Have Colorado lawmakers cried wolf about the state’s budget too many times?
The state legislature, after recently reconciling a billion-dollar “budget shortfall” due mostly to a relentless overspending habit, is now back in the barber chair for yet another fiscal haircut.
And while legislators are still overspending and overpromising, state revenue reductions from taxpayer-friendly policy changes in the recently passed One Big Beautiful Bill Act (OBBBA) are now in play as well. This means politicians have less to spend, while Colorado taxpayers keep more money in their own pockets.
Crying wolf
Beginning at the end of 2024, legislators began sounding the alarm over a $1.2 billion budget hole for fiscal year 2025-26.
What was termed a “shortfall” was actually a combination of cooling inflation, the depletion of one-time COVID-19 relief funds, a slew of new special interest tax breaks, and ballooning healthcare costs, all running smack into Colorado’s constitutionally guaranteed taxpayer protections.
State government was living beyond its means, but instead of facing reality, majority Democrats instead blamed the Taxpayer’s Bill of Rights (TABOR) and the wealthy not paying their fair share.
Contrary to the doomsaying by legislators, the budget was quietly reconciled, and without any significant cuts to healthcare, K-12 education, and higher education (which alone account for over 70 percent of General Fund appropriations).
Beyond that, the state budget, prior to passage of OBBBA, was actually expected to grow by over 3.5 percent, or nearly $1.5 billion, hardly a crisis by conventional standards.
The One Big Beautiful Bill
On July 30, legislative leadership met with analysts from the governor’s office and Legislative Council Staff to learn more about the impacts of the OBBBA on the state budget.
Despite slightly different estimates, both groups of analysts agreed that a significant budget deficit would emerge this year, due to the immediate impacts of the OBBBA on state tax collection.
Ironically, the total lost revenue due to taxpayer-friendly adjustments in federal tax policy amounts to approximately $1.2 billion (about 2.5 percent of the budget); however, the state will likely only need to come up with around $1 billion, as some state tax credits will not be triggered if certain revenue thresholds are not crossed.
Unlike the previous “shortfall,” which was one of wants over needs, this deficit is due to tax relief that takes effect immediately, reducing state revenue due to Colorado’s rolling conformity with federal tax policy.
This basically means Colorado risks not having enough money for the appropriations that were confirmed when lawmakers balanced the budget earlier this year.
What was left unsaid
The OBBBA is by no means perfect, but it does provide considerable relief to most Colorado taxpayers and businesses, albeit at the expense of the state budget.
However, even before this year’s budget was balanced, lawmakers knew they would be facing similar fiscal challenges as last year’s, so long as the state’s structural deficit remains.
So really, legislators are conveniently using the OBBBA as a scapegoat to deflect attention from their own insatiable spending habits, while ignoring the benefit of more money in Colorado taxpayers’ pockets.
Speaker of the House Julie McCluskie was exasperated at the Executive Committee meeting because, in her view, Coloradans had voted for these promised government services, services that must remain sacrosanct regardless of the blatant economic infeasibility.
And indeed, the current political climate in Colorado for politicians is one of having their cake and eating it, too.
Colorado is fortunate enough to have built-in mechanisms to buttress fiscal responsibility, such as the balanced budget and TABOR requirements; yet those guardrails, quite revealingly, are always the enemy of our elected officials.
Now, progressive legislators have added the OBBBA to their list of culprits to blame, despite the bill putting more money back in Coloradans’ pockets, exemplifying the Democrat majority’s true priorities.
Maintaining the freedom and prosperity of Coloradans requires constant vigilance, because under the gold dome, the real wolf wears sheep’s clothes.
