Colorado lawmakers convene for special session amid state revenue shortfall
Sarah Wilson
(Colorado Newsline) Colorado state lawmakers begin work today in a special session to address a $1.2 billion revenue shortfall and revise the state’s budget following changes to the federal tax code.
The session — the third special session called in as many years — will likely last until early next week as legislators find solutions to plug a budget hole for the current fiscal year.
“Our revenue has gone down,” Sen. Jeff Bridges, a Greenwood Village Democrat, said in a call with reporters on Monday afternoon. “It means that we have to balance about $750 million out of our existing budget, that as of July 1 was balanced and now is out of balance. That is why we’re coming back — no other reason, no matter what anyone says.”
Colorado’s state tax code is closely linked to federal law, making state revenue susceptible to changes made through the federal spending and tax cut bill signed by President Donald Trump in July. That’s the law that will have huge impacts on Medicaid and food assistance program spending in a few years, but provisions to extend and expand tax breaks for companies and individuals will have an impact during the state’s current fiscal year, which began July 1.
The governor’s office predicts a decline in corporate revenue income of about $950 million, then about $460 million less in individual income tax revenue. The true budget impact is estimated to be between $680 million and $783 million. The state was originally projected to collect more revenue than allowed under the Taxpayer’s Bill of Rights, the constitutional cap determined by population and inflation. That excess money is wiped out with the revenue hit.
Democrats and Republicans have clashed over the cause of the budget hole. Republican lawmakers have been adamant that Democratic overspending and a ballooning state budget is to blame.
“This is not a revenue crisis. It is a spending and priorities crisis,” Rep. Carlos Barron, a Fort Lupton Republican, said in a statement after the special session was called. “Instead of asking state agencies to find savings or eliminate waste, the governor is demanding a blank check from taxpayers.”
Democrats have pushed back hard against that messaging.
“We were $300 million over the (TABOR) spending cap, and then with all of the corporate tax breaks that have gone to wealthy companies and individuals, we are now $1.2 billion short. It is a dramatic impact that was caused by one single moment with the pen. President Trump and Congress are to blame for this,” House Speaker Julie McCluskie, a Dillon Democrat, said.
The Democratic majority plans to pass a series of bills to close tax loopholes, cut program spending and dip into the state’s budgetary reserves.
The planned bill package includes legislation to repeal a corporate tax break for insurance companies that have at least 2.5% of their workforce in Colorado. In 2024, the revenue impact from that tax break was about $72 million, according to a March audit.
Another bill would further decouple a federal tax deduction for business owners on so-called pass-through businesses like partnerships, S corporations and real estate investment trusts. Colorado temporarily decoupled that deduction in 2020 and 2021 for business owners who make more than $500,000 per year and a special session bill would make that policy permanent.
Other tax-related bills would add additional countries that the state considers tax havens, allow companies to pay some taxes early at a discount, and get rid of a state tax break for companies that keep assets like patents, software and trademarks in the United States.
“I don’t think that this is a sudden, overnight realization that our tax code can be made more fair to benefit working families and to ensure that wealthy individuals and corporations are paying their fair share. That’s not new,” Rep. Emily Sirota, a Denver Democrat, said. “But we clearly are in a state of concern and crisis now, given (that we have) a billion dollar gap to close. And so these are the very logical next steps to take.”
Another bill will change the process of how the governor suspends services during a revenue shortfall like the one created by the federal law. The governor currently has authority through executive order to cut spending. A bill from legislative leadership and members of the Joint Budget Committee would require the governor to meet with the JBC for advice on those discretionary spending reductions.
“Existing law already gives the governor all the authority in the world to say ‘We don’t have enough money. I’m cutting these things through executive order and no consultation with the Legislature,’” Bridges said. “So the bill that we are running actually increases the role of the Legislature in a process where we have to cut a lot of money outside of a session.”
Republicans will also run bills during the special session, but without bipartisan sponsorship it is unlikely any will make it to the floor for debate and votes. Democrats hold a 43-22 majority in the House and a 23-12 majority in the Senate.
One Republican bill would eliminate state health care subsidies for immigrants without proper legal status. Another bill would require the governor to formulate a spending reduction plan if they use an executive order to suspend services for longer than three months.
In addition to considering bills to fix the budget deficit, lawmakers will also be able to pass legislation on health insurance premiums and artificial intelligence, which will likely involve another intense debate as lawmakers introduce competing bills on the issue.