DENVER | Colorado is facing a $373 million budget shortfall next year, despite a healthy state economy that has an unemployment rate of 4 percent. Years of uncoordinated fiscal policies, spending restrictions that require refunds to taxpayers, and mandated funding for schools are among the moving parts colliding to create the budget deficit, the governor’s budget staff says.
Lawmakers and Democratic Gov. John Hickenlooper still have many months to deliberate the budget before approving it next spring. And two more estimates of tax collections before then could the move numbers around. However, the budget plan Hickenlooper released Monday serves as a roadmap for discussions.
The state’s total budget, which includes federal funds, is about $27 billion, and the general fund, which is comprised of state tax revenue, is $10.4 billion. Here’s a look at how the shortfall materialized and what the plans are to deal with it. Next year’s budget takes effect July 1.
WHAT LEAD TO THE SHORTFALL?
Before lawmakers even begin deliberations, the budget for next year includes $830 million in new spending the state must honor, said Henry Sobanet, the governor’s budget director. There’s $301 million in new funds budgeted to schools to keep up with inflation and enrollment growth; $289 million in taxpayer refunds, which are constitutionally required under the state’s Taxpayer’s Bill of Rights, or TABOR, when revenue exceeds the rate of population growth and inflation; $80 million for new Medicaid enrollees; and $160 million to pay back money the state is using from its budget reserves to deal with a shortfall in the current budget year, which resulted in part because of a slight slowdown in the economy this spring as the oil and gas industry decreased production.
While there’s $830 million already spoken for in next year’s budget, the state is expected to bring in only $457 million in new revenue, hence the $373 million shortfall.
WHAT’S AT STAKE?
Hickenlooper said this week the state must make tough choices to balance the budget. The governor’s plan suggests several moves to close the $373 million deficit.
Higher education, which has a state budget of $857.4 million, could see its funding reduced by $20 million, possibly resulting in higher tuition for students. Funding for state building projects could be reduced from nearly $272 million to $58.5 million.
To help with school funding, which takes up a big portion of the general fund at $3.5 billion, Hickenlooper is suggesting using nearly $240 million from a state’s rainy day fund for education, bringing the account’s balance down to about $103 million.
HERE’S WHERE IT GETS TRICKIER
One major point of contention in Hickenlooper’s plan will be a legal maneuver he’s proposing to reduce the amount the state’s collects from a fee charged to hospitals for occupied beds. The collected fees are used to get a federal match to help with Medicaid costs. Hickenlooper is suggesting capping collections at $656 million, instead of an anticipated $756 million. The $100 million that is not collected would reduce the state’s refund liability to taxpayers because the money would not count as revenue that exceeds Colorado’s TABOR limit. But that reduction in fee collections also means hospitals would lose $100 million in federal matching dollars to serve Medicaid patients.
Republicans view the charges to hospitals as taxes disguised as fees to get around TABOR’s requirement that taxes be approved by voters. And they’ve said they will not support any plans that reduces refunds to taxpayers, so Republicans who control the Senate could kill that portion of Hickenlooper’s budget-balancing plan. If that happens, lawmakers will have to find $100 million to cut from elsewhere, the governor’s office says.