Source: The Denver Post
For the third time in two years, Colorado’s budget-writing lawmakers are close to filling a gobsmacking budget gap — this time, a $1.5 billion shortfall in the general fund for the state’s next fiscal year.
It’s a hole that will swallow Medicaid benefits, substance-abuse programs, a portion of the state’s rainy-day reserve and hopes for across-the-board salary increases for state workers, just for starters.
The Joint Budget Committee’s half-dozen members finished their extensive preparatory work on the annual spending plan last week. Now legislative staff is busy converting their many decisions — made over the course of several months — into the formal state budget proposal, which should land at about $18.6 billion for the general fund that covers most day-to-day operations. When the legislature unveils the massive bill this week, the depth of the cuts for the upcoming fiscal year will come into focus.
But nobody involved in the budget process is kidding themselves: Colorado’s budget challenges will persist after the 2026 session, especially as costs in the Medicaid program continue to rocket up.
Since the COVID-19 pandemic, the state budget has whipsawed between a need for slashing reductions, then to a roaring economy bolstered by an influx of federal cash — easing pressure on the budget significantly — and now, to a recent history of year-over-year cuts. Lawmakers closed a large budget gap last spring and then again in August, when they gathered in a special session to grapple with the fallout of tax code changes foisted on the state by recent federal legislation.
In flush times, lawmakers have bolstered services and created new programs to meet what they see as voter demands. In the red years, they’ve scoured cash funds to plug holes and ended programs so that they could soften the impact of cuts forced by the growth in ballooning, must-spend imperatives like health care — including Medicaid.
The most recent budget crunches have been characterized by the majority Democrats as a battle against a structural deficit exacerbated by the constraints of the Taxpayer’s Bill of Rights. Republicans, meanwhile, point to what they see as a lack of budget prioritization by the party in control, whose members have been too eager to expand government, despite constitutional limits on growth.
This budget, for the fiscal year that begins July 1, will be the latest entry in that saga.
Over the past several months, budget writers have agreed to let state universities raise tuition at a higher rate to make up for lagging state cash, and they’ve agreed to cut overall compensation for most Medicaid providers — a decision that balanced fiscal needs with risks to the overall health care system. They have rejected salary increases for most state employees, though they’ve found money to absorb the increase in health insurance costs so that paychecks didn’t actively shrink. They’ve also looked at cuts to substance use disorder treatment programs, too.
Colorado is going to continue facing budget struggles as long as voters want both expanded services and limited spending under TABOR, said Bethany Pray, the chief legal and policy officer at the Colorado Center on Law and Policy, a left-leaning anti-poverty organization. The state constitutional amendment, passed by voters in 1992, requires voter approval for tax increases and allows state revenue collections to rise only as fast as general inflation and in line with population growth, with anything over that cap refunded to taxpayers.
“We have a red-state budget and we have blue-state ideals, and that doesn’t work very well,” she said.
Over the past decade, the state’s direct revenue collections have increased from about $12.8 billion — or about $17.5 billion in inflation-adjusted dollars — to an estimate of about $19 billion in the current fiscal year, which runs through June 30.
The overall budget, including the federal funds that make up the bulk of state spending, was about $26.6 billion in the 2015-16 fiscal year, or about $36.4 billion when adjusted for inflation. That has grown to nearly $44 billion in the 2025-26 fiscal year.
As the state’s revenue has grown, so have the services the state promises to residents. Those costs have included efforts to boost education spending, to grapple with rising prison populations and to expand behavioral health services.
But Medicaid, and the expansion of eligibility and what the health insurance program for low-income Coloradans covers, has been a particular pressure point.
Because of Colorado’s unique spending cap under TABOR, every dollar spent on Medicaid is effectively a dollar that can’t be spent on other services, no matter how much money the state otherwise brings in.
‘Unsustainable’ growth in Medicaid
Medicaid accounts for a third of the state’s general fund budget — similar to the national average among states of 30.7% — meaning that passing large spending reductions without touching it is practically impossible.
In addition, the insurance program, which is a safety net for low-income people and those with disabilities, has grown significantly faster than the state’s overall budget. Kim Bimestefer, the outgoing executive director of the state Department of Health Care Policy and Financing, described the recent annual growth rate, which ranged from 8% to 13% in most years since the pandemic began in 2020, as “simply unsustainable.”
Bimestefer announced last week that she would resign in early April as the state Senate prepared a no-confidence vote, which was motivated in part by revelations of program overpayments and allegations of fraud by some providers.
In the larger picture, more than half of the state’s total general fund growth over the last six years has gone to the Medicaid department, according to legislative staff. Over the past decade, the total budget for Health Care Policy and Financing has doubled, from $9.1 billion to $18.2 billion. More than half of that total comes from federal dollars.
According to an analysis by Gov. Jared Polis’ office, the cost of Medicaid services has grown by 8.8% per year, or double the overall growth rate allowed by TABOR, over the past decade.
Other states have also struggled with rising Medicaid costs since the pandemic, and Colorado ranked 22nd among states in terms of the highest growth rates since 2020. Over a longer period, however, the state does appear to be an outlier, with the 15th-highest growth rate since 2015 and second-highest since 2010.
On average, states’ spending on Medicaid grew 5.3% in the 2024 fiscal year and 8.4% in the current fiscal year, according to data compiled by the National Association of State Budget Officers.
All states are dealing with increasing Medicaid costs because their populations are aging — and older people tend to have the most expensive needs, especially for long-term care, said Jason Schrock, a principal researcher at the Institute of Evidence-Based Policy. At the same time, wages are up for the workers who provide that care, and prescription drug costs also keep rising, he said.
In Colorado, the cost of long-term care services grew by 44% — or more than $1 billion — between the 2020-21 fiscal year and 2023-24 fiscal year alone.
State lawmakers and Polis administration officials committed to increasing access to behavioral health care, so much of that growth reflects improving access to needed services, said Isabel Cruz, the policy and advocacy director at the Colorado Consumer Health Initiative.
In other cases, such as with the nonemergency medical transportation program that shuttles some Medicaid patients to appointments, the state apparently missed signs of fraud, she said.
“I think there are some aspects of that (spending growth) that could have been preventable and some that are by design,” she said.
But still, the size of the Medicaid budget — and the need to rein in its spending before it consumes the bulk of the general fund budget — has spurred lawmakers to use their scissors there. Rep. Kyle Brown, a Louisville Democrat who is in his first year on the budget committee, said he’s spent his career fighting for affordable health care as a right, not a privilege.
The cuts there have been particularly painful, he said.
“The nature of our budget means that we’re having to make painful cuts — cuts that, quite frankly, will affect kids and families, and that hurts me a lot,” Brown said. “But it is the nature of our constitutional duty and the nature of not having enough money to fund the kind of services that Coloradans really need.”
‘It’s complicated how we got here’
The other departments in the “Big Six,” or those that account for the largest shares of state general fund spending, have also seen growth that outpaces TABOR’s allowance. Those other departments are education, higher education, human services, corrections and judicial. Including Health Care Policy and Financing, the departments together account for about 90% of the state’s general fund budget.
Some of that structural deficit was papered over by the influx of federal funds — more than $6.6 billion — that came during the COVID pandemic, nonpartisan staff found, even though that one-time money largely went to one-time services. Even still, it simply freed up money to close the state’s growing structural deficit, without addressing the underlying issues.
But the state budget is also a massive, complex thing that accounts for billions of federal dollars, grants, cash funds and more.
That complexity means there isn’t a single thread to pull that would untangle the annual spending deficit the state has faced, analysts wrote in a January memo on the budget shortfall.
“It’s complicated how we got here,” said Sen. Judy Amabile, a Boulder Democrat on the budget committee. “Basically, we have TABOR and we have been doing all these TABOR workarounds over the years — and we have created a whole budgeting and accounting system and fiscal policy around the constraints of TABOR. And now we have pushed so far that there’s less and less places to go.”
Rep. Emily Sirota, the chair of the Joint Budget Committee, noted that the budget forecasts lawmakers rely upon are just predictions, bringing uncertainty — and budget writers have tried to match their spending plans to them.
“Everybody was making the best decision that they could at the time,” she said.
And more importantly, she said, echoing a point also made by Amabile, Coloradans have wanted more from their state. They wanted an end to the budget stabilization factor, the accounting maneuver that allowed the state to spend less on K-12 education than mandated by the state constitution. They wanted more services covered by Medicaid. And they wanted more robust behavioral health care services.
“I don’t think that Coloradans would have accepted us saying, ‘Let’s just keep underfunding these priorities,’ ” said Sirota, a Denver Democrat.
But Sen. Barbara Kirkmeyer, a Brighton Republican on the committee, called it “a crisis of priorities” and blamed “one-party control” of state government.
Democrats won control of both legislative chambers in 2018 and have occupied the governor’s office for more than 19 years. She rejects the argument that the TABOR cap has been the big problem.
The state simply needs to find a way to live within its means, in her view.
“They just want to overtax, overspend and underdeliver,” said Kirkmeyer, who is running for governor this year.
The majority Democrats’ priorities have also, at times, cost more than predicted.
In one notable case, a program providing health coverage through Medicaid to immigrants without legal status was expected to cost the state general fund about $14.7 million this fiscal year to cover about 3,700 people. Now, it’s predicted to cost $105 million, with nearly 28,000 enrollees. The overage in the program, called Cover All Coloradans, was first reported by The Colorado Sun.
Sirota said she regretted that fiscal analysts “grossly underestimated” the cost of the program — though she and other Democrats defend it, even with the massive cost overrun. Now, budget writers need to figure out how to put the program on a sustainable path, possibly by limiting its availability in future years.
“At the end of the day, they’re kids and pregnant people who are deserving of health care just like anyone else,” Sirota said of program participants.
The Department of Health Care Policy and Financing has also made costly errors.
For years, the state paid transportation providers as much as 10 times the appropriate rate to pick up Medicaid patients who use large wheelchairs, and the department estimated that correcting the mistake would save $33 million over roughly six months. Colorado can’t recoup that money because providers followed its directions — meaning the payments, while excessive, weren’t fraudulent.
Separately, the transportation fraud scheme — first reported by The Denver Post in 2023 — cost about $25 million, counting both state and federal money, as fraudulent providers were packing cars with patients for unnecessarily long trips. The state had also raised the rate it paid for nonemergency transportation based on a flawed analysis, meaning that it paid for trips in passenger cars at roughly the same rate as ambulances.
The fraud emerged shortly after the rate increase. During that time, spending nearly tripled, from $93 million in 2022 to $270 million in 2023.
“Unforced errors” such as the nonemergency transportation fraud were particularly galling when lawmakers already faced difficult choices with limited options, said Rachel Zenzinger, a former state senator and member of the budget committee.
“Those are like gut punches,” said Zenzinger, a Democrat who is now a Jefferson County commissioner.
Lawmakers did their best to adjust as the budget situation changed, she said. But they couldn’t have predicted the revenue losses that came with H.R. 1, the federal tax bill commonly known as President Donald Trump’s “Big Beautiful Bill,” as its federal tax code changes filtered down to the state’s code, she said. Similarly, they couldn’t have known how quickly costs would rise during and immediately after the pandemic.
And lawmakers can easily get tunnel vision when they have a difficult problem they have to solve quickly to balance the budget, Zenzinger said. For example, they increasingly have relied on cash funds, which collect fees charged on a particular business or activity, as a way to free up general fund dollars for priorities.
But those fees count against the state’s TABOR limit, meaning that as they increase, the amount of general fund money Colorado can keep gets further squeezed, Zenzinger said.
No easy options to cut Medicaid
While nearly everyone accepts that cutting Medicaid is inevitable, the choices for how to do it can be agonizing.
States have few options to make significant reductions: cut the rates paid to providers, cover fewer people, or slash programs that aren’t federally mandated, such as home- and community-based services that allow people with disabilities to stay out of nursing homes.
“There’s only three levers that can significantly lower costs in Medicaid, and they all have negative effects,” said Edwin Park, a research professor at Georgetown University’s McCourt School of Public Policy.
Usually, states turn to provider rate cuts and limiting non-mandated services first, Park said. Better care coordination and the offering of incentives to keep people healthy can yield savings in some cases, but not on the level that the other options can, he said.
Colorado could opt to undo its Medicaid expansion, which opened coverage to adults without children who earn up to 138% of the poverty line starting in 2014, said Chris Stiffler, a senior economist at the liberal-leaning Colorado Fiscal Institute. But it wouldn’t help the general fund, because the federal government covers 90% of the cost, and the state’s share comes from a fee paid by hospitals, he said.
Theoretically, the state could cut eligibility for groups other than the expansion population, yielding some general fund savings, Stiffler said. But that move would be unpopular and result in an increase in uncompensated care for hospitals and other providers.
Cutting provider rates also comes with drawbacks.
The state already is facing settlements under which it has to increase access to behavioral health care for high-need youth and to home- and community-based services for people looking to leave nursing homes, said Pray, with the Colorado Center on Law and Policy. If providers think Medicaid rates are too low and drop out, she said, Colorado would have an even harder time complying.
But with so few options — and a reluctance to limit services — lawmakers did turn to the cutting of provider rates. House Speaker Julie McCluskie, a Democrat and former member of the budget committee, defended it as a necessary move and one that comes as the state has sought to increase those rates in recent years.
When states faced a federal Medicaid funding cliff following the Great Recession of the late 2000s, they almost uniformly cut back on waiver services to people with disabilities, increasing their waiting lists, said Shea Tanis, an associate research professor at University of Kansas’ Center on Disabilities.
Under the original law creating Medicaid, states didn’t have to provide home- and community-based services, though they had to cover care in institutions, such as nursing homes. People who receive home-based services “waive” their right to nursing-home care at the time, though they may enter institutions later.
Legally, home- and community-based services are optional, but in practical terms, families have to fill the gap because no alternatives exist, Tanis said.
The disability care system is already inadequate nationwide, with some families relying on Medicaid payments to keep themselves and their loved ones housed because they can’t work while providing care, Tanis said. Others are scraping by without any public support because the documentation is too onerous, she said.
“There’s a line where you cut something so much that it cannot be effective,” she said.
‘Poorest, most marginalized’ face cuts
Family caregivers say the state is singling them out to try to balance the budget.
The budget committee balked at many of the changes the Department of Health Care Policy and Financing, or HCPF, suggested. But it could still lower the daily rate families receive to care for their relatives with severe disabilities and require people with developmental disabilities to give up a portion of their Social Security Disability income, said Deana Cairo, the president of Colorado Advocates for Adults with Intellectual and Developmental Disabilities.
While no Medicaid cut is ideal, Cairo said she’d rather see the state reduce provider rates, spreading the pain rather than concentrating it among people with disabilities who require around-the-clock care.
“These are the very poorest, most marginalized people, who are going to be cut again and again,” she said at a rally near the Capitol on March 25.
Kathy Kennedy-Tuckfeld, a Littleton mother, said her 29-year-old son, Jake, can never be at home alone because he can’t perform basic tasks like feeding himself or make accurate judgments about what could be dangerous.
Family caregivers are the only viable option for adults who can’t care for themselves, she said.
Medicaid officials “didn’t start with those with the least need. They started with those with the greatest need,” she said.
A different group of advocates, including the Colorado Cross-Disability Coalition and the Colorado Developmental Disabilities Council, released a statement saying that they could accept most of the likely Medicaid cuts to prevent even deeper losses in the future. But they said reduced rates paid to families caring for a loved one at home must be phased in gradually, to prevent sudden financial hardship.
Bonnie Silva, the director of HCPF’s Office of Community Living, said the focus on disability services reflects unsustainable growth in that spending, mostly driven by an increase in the number of services each enrollee receives. The cost of the developmental disability waiver more than doubled from the 2018-19 fiscal year to 2024, when it reached $894 million.
The department projected the waiver’s cost would exceed $1 billion in the budget year starting in July.
The COVID-19 pandemic “opened the door” for Medicaid to pay family caregivers for more services, given the shortage of health care workers and concerns that they could carry the virus to medically fragile clinics, said Tanis, at the University of Kansas. Not all states pay parents for care for their children, but of those that do, Colorado isn’t one of the most permissive, she said.
A consulting group the state hired to assess its Medicaid spending also raised concerns that staffing agencies could be coaching families in order to maximize their state payments, from which the agencies receive a cut, even if the person paid to provide the care is a family member. That could result in caregivers getting paid for services that exceed enrollees’ needs or that overlap with a parent’s usual role, such as paid homemaking time, Manatt Health managing director Kevin McAvey said.
Silva defined proposed changes that would limit the hours and services caregivers can bill for as “guardrails” to make sure people with unusually high expenses actually needed the level of services they received, rather than cuts. The goal is to blunt the trend of increasing costs before care to people with disabilities becomes unsustainable and the state can no longer pay family caregivers, she said.
“For that to continue, we have to make sure we have the right policies in place. If we don’t, next year, I’m going to be coming back here with really deep and painful cuts that will impact eligibility,” she said.
Kirkmeyer, from the Joint Budget Committee, described the plan to limit spending on disability services as part of a pattern.
“For years, it was about balancing the budget on the backs of students,” Kirkmeyer said, referring to the state’s shortchanging of education. “… Then in the special session, we’re … balancing it on businesses and individuals by increasing taxes. And now it’s like, ‘Let’s just balance the budget on the backs of those that are the most vulnerable and medically fragile in our state.’ “
More difficult choices to come
After lawmakers finish sorting out the new budget, Colorado will likely continue to face difficult budget years.
Under the 2025 federal tax bill, states will have to pay more toward the Supplemental Nutrition Assistance Program, formerly known as food stamps. Starting in 2027, they also won’t be able to collect as much in fees from hospitals and other providers, which they use to draw federal matching funds, according to a state analysis.
Another federal provision, an increase in the share states must pay for SNAP and Medicaid if their eligibility decision error rates are too high, could make the budget situation even worse in the coming years, Pray said.
Compounding those pressures, the cost of health care continues to rise — and may increase even more sharply in the next few years, since parts of that sector rely on immigrants and the migration rate has slowed, said Park, with Georgetown University.
No one is sure what will happen in the broader economy, he said, but if it were to hit a downturn, people who lost their jobs would newly qualify for Medicaid, requiring states to spend even more.
“All those things mean greater fiscal pressures on the state budget,” Park said.
Members of the budget committee shares the concerns that next year’s budget will mean another round of deep cuts. The committee was able to cut the Medicaid growth rate overall with its proposed cuts this year, but not enough to get it below the growth allowed by TABOR. Meaning: it will be up to next year’s budget committee to make more changes, including cuts, to the program to bring it in line with the growth cap.
Unless voters decide on a course change, that is.
Two proposed ballot measures, one from the legislature and one being led by the progressive Bell Policy Center, seek to remake how Colorado’s tax system works. The legislative proposal would remove education spending from the state spending cap’s formula. The Bell Policy Center’s proposal would tax higher-income Coloradans at a higher rate than the rest of workers.
Either measure, or both, would force a fundamental shift in Colorado’s budgeting by allowing the state to keep more of the tax money it collects, versus refunding whatever is collected over the TABOR cap.
“There’s some structural things we need to address if we’re really going to get at this budget thing,” said Amabile, a committee member. “… I think Coloradans expect, when they pay their taxes, that that money is actually going to get spent on things that benefit Coloradans.”
