The Colorado Legislature is set to confront a significant budget shortfall for the third consecutive year when it reconvenes in January. State economists informed lawmakers on Friday that they anticipate a nearly $1.6 billion budget deficit, driven largely by rising costs in the state's Medicaid program. This financial challenge could impact various state services and programs that affect residents across Grand Junction and Mesa County.
Mark Ferrandino, who heads the Governor’s Office of State Planning and Budgeting, identified Medicaid as the primary cause of the projected deficit, telling the Joint Budget Committee during a routine economic forecast that “Medicaid alone is causing the vast majority of the issue.” His comments came just one day after he and other officials informed a legislative commission that Medicaid, which provides health insurance for low-income Coloradans, exceeded its budget by nearly $158 million in the last fiscal year. The program is now projected to go $443 million over budget by the end of the current fiscal year, which concludes next July.
Medicaid spending has consistently presented challenges for the state budget because its growth rate significantly outpaces the spending limits imposed by the Taxpayer’s Bill of Rights (TABOR). Economists note that the increasing volume and types of healthcare services provided, rather than an increase in the number of people enrolled in Medicaid, are the main factors driving up the program's costs.
To address the shortfall, Ferrandino suggested several potential strategies. He indicated that if lawmakers were to limit Medicaid growth to approximately 4%, consistent with TABOR spending limit increases, it could yield savings of around $915 million. However, such a restriction would likely necessitate cuts to Medicaid services. Additionally, Ferrandino proposed adjusting the state's reserve fund level to 13% instead of the current 15%, a move similar to what lawmakers approved during the last session. Implementing both these measures, Ferrandino stated, could reduce the total budget gap to closer to $330 million, which he characterized as "a typical, constrained Colorado budget that is manageable." He further emphasized the administration's view that the issue "needs to be tackled within Medicaid and not impacted on the remainder of the budget."
The Legislature has faced similar billion-dollar budget deficits in its previous two sessions, managing them through a series of one-time spending reductions and program cuts. Officials familiar with the process indicate that there is now "very little fat left to cut" from the state budget.
Rep. Kyle Brown, a Democrat representing Louisville, acknowledged the rising costs in a statement, noting that “Medicaid cost growth, largely driven by long-term care and prescription drugs, is higher than previously forecasted.” He added that states nationwide are grappling with increased Medicaid expenses, and Colorado is working to establish a more sustainable path for the program. The goal, Brown stated, is to prevent Medicaid spending from crowding out funding for essential services like K-12 education or other core programs, while still protecting the most vulnerable Coloradans.
Sen. Jeff Bridges, an Arapahoe County Democrat, discussed an approach used in some other states where the legislature sets a hard cap for Medicaid funding. Under this model, the Medicaid department itself would decide what services to provide and how to manage within that allocated budget. Bridges commented that while he dislikes the legislature being removed from those decisions, it appears to be a "potential path forward" for managing costs.
Beyond Medicaid, the state also projects revenue surpluses due to TABOR. Legislative Council Staff, the Legislature’s nonpartisan research office, estimates state revenue will exceed the TABOR spending cap by approximately $827 million in the current fiscal year and $580 million in the next fiscal year. The governor’s office offers slightly different projections, estimating surpluses of around $607 million for the current fiscal year and $287 million for the next. These projected surpluses are expected to trigger refunds to taxpayers, likely in the form of a temporary income tax rate reduction.
However, the outlook for the Family Affordability Tax Credit, a state tax credit for low-income families available when revenues are sufficiently high, is less certain. Both sets of economists predict that this credit will not be triggered in the 2027 tax year. Legislative Council Staff believes it may be partially available in the 2028 tax year.
Governor Jared Polis is slated to present his final budget proposal as governor in November. Following this, the six-member Joint Budget Committee will commence its work, reviewing input from various state agencies and making crucial budget decisions in the coming months, shaping the financial landscape for Grand Junction and all of Colorado.