Legislators Begin Budget Negotiations
It’s officially budget season down at the Capitol.
Colorado vests primary responsibility for the annual state budget with the General Assembly. Each year, lawmakers craft and debate the state budget in a bill known as the “Long Bill” (short for Long Appropriations Bill). The process of creating the budget happens throughout the year, not just during the legislative session, and involves multiple branches of state government. This includes the governor, who proposed his own budget plan in November.
The General Assembly’s permanent fiscal and budget review agency, the six-member Joint Budget Committee (JBC) and its staff, prepares the Long Bill each year for approval of the full legislature and signature of the governor. The JBC and its staff exercise the greatest control over the Long Bill and, consequently, a great deal of power over the state budget.
Worth noting is that Colorado must maintain a balanced budget, meaning the state cannot spend more than its revenue, unlike the Federal government.
Each year, Colorado’s budget is based upon projected tax revenue for the year. The Joint Budget Committee (JBC) selected the Office of State Planning and Budgeting‘s (OSPB) March 2023 revenue forecast as the basis for its FY 2023-24 Budget Package. Compared to the Legislative Council Staff‘s (LCS) March 2023 forecast, the OSPB forecast anticipated a bit more optimistic of an overall economic picture.
It’s the first time since 2018 that all six members of the JBC are sponsoring the budget bill. Between 2019 and 2022, the then House Republican member on the JBC, Representative Kim Ransom of Littleton, refused to sign on as a co-sponsor, despite being a member of the committee that crafted it.
As covered by Axios, Colorado lawmakers have put forward a $38.5 billion state budget package that includes discretionary spending increases, tuition hikes and millions more for housing projects. The full 294-page Long Bill Narrative can be found here.
As noted, the annual spending plan for the fiscal year that starts July 1 is based on a rosier fiscal forecast from the governor’s office but comes at a precarious economic moment.
A strong labor market and consumer demand, slowing inflation, and growing business profits point to statewide growth, but the risk of uncontained inflation, a sustained fallout in the financial sector following the shuttering of Silicon Valley Bank and Signature Bank, and continuing geopolitical strains could trigger a recession and result in significantly different projections, economists told lawmakers at the most recent budget forecast in March.
As highlighted in Colorado Politics, the state budget is made up of general funds; cash funds, which can only be used for targeted purposes and of these funds, higher ed tuition makes up the largest portion; and federal funds, which cover matching dollars for Medicaid, for example. The $38.5 billion state budget relies on revenue forecasts presented on March 16th by the governor’s Office of State Planning and Budgeting. It also relies on 30 accompanying bills, known as orbitals, that move along with the long bill – that’s the main budget measure – and are required to balance the budget.
The big picture?
The budget package crafted by the Democratic majority and Governor Jared Polis represents a roughly 6% increase in state spending compared with the current year and includes millions to implement new initiatives and cover the cost of lawmakers’ favorite programs. The general fund reached $16.7 billion in discretionary annual spending, a 9% increase from the current budget.
The state budget has generally grown throughout the years. As highlighted by our colleagues at the Common Sense Institute, total state appropriations per Coloradan, adjusted for inflation, has increased by 28% over the last 20 years from $4,955 to $6,333 in FY2023. Though federal funds account for the largest increase, population- and inflation-adjusted spending from the General Fund and Cash Funds has also increased.
Here are some of the key highlights of this year’s budget proposal:
- The agency with the largest budget is Health Care Policy and Financing, which pays for Medicaid, with a budget of $15.5 billion. That’s $844 million more than in 2022-23.
- Education comes in second at $7.1 billion. However, most of what happens in the education budget will wait until the School Finance Act is introduced in the coming weeks. That bill will include adjustments, for example, to the budget stabilization factor, a debt to K-12 education that has existed since 2012. Currently, the debt stands at $321.2 million, down from its high in 2020 of $1.15 billion. Gov. Jared Polis sought $104.2 million to reduce the BS factor for 2023-24; he has pledged to pay it off within the next couple of years. Those dollars will come from the State Education Fund, which is not included in the budget bill.
- The rollout of the state’s new preschool program is becoming more costly. To get providers to join the program, the state wants to offer $2.5 million in bonuses.
- The School Finance Act set to be introduced in the coming weeks will also affect the education budget. That bill will have adjustments for the budget stabilization factor, which is the amount of money that lawmakers owe schools based on a funding formula but choose not to prioritize. The Long Bill does include, however, an increase of $485 million in funding over last year, which comes out to about $900 per pupil.
- The budget for the Department of Corrections exceeds $1 billion. That first happened in the current year’s budget, the result of additional dollars added in the mid-year budget adjustments.
- Higher education institutions will be allowed to increase by 5%, the largest such hike since the 2017-18 fiscal year. Polis had asked for 4%, noting that such an increase is still well below the rate of inflation.
- Democrats left a placeholder totaling $221 million for unspecified housing-related legislation, including proposals to build more affordable housing and provide temporary property tax relief.
- Lawmakers backed the governor’s request to add more money for crime fighting but didn’t give him everything. A $5 million set-aside for an auto theft prevention effort is far less than the $12.6 million Polis wanted.
- The budget plan includes $15 million for the creation of an Office of School Safety to increase the state’s focus on the issue and consolidate efforts across departments.
State law requires the JBC to budget using current law. But the panel traditionally sets aside money in the budget to cover bills still moving through the legislative process. This year’s initial set-aside for legislators was $30 million, $10 million less than last year, a reflection of the tight situation budget writers expected themselves in.
However, thanks to some miscalculations, the JBC was able to dig in their couch cushions the last week to find additional money as a set-aside for potential new legislation – meaning don’t necessarily bank on a big fiscal note being the marker-of-death for a bill this year.
So, what happens now?
The Senate has been working on the long bill and orbitals throughout the week. The Senate on Thursday officially approved the state’s $38.5 billion budget for 2023-24 on a bipartisan 28-7 vote.
The Senate also approved the accompanying “orbital” bills that help balance the budget. Wednesday’s floor action on the budget included 17 amendments that added $85.5 million to what was initially a balanced budget.
The budget bill now heads back to the JBC, which will likely strip off the amendments from the Senate and send a clean bill to the House, who will start work on the budget next week.
READ MORE ON THE PROPOSED STATE BUDGET
We Need Your Help! Take Action Against House Bill 1192
Attorney General Phil Weiser and Representative Mike Weismann’s bill, House Bill 1192, is a lawsuit factory for Colorado. The bill is scheduled for a committee hearing on Wednesday, April 5th, 2023.
This bill is beyond bad for the Colorado business community. What was initially designed to be legislation focused on reigning in anticompetitive practices has now moved into the dangerous direction of becoming a litigation nightmare.
The bill would have a devastating impact on Colorado’s economic health. If HB-1192 passes as written, navigating any business dispute in Colorado will lead to more costly and frivolous lawsuits, padding the pockets of high-cost attorneys.
Section 1 of the bill changes the legal risks for day-to-day business. And we’re most concerned about how that impacts our already problematic environment with construction defects.
In the Senate Judiciary committee hearing, lawyers for builders are so concerned they said that they would advise their clients to stop building because the legal risks are too great.
Insurance won’t cover Colorado Consumer Protection Act (CCPA) claims because insurance policies do not cover claims of fraud, which consumer protection claims qualify as.
Section 1 would allow these claims to proliferate and would create a huge insurance liability for the business community. Because CCPA claims aren’t covered, plaintiff’s attorneys will be able to force a settlement they might otherwise not win.
We’re concerned that Section 1 would decimate housing by making new-builds uninsurable and make CCPA lawsuits a growth industry. Because builders will be scared away from taking projects – leaving our housing supply even more decimated than it is now.
We need housing. And this bill would undercut all of the work Senate Bill 213 attempts to do.
Proponents also claim that other states have lower standards without a frivolous environment. That’s a half-truth. Each state has unique consumer protections. For example, DC, MD, ME, MI, NE, OK, SD, WV, and FL do not require proof of intent but do not allow multiple or punitive damages.
We have a tough statute with big windfalls because it’s proportional. Other states have different Consumer Protection Standards AND different payouts or filing requirements.
Ultimately, Section 1 of this bill will adversely impact small businesses, health care, housing development, and any industry where business transactions don’t go as planned.
Tell Mike and Phil to Fix Their Bill!