The Top Five Takeaways From Gov. Polis’ Budget
By Chris Stiffler
What’s in the budget proposal?
Every year, state law requires the Governor to propose a budget for the coming fiscal year. While this document is long and contains a great deal of important areas of spending, it is simply a proposal. While the Governor’s budget proposal can act as a starting point, the Joint Budget Committee will begin crafting the budget over the coming months, and the governor will decide whether to give that document the stamp of approval.
Though it’s usually thought of as aspirational, many pieces of Gov. Polis’ proposals (e.g. full-day kindergarten) have ended up becoming law. Here are the top takeaways from the governor’s proposal for the coming fiscal year.
The General Fund reserve (should) weather the next recession
The General Fund reserve is like the savings account for the state. The reserve is money set aside in case revenue doesn’t reach estimates or isn’t enough to pay for required spending. Since 1986, Colorado has averaged about a 4 percent annual General Fund reserve. The Governor’s FY 2022-23 budget sets the reserve at 15 percent of General Fund spending, or about $2 billion. A 15 percent reserve would give Colorado much greater ability to weather a “typical” economic recession without making drastic cuts. For example, during the 2001 and 2009 downturns, Colorado’s General Fund revenue fell by more than 13 percent. In those years, the reserve was around 4 percent of state spending, so falling revenue meant cuts to programs, particularly K-12. A 15 percent reserve is likely to give the General Assembly a much larger cushion for the next economic downturn.
“Budget Stabilization” factor will be the smallest since 2013
The budget stabilization factor, a budgeting policy that allows the state to avoid making its full constitutionally required investment in K-12 education, peaked at 16 percent of total K-12 program spending in FY2012-13. The Governor’s budget request proposes an additional $150 million to K-12 above the increase of inflation and pupil growth above this year’s budget. If approved, that additional $150 million could lower the “budget stabilization” factor to 4.7 percent of total program funding. This would be the closest Colorado has been in a decade to paying the full amount required under Amendment 23’s formula of annual growth of inflation and student increases. The Governor also proposes to pre-pay an additional $300 million to the State Education Fund to help maintain that higher level of investment in schools.
Structural deficits in the General Fund remain high
The Governor’s budget emphasizes that the current revenue picture is temporary, and that revenue is expected to return to growth rates closer to the 20-year average in the next three years. This reminder of the temporary nature of the current revenue picture is underscored by a reminder of the impact of TABOR rebates on the state’s ability to adequately fund public services. Because Colorado is not allowed to keep and use the revenue collected from taxes and fees coupled with the costs of services increasing faster than the rate of consumer inflation, the state will soon face a situation where allowable revenue will not be sufficient to cover the cost of ongoing services.
Some large one-time investments
Because of the temporary nature of the current revenue picture, $1.2 billion of the Governor’s proposals are one-time investments coming from federal stimulus dollars and unexpected General Fund dollars over the last two years. This includes $600 million to the Unemployment Insurance Trust Fund, $424 million in clean air initiatives (including an effort to electrify of Colorado’s school bus fleet).
Additionally, the proposal includes $104 million to help offset premiums of the newly enacted paid family and medical leave program. That money is meant to reduce total premium costs by 10 percent for the first six months of the program’s premium requirements.
State government turns to housing
The budget proposal includes $200 million in new state funding to help cities address issues related to increased numbers of people experiencing homelessness. It also includes $400 million for affordable housing, much of which will go to provide infrastructure grants for local communities to build housing.
