For the third consecutive year, Gov. Jared Polis is summoning Colorado lawmakers back to the state Capitol for a special session — this time to close a yawning budget gap ripped open by the federal tax bill.
Lawmakers will return on Aug. 21 for a session that lasts a minimum of three days, Polis announced Wednesday morning during a news conference at the Governor’s Residence in Denver. They’ll be tasked with cutting or finding roughly $783 million to offset the net loss in revenue this fiscal year, which ends next June, as a result of the tax bill passed by Congress and signed into law by President Donald Trump last month.
The hole is significant, representing more than 4.5% of the state’s general fund budget, and the revenue loss is larger than the loss felt during the 2008 financial crisis.
State officials last week had estimated the general fund shortfall at nearly $1 billion, but they lowered the general fund impact to $783 million in updated projections released Tuesday. Polis told The Denver Post in an interview ahead of his news conference that state officials were “not expecting, at this point, any furloughs or layoffs.”
In his formal announcement Wednesday, Polis said he would implement a state government hiring freeze, starting later this month and running through the end of this year. To fill the shortfall, he called on lawmakers to “restrict spending, enhance revenues and use a modest portion of the state’s rainy day reserves.”
Specifically, Polis’ office wrote that he wanted to allow some businesses to prepay their taxes; to limit who can access other tax deductions; to adjust a unique, $80 million annual tax reduction for the insurance industry; and to expand limitations on corporations parking their earnings in foreign countries to avoid tax liability here.
Ultimately, the legislation passed will be subject to negotiations between Polis and lawmakers.
In the Wednesday morning interview, Polis said the hiring freeze would save between $3 million and $7 million. If the legislature were to adopt all of the revenue-raising proposals Polis put forward, that would account for another $300 million, and his office recommends tapping 2% — or another $300 million — in reserves.
But that still leaves nearly $200 million in needed cuts, while assuming that all of the changes to the tax code that would raise revenues are adopted. The money taken from the reserves would also have to be paid back in the coming years.
“The approach here is a balanced approach that would involve major spending cuts, new revenue and limited use of reserves, as we long as we can pay it back,” Polis said. “The less revenue there is, the more the cuts will be.”
He also asked legislators to tackle changes to Medicaid and food assistance, both of which are set to lose significant amounts of federal funding in the coming years under the tax bill. He called out assistance for Planned Parenthood, from which the tax bill specifically aims to strip funding. Lawmakers had already begun drafting legislation to provide emergency support to Planned Parenthood this year.
In addition, Polis is charging legislators with addressing the state’s artificial intelligence law, which goes into effect in February. The governor had previously sought changes to the law, which seeks to prevent discrimination by AI systems, amid industry pushback against the coming regulations.
But the state Senate’s Democratic majority leader, Robert Rodriguez, who backed the law when it first passed, dropped his own plans to reform the regulations in the spring. A last-ditch attempt to ram changes through in the dying hours of the regular legislative session in May also collapsed.
When the regulations were passed in 2024, nonpartisan legislative analysts estimated the law would require no state money to implement. Polis’ office announced this week that it now believes the bill will cost up to $5 million.
Wednesday’s announcement is of little surprise. Congress had been expected to cut Medicaid this summer, so legislators were bracing for an early return to the Capitol since before the regular session ended in the spring. That expectation solidified after the tax bill passed, and the governor’s office erased any remaining doubt last week, when budget officials told legislative leadership about a then-projected $955 million hole — and warned that each passing day made it harder to shore up the state’s budget.
Democratic lawmakers, who have near-supermajority control over both legislative chambers, have met repeatedly in recent days to discuss potential solutions. Lawmakers formed several working groups related to the budget, as well as to Medicaid and food assistance.
During calls this week, lawmakers also discussed further pulling the state away from the current reality in which its tax system closely mirrors the federal tax code. They also floated closing certain corporate-friendly loopholes and incentives, which Polis alluded to in his announcement.
State officials told lawmakers last week that nearly $770 million of the lost revenue this year comes from corporate tax breaks.
“There are things that just happened (in the tax bill) that are big giveaways to big business that … we didn’t agree to do in Colorado, but they’re impacting us, in some cases to the tune of hundreds of millions of dollars,” Sen. Mike Weissman, an Aurora Democrat, told colleagues Monday. Weissman leads one of the Democratic working groups. “So we will need to take a look at that, whether sooner or later during the regular session.”
Republicans, meanwhile, have sought to blame the budget situation on Democrats, and they castigated last week’s budget presentations as “partisan deflection.”
Lawmakers could theoretically raise revenues by sending a ballot measure to the state’s voters to ask for some sort of tax increase. But Democratic legislators have shown little interest in that option, given the difficult politics of seeking tax hikes, the short timeframe between now and November, and the smaller electorate that typically participates in an off-year election.
This is a developing story that will be updated.
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