Five Takeaways from the Governor’s Proposed Budget Release
Governor Polis released his proposed budget for 2024 on November 1st. The legislature can pick and choose which of the Governor’s suggestions they accept. They could choose to throw out the budget entirely, but the legislature’s budget usually resembles the Governor’s relatively closely, so it serves as an indication of policy and budgetary priorities for the upcoming legislative session. Governor Polis will present his budget plan later in the month, on the 16th. Here are our top five takeaways from the release…
Creative Budget Moves to Address Affordable Housing
The budget proposes several creative ways to fund the “More Housing Now” initiative. The biggest change is a restructuring of the Housing Development Grant Fund (HDGF) to a tax credit. The HDGF provides funding through a competitive grant program for the acquisition, rehabilitation, and new construction of affordable housing in Colorado. By restructuring part of the HDGF into tax credits, instead of grants, the Governor would be able to use the TABOR surplus to pay for the credits, and allow further investments from the freed up budget space into housing — to the score of $35 million. The Governor’s budget also uses marijuana dollars to support accessory dwelling unit (ADU) construction. The budget request would move $18 million of Marijuana Tax Cash Fund (MTCF) money to subsidize local fees associated with ADU construction. The MTCF is funded in part by the 15% special sales tax on recreational marijuana and the 2.9% sales tax on medical marijuana.
Help with Transit-Oriented Upfront Costs
One of the Polis Administration’s goals is to increase transit-oriented development — housing units close to job centers and high-quality transit corridors. The Governor’s budget request invests $65 million into upfront pre-construction costs regarding water and sewer access, as well as boosts Colorado’s Affordable Housing Tax Credit in order to increase affordable housing creation near transit. The budget request would spend $16.4 million to build new workforce housing for around 50 corrections staff in the Buena Vista area.
Free Transit Fares, Cracking Down on Emission Standards, and Electrifying Energy Use
The budget requests $14 million to maintain the Zero Fare for Better Air program and Zero Fare for Youth program. It requests $4.5 million to increase enforcement and compliance efforts against environmental risks in vulnerable communities. The budget also increases compliance and permitting staff to enforce refinery regulation, oil and gas emission standards, and conduct analyses of cumulative impacts in disproportionately impacted communities. There’s $10 million for a refundable income tax credit to implement sustainable agricultural practices, and money for rural communities’ electric grids and rebates for households to electrify their homes.
Finally Paying Down the School Funding Shortfall (Budget Stabilization Factor) to Zero
The proposed budget allows schools to catch up to inflation and student growth, something Colorado hasn’t been doing since 2009. This annual shortfall—called the budget stabilization factor—represents the difference between actual school funding and the minimum voters set with Amendment 23 in 2000. That annual gap reached the billions of dollars in several of the last 14 years. That shortfall has been shrinking in the past two years, going from $321 million last year to $141 million this year. If the Budget Stabilization Factor is at zero, that means Colorado is fully funding schools at Amendment 23 levels. Recent growth in property taxes, with which comes increased local dollars to fund schools, has certainly helped the state fully fund its K-12. Depending on what happens at the ballot in the next couple years, property tax cuts could impact the local dollars that fund schools. The proposed budget suggests taxing short-term rental properties at a higher rate as another revenue option should the state need it.
Other Budget Maneuvers
For years, Colorado’s budget has had a meager General Fund reserve, which is a savings cushion so legislators don’t have to make cuts when the economy slows down. The proposed budget maintains a strong 15% reserve, which is enough to weather a recession without making cuts like the state did during the 2010 recession. The proposal also identified $32 million in cigarette and gaming money that is being counted toward TABOR’s revenue limit. The proposed budget argues this money is collected for local governments and therefore shouldn’t be counted as money subject to the state’s TABOR cap. If it were not subject to the revenue cap, it would leave 32 million more General Fund dollars to spend.
Severance tax is also subject to the state’s TABOR cap, and record high collections ($374 million last year) means bigger TABOR rebates paid from the General Fund. Because severance tax doesn’t go to the General Fund, but does count toward the TABOR cap, it impacts the available cash in the General Fund. The proposed budget asks to transfer $50 million of severance tax collections to the General Fund to boost spending, since the increased revenue is impacting the General Fund regardless.
