Colorado’s state budget is slated to be introduced on Monday, three days ahead of deadline. What a difference a year makes.
The spending plan, which insiders call the Long Appropriations Bill, will look dramatically different from that of the budget year that ends on June 30.
If last year was about cutting, this year is about stitching things back together with optimism, leftover money and federal dollars.
The Joint Budget Committee (JBC), the six members who hold hearings and write the first draft of the state’s spending plan, spent the week after the March 19 revenue forecast looking for places to put money. The forecast was sunnier than what they had expected, based on December reports.
That’s meant happy faces, or at least relieved ones.
The committee proposes lawmakers use the windfall to prepay some big-dollar obligations, build up the state’s savings to record levels and boost the money available for a Colorado stimulus package announced last month.
“It’s a much better time to be on the budget committee,” said Sen. Dominick Moreno, a Commerce City Democrat who chairs the JBC. “It feels good to be able to restore those difficult cuts and decisions” from a year ago.
It will be up to the 100-member General Assembly, however, to decide the final budget that lands on the governor’s desk.
That sets up hot and long-winded discussions over priorities and thrift over the next two weeks, as the Long Appropriations Bill and several dozen orbital bills (measures that change state law in order to balance the budget) move through the Senate first, then the House, before the two chambers negotiate the differences.
The next budget sets a foundation for a comeback, as Moreno characterized it.
“It’s a responsible budget that doesn’t put us in any greater financial jeopardy and really built on us to come back better than before,” he said.
Last year, the decisions weren’t about spreading the stimulus wealth, but about having no wealth at all.
On the last day of making spending (or cutting) decisions, JBC members and some of their staff tried (and sometimes failed) to hold back tears as they identified ways to cut $3.4 billion in general funds, about 25% of the total available.
It was slashing funds from K-12 education that was the hardest, especially for JBC members who have longstanding commitments to improve education funding. Instead, schools took a $572 million cut.
The K-12 debt became a top issue when the budget process began anew after the September revenue forecast and the November elections.
JBC vice chair Rep. Julie McCluskie, D-Dillon, told Colorado Politics that after May and June of 2020, and having to bring forward a budget with so many significant cuts, the hope was that as they started the budget process for the next year, they would be able to restore as much funding as possible, especially for grades K-12 and higher education, which had been hardest hit.
“Being able to restore that funding was a priority for all of the JBC going into budget season,” she said.
As the fiscal year progressed, forecasts improved, she said.
And while there is still a lot of risk of economic concerns, the JBC wants to be thoughtful about the next few years.
The March 19 forecast, McCluskie said, “told us the bounce-back has been pretty strong.”
Last year lawmakers were in a mad scramble, and Moreno suspects the cuts were deeper than they needed to be.
“In this year’s budget, we restored the vast majority of those reductions,” Moreno said. “It felt good to do that, compared to the awful place we were in a year ago.”
While the state’s economy and Coloradans recover from the pandemic, lawmakers are working on their second stimulus package with dollars left over from 2019 tax revenues, which came in higher than expected. Those leftover funds are categorized as “one-time only,” because they have to be used for one-time investments rather than continuing obligations, such as new programs or even existing programs.
Also in play: $3.9 billion from the American Rescue Plan, a federal stimulus bill signed into law on March 10. While Colorado is expected to see about $27 billion total, it’s split into a myriad of purposes, from state and local government to K-12 schools and higher education and even infrastructure.
It’s making the upcoming year budget unlike any other.
Most recessions take three to four years to recover from, such as the 2008 Great Recession and series of smaller downturns in the early 2000s.
The factors laid out by state economists indicate the worst of the recession is already over.
Combine that with revenue forecasts that indicated those earning $60,000 or more a year — who usually pay much more in income taxes than those earning less — saw little or no losses to the recession.
The upcoming budget reflects an uneven prosperity.
Senate Majority Leader Steve Fenberg, D-Boulder, said he and other legislative leaders are feeling hopeful and relieved headed into this year’s budget debate.
“I think everybody is sort of taking a little bit of an exhale in relief with where we are financially right now as a state,” the majority leader told reporters. “I don’t think any of us expected that we would be able to restore all of the major cuts within a year of making them.”
It’s a juggling act for sure, one that required JBC members to figure out what had to be paid for in next year’s budget, which also has lots of one-time money to spend, and how much can be pushed off to upcoming federal stimulus money.
The first pot of money is $700 million in stimulus expected to be left over from the current budget, plus an additional $100 million added by the JBC.
The state stimulus, also known as the Colorado Recovery Plan, is intended to address five major goals: strengthening small businesses, revitalizing infrastructure, supporting families, investing in rural Colorado and workforce development.
Under those five goals are 40 proposals, some contained in legislation yet to come, some in legislation already in the works and several that were nearing the finish line when the package was announced on March 10.
Polis signed the first bill identified in the package, Senate Bill 110, on March 19. The measure puts $30 million into “revitalizing Main Streets,” an existing program within the Department of Transportation that provides grants to small communities to improve safety along non-freeway corridors, including expanded multimodal forms of transportation.
The next pot of money is Colorado’s $3.9 billion share of $1.9 trillion American Rescue Plan. JBC members told Colorado Politics that they’re still waiting for federal guidelines on how those dollars can be spent.
A March 19 memo from JBC staff and Legislative Council economists stated the $3.9 billion could be spent by the General Assembly.
Fifty percent of those dollars are scheduled to show up in the state’s bank account about 60 days after “an authorized officer of the state (the state controller) makes the appropriate certification to the secretary of Treasury.”
The money must be spent by end of 2024, giving lawmakers leeway, at least in terms of time. The second payment is expected about 12 months after the first.
Controller Bob Jaros will make that certification once he receives notice from the U.S. Treasury, although that agency has not indicated a timeline for that certification.
Additional dollars from the federal stimulus are headed to K-12 and higher education in Colorado: $1.12 billion to primary education and $480 million to secondary and postsecondary learning.
With federal dollars in hand, lawmakers could redirect the state’s recovery money elsewhere. Federal aid also could backfill previous cuts and expenses caused by the pandemic.
Sen. Bob Rankin, R-Carbondale, the JBC’s senior member, said he hopes the committee is “very involved in stimulus spending, both at the state and federal level, and on behalf of the legislature.”
Fellow Republican committee member Kim Ransom, a House member from Littleton, said the state shouldn’t earmark that money until it understands the federal limitations.
It’s possible the guidelines and the dollars won’t show up in Colorado until after the legislative session ends.
Special spending session?
Senate President Leroy Garcia, D-Pueblo, said that could mean a special session, one either called by the governor or by the legislature with a two-thirds vote. Garcia said he believes the votes in the General Assembly would be there for a special session.
The federal money will be an interesting calculation, Moreno told Colorado Politics.
“We balanced this budget outside of and without much consideration for those federal dollars, mostly because so much is still uncertain,” he said.
Then there’s the third pot: the general fund dollars in the 2021-22 budget. The JBC, using the forecast from its legislative council economists, had about $2.3 billion in general fund left over from the current budget. Combined with an expected $13.8 billion in general fund revenues, that left a working general fund budget of $16.1 billion, the highest general fund available in state history. But that $2.3 billion is one-time money that cannot be used for ongoing obligations.
The JBC came up with an idea not tried before: prepaying future obligations, although technically those dollars are “set aside” to cover those payments.
It’s to ward off what legislative council and the governor’s economists have been warning will happen in the next couple of years: a structural deficit that could mean another round of belt-tightening, though not as much as in the pandemic-affected budget.
The future obligations that the JBC voted to pay for include $380 million for the annual payments tied to the Public Employees’ Retirement Association. Those annual payments are $225 million; the state skipped the 2020-21 payment during budget-cutting.
Another $5.6 million would pay off a portion of the state’s obligations on the Anschutz medical campus. By doing that, the state would prepay about $2.3 million that would otherwise come out of the 2022-23 budget, according to Sen. Chris Hansen, D-Denver, who, with Rankin, was in favor of prepaying obligations as much as possible. That also saves the state about $500,000 by paying some of that debt early, Moreno said.
A third decision would set aside $124 million for bonds for the Department of Transportation.
A real rainy-day fund
The biggest decision of all: Not just refilling the General Fund reserve that was in effect cleaned out to balance this year’s budget, but to make the reserve a real rainy day fund that could be far more useful in future down years.
The amount approved, one of the last actions the JBC took before closing out the budget on March 26, is 13.54% of general fund, or $1.7 billion, the largest in state history. The plan in the following two fiscal years is to bump it to 15%, or about $1.9 billion.
A March 25 JBC staff memo on reserves pointed out that Colorado’s reserves in 2019 would cover barely more than a month of spending, far short of the national average of 49 days. However, the state’s revenue volatility means that the reserve should be above the national average, the memo stated.
Moreno called the new reserve level “astonishing,” for a state that has always lagged in savings.
“This brings us up to the median,” he said.
The JBC also added $101 million to the Taxpayer’s Bill of Rights reserve, which includes a variety of funds, such as the disaster emergency fund and capital assets, including a long list of state buildings.
“It’s an amazing moment, to have this money return” as fast as it did, McCluskie said. “We were thinking that with the long-term perspective, where can we make quick investments now, get people back to work, support those who are still struggling with housing, food and utility needs.
“We’re protecting the state for the future and making short-term investments now.”
Rep. Leslie Herod, D-Denver, hopes to steer more equity into the Department of Higher Education.
Herod, working with McCluskie, came up with a plan to boost funding at “access” institutions — primarily Metropolitan State University of Denver and the community college system — that serve underrepresented minorities, low-income and first-generation college students.
Higher education is expected to regain much of what was cut last year, a 4.7% base increase of $81.8 million.
The total increase for higher education is $100.3 million, but while the motion to approve the funding passed, it didn’t have Ransom’s support. She told the committee there were pieces of that package she and her caucus supported, and some pieces they didn’t.
McCluskie said that she and Herod worked together on the higher-ed equity issue, “an investment to support the students who needed it most,” she said.
The other priority, getting K-12 funding back on better footing, is in line for a boost, too. The proposal for the budget stabilization factor is to pare it down to $572.4 million, down from the historic high of $1.16 billion, although that’s something that will happen through the School Finance Act, not the Long Appropriations Bill.
And while there isn’t any new money targeted for K-12 in the upcoming budget, the state education fund will have a healthy balance of around $460 million, McCluskie said, one that will allow the state to protect the restoration, and avoid increasing the debt to K-12 and for a year or two after that.
Herod told Colorado Politics K-12 education and higher ed weren’t the only areas that saw targeted funding for equity.
“We have a budget this year that focuses on equity,” she said proudly on Monday. “With every single decision we made we thought about equity,” and whether there was an appropriate place to insert an equity lens, and more importantly, funding.
Race and equity
Herod, chair of the Black Democratic Legislative Caucus, is the newest member of the budget-writing committee. Equity has been her focus.
The JBC this year moved money into the Colorado Department of Public Health and Environment on a pledge to define racism as a public health crisis.
For Herod, also a champion for reducing the state’s prison population, among the biggest achievements is holding funding flat for the Department of Corrections and reducing prison beds. This is the first time DOC is not increasing its budget, Herod said. “We are allowing for more flexibility in the system to consider potential closures. We also ensured money would be available within DOC for mental health, substance abuse and job placement,” the latter which she said is part of a huge equity lens for success.
Within corrections, the Legislative Council revenue forecast predicted the state would need an additional 697 beds in 2021-22, but said those beds could be covered by existing vacancies within the corrections system. Vacancies have been bolstered by recent legislation intended to reduce prison populations and limited efforts for early release due to the pandemic. The state’s prison population is now at a 22-year low of 15,828 as of February, 2021, according to a JBC staff memo.
Ransom’s wish list included seeing a major reduction in the state’s waiting list for 24/7 services for adults with intellectual and developmental disabilities.
The state pledged to eliminate the 3,000-person waiting list in 2020, but then the pandemic hit, and all bets were off. The next state budget, while not eliminating the list entirely, will make a substantial dent, reducing the number of people waiting for program services by more than 600.
“I was very pleased to get that action taken,” which had bipartisan support, Ransom said. “It appeals to every single person in this building” and fits within the role of government, to take care of those needs.
McCluskie looked back and looked ahead to something “more sedate and tranquil,” as she metaphorically closed the books on drafting the next Colorado spending plan.
“I’m looking forward to a normal year,” she wished out loud. “This was a wild swing in the other direction.”