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Balancing the Scales: Colorado's Budget Deficit Dilemma

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As I mentioned in my last newsletter, I have been reappointed to the JBC for the next two years. 


Colorado is facing a significant budget deficit, projected to range from $700 million to as much as $1 billion. As we have done our preliminary review of each of the 23 state departments, the picture is becoming more clear that this range is accurate. However, the biggest unknown in the overall picture is enrollment and per capita spending for Medicaid. 


In addition, for the past several years, the majority party has introduced an onslot of new programs, many of which were initially dependent on Federal ARPA funding, which has now been exhausted. Essentially speaking, they have expanded programs beyond our means to fund. This structural deficit poses critical questions about how we can maintain essential services, and invest in our future while ensuring financial stability for our state. 


Per our constitution, the state operates on a balanced budget. Having said this, at this time of the year, we are balancing two years of a budget. We are reviewing supplemental requests for the 24-25 year, which are made up of unforeseen demands on the budget since its adoption in May.  At the same time, we are reviewing the requests from the Governor and State Departments for the 25-26 budget year. The supplemental requests coupled with the Governor’s request for 25-26 are the major factors in our $700 million to $1 billion deficit.  Below are a few major contributors to the deficit.


FY 24-25 Budget

One-time supplemental requests

At the end of May 2024, per the constitution, the budget was balanced. However, due to caseload changes in Medicaid, Corrections,  and K-12 enrollment,  the 24-25 supplemental requests have totaled approximately $235 million. Medicaid alone represents more than half of the $235 million at $130 million.   



FY 25-26 Budget

Proposition 130 (Back the Blue) Requires $350 million of additional general funds for local law enforcement agencies to improve their recruitment and retention as well as provide families with a one-time benefit for peace officers killed in the line of duty. Medicaid Medicaid is a state entitlement program. The department that manages Medicaid has requested $450 million more than their FY 24-25 request. This is due to higher usage, particularly in long-term care, the complexity of medical treatments, and an increase in enrollment.


In order to balance the current year, the Governor is proposing a temporary reduction to the General Fund Reserve requirement in FY 2024-25 to accommodate the $235 million supplemental requests. I do not agree with this approach, as it goes against the state's 15% statutory reserve. The Governor also proposed that the $350 million necessary for Proposition 130 should be funded from the reserve. Between the 24-25 supplementals and Prop 130, this would impact our reserve by a total of $585 million, which is over 25% of our current reserve. Please keep in mind, that the reserve is in place for the rainy days caused by a significant downturn in the economy, not to fund overspending. We must find a way to decrease spending while maintaining essential services. Failing to address the root issue risks fiscal instability and postpones tough decisions, worsening the problem over time. I will be sure to keep you all updated as the budget process progresses. As always, please reach out if you have any questions or concerns. Together, I’m confident we can find thoughtful, sustainable solutions that truly serve the best interests of all Coloradans.


Sincerely,

Rick


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