, those measures add up to $253 million in revenue to reduce the projected deficit — money that Democrats say represents averted cuts to Medicaid, schools and hospitals.
“Colorado legislators stepped up and helped protect children’s food access and minimized the devastating cost increases to health insurance premiums across the state, to the best of our ability,” Polis, who signed two of the new bills earlier Tuesday, said in a statement.
The legislature’s Joint Budget Committee expects to meet Thursday to hear Polis’ plan to address the remaining $500 million or so, including mid-year spending cuts.
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As part of his call for a special session on Aug. 6, Polis announced a statewide hiring freeze. He said in an interview before the session started that he hoped to avoid cuts to K-12 education, but he has left all other options on the table, including Medicaid program spending.
The plan also factors in a significant use of reserves to offset some of the remaining gap.
Partisan debates
Over the past week, Republicans fought the Democrats’ bills, but strong Democratic majorities in both legislative chambers all but preordained the outcome.
“Not only did we increase taxes, we’re balancing the budget on the back of small businesses,” said Sen. Barbara Kirkmeyer, a Brighton Republican on the budget committee.
One of the bills heading to Polis would erase a fee paid by the state to businesses for collecting sales taxes — an outdated subsidy, according to Democrats, and an unnecessary new burden now put on businesses, according to Republicans.
Republicans said before the session that they’d likely challenge several bills in court over allegations that they violate provisions in the Taxpayer’s Bill of Rights that require voter approval for tax increases. Kirkmeyer and Rep. Rick Taggart, a Grand Junction Republican who’s also on the budget committee, said bills going to the governor that would eliminate some tax credits and allow the sale of tax credits against future collections seemed particularly vulnerable to a challenge under TABOR.
Debate throughout the special session took a distinctly partisan edge. Democrats laid the cuts on congressional Republicans and President Donald Trump and called the federal tax bill a de facto theft of benefits from the poorest Coloradans to benefit the wealthiest.
Republicans countered that the federal bill delivered much-needed tax cuts, and they said Democrats sought to yank those away instead of cutting partisan priorities.
Bills on wolves, artificial intelligence
Other bills passed sought to respond to different aspects of the federal bill, formerly known as the “One Big Beautiful Bill Act,” as well as other priorities.
Lawmakers stripped general fund money away from the voter-approved program to reintroduce wolves in the state, though releases are expected to continue this winter. They tweaked ballot language for a measure about taxes for universal school meals to allow that money to go to general food assistance, as well, if voters approve it in November.
The legislature also approved a bill allowing state Medicaid program to pay Planned Parenthood for services provided, after the federal government specifically barred federal money from going to the organization.
The biggest fight of the special session, however, mostly unfolded behind closed doors.
Polis included in his call of the session that lawmakers address concerns swirling around the state’s first-in-the-nation regulations of artificial intelligence after a similar effort in the spring blew up. The rules now in law go into effect in February.
After days of bruising negotiations, lawmakers punted on any new changes and delayed the existing rules from going into effect until the end of June — giving them time to resume the debate during the next regular legislative session in January.
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