The Colorado legislature begins its 2026 lawmaking term Wednesday facing a mountain of tough budget decisions — about $850 million worth of them.
That’s the estimated gap between what state lawmakers have available to spend and what it will cost to continue providing existing levels of government programs and services.
The shortfall means two major things: The General Assembly will have to make funding cuts and it also has no money available to spend on new programs. Those two realities will shape the legislature’s entire 120-day lawmaking term.
“The budget will be absolutely first and foremost the primary conversation again this year,” said Senate Minority Leader Cleave Simpson, an Alamosa Republican.
Here’s what you need to know.
Why the shortfall exists
The Taxpayer’s Bill of Rights limits how much state lawmakers can spend each year based on the annual change in inflation and population. Over the past few years, the growing cost of existing state programs and services has outpaced the spending growth allowed under TABOR, which is why there’s a budget shortfall.
The main driver of the imbalance is Medicaid, the health insurance program that covers roughly 1.2 million low-income Coloradans. The cost of administering the program has risen dramatically in recent years, partly because of reasons outside the state’s control and partly because of coverage expansion decisions made by lawmakers.
Since the 2018-19 fiscal year, the TABOR cap has increased by 39%. The cost of providing Medicaid over that period has increased much faster — about 86%, or $2.6 billion.
Medicaid is the single largest state expenditure in the general fund.
TABOR, the constitutional amendment approved by voters in 1992, requires voter approval for all tax increases, so the legislature can’t simply raise taxes to pay for the growing costs. The legislature also can’t spend revenue it collects in excess of the TABOR spending cap without voter approval. But despite years of complaining about TABOR’s effects on the budget, legislative Democrats haven’t articulated a plan to ask voters for permission to spend more tax dollars.
That means the General Assembly must find a way to work within the confines of TABOR. And right now, that means cuts.
“Last year, we flipped the cushions and took what we had,” said Senate Majority Leader Robert Rodriguez, a Denver Democrat. “Now, I think we’re more in a position where we have to make some tough decisions. Making the right tough decisions is what we’re going to try to focus on.”
The legislature’s Joint Budget Committee, a six-member panel of four Democrats and two Republicans, started working on the budget in November. It will submit its work to the full General Assembly in the spring for tweaks.
Lawmakers are required to pass a balanced budget before the next fiscal year begins July 1.
Cutting Medicaid
Because Medicaid is largely responsible for the shortfall, that’s the obvious place for lawmakers to look as they try to balance the budget. As one lobbyist put it, Medicaid is “going to be the whole ballgame this year.”
Gov. Jared Polis submitted a budget proposal to the legislature that calls for increasing Medicaid spending next fiscal year by nearly $300 million. That’s less than half of the $631 million increase in projected costs if the state were to keep its Medicaid offerings the same.
“We've got to get it down to close to the rate of increase in the general budget,” Polis said. “It’s what’s nice to have versus what you can afford.”
The governor and his top aides believed the state could hold down Medicaid expenses by capping some reimbursement rates for providers and limiting how much recipients can receive in dental benefits. Other Medicaid cost-saving proposals from the governor include limiting home caregiver hours and reducing pay for health workers who supervise people with autism.
“This is hard,” Kim Bimestefer, who leads the Colorado Department of Health Care Policy and Financing, told the JBC last week. “We need to make a lot of reductions.”
But the JBC is not keen on the Polis administration’s ideas. Both Democrats and Republicans on the panel have raised concerns about the governor’s proposed Medicaid trims affecting certain groups — namely people with autism and their families — more than others and about the unforeseen consequences of trying to save a buck.
“If we don't really think it through, we think we’re going to save money and maybe we don't save money — and in the process of not saving any money, or as much money as we thought, we are going to inflict a lot of harm along the way,” state Sen. Judy Amabile, a Boulder Democrat who sits on the JBC, said at a hearing in December. “Where we save money, we are also then somewhere else, presumably, having to spend money on all of these things.”
State Sen. Barbara Kirkmeyer, a Brighton Republican who is also on the JBC, is worried about how rural hospitals will be affected by the legislature's Medicaid decisions. She has cited the potential for emergency room or whole hospital closures, as well as reduced maternal health care options in more sparsely populated parts of the state.
“You’re balancing the budget on the backs of people who rely on Medicaid, and you’re jeopardizing health care for every Coloradan,” Kirkmeyer told the governor during a JBC hearing last year.
The JBC ultimately recognizes that some pain is likely unavoidable.
“We are facing a really terrible, awful (reality for) all the families impacted by this situation with our state budget,” state Rep. Emily Sirota, a Denver Democrat and chair of the JBC, said at a recent hearing. “It is not easy.”
The governor’s office hired a consulting firm, Manatt, to examine Colorado’s Medicaid program to help the state deal with its budget pressures. But Kevin McAvey, a managing director at the firm, didn’t have much to offer in terms of easy solutions.
“We did not identify a magic bullet that would be able to bring Medicaid cost growth in line or below that of TABOR,” McAvey told the JBC last week.
He added that Colorado’s Medicaid growth rates appear to be on par with other states and Colorado’s program appears to be well run. TABOR, McAvey said, is Colorado’s pain point.
Other cuts
While Medicaid is likely the biggest line item on the chopping block, the governor’s office and legislature are looking to find savings in other places, too.
State agencies are proposing millions of dollars in cuts — things like returning unspent money that was meant to provide transgender care for prison inmates, reducing spending on food stamps outreach, and eliminating a program that helps unemployed people find work — to try to address the shortfall.
Nonpartisan JBC staff have also proposed a long list of potential cost-saving actions, from eliminating vacant positions in the Colorado Department of Early Childhood Education to turning off the funding spigot for a program aimed at preventing homelessness among kids.
During a special legislative session in August, Democrats in the legislature rolled back some tax breaks for businesses to raise revenue. Majority Leader Rodriguez hinted more may be coming.
“Those are conversations that we need to continue having,” he said.
The state is forecast to collect revenue in excess of the TABOR cap next fiscal year. But raising more revenue above the TABOR cap by closing more tax breaks would prevent the legislature from having to dig into the state budget to continue tax expenditures for families with lower incomes.
“We have done a lot of work to establish fairer tax policy to correct for the ways in which low-income Coloradans are paying a greater percentage of their income on taxes than the wealthiest Coloradans,” Sirota said.
But Republicans, who are in the minority at the Capitol, are certain to raise hell if Democrats try to eliminate more tax breaks for businesses.
Finally, the governor is proposing that the legislature reduce its rainy day fund to 13% of the general fund from 15%.
Privatizing the state’s workers’ compensation insurer
Another way Polis wants the legislature to address the budget shortfall and avoid hundreds of millions of dollars in cuts is by selling or privatizing Pinnacol Assurance, the state-affiliated workers’ compensation provider. The governor’s office estimates that would raise about $400 million, money he hopes to use to cover the cost of the state’s senior property tax exemption.
The idea has been bandied about since at least 2009, when state leaders were looking to cover budget shortfalls caused by the Great Recession. But lawmakers have repeatedly balked, questioning whether a one-time infusion of cash was worth the risk to businesses and workers that depend on Pinnacol’s insurance.
Supporters of privatization say Pinnacol’s status as the state insurer of last resort has put it at a competitive disadvantage and worsened its risk pool, because it can’t sell insurance across state lines.
“If we fail to act, Pinnacol will continue to lose market share, which over time will put upward pressure on premiums, downward pressure on benefit levels, and hurt employers and employees both,” Polis wrote in his budget letter to the JBC.
The governor suggested it last year, as well, but no serious legislation to do so ever emerged.
In early discussions on next year’s budget, JBC members in both parties remained skeptical that the idea had been properly vetted, a full year after Polis first suggested it.
“Last year, as we were talking about this, I said really clearly ‘I don’t think we have the votes,’” state Sen. Jeff Bridges, the JBC’s vice chair, said at a hearing in December. “And moreover, I don’t think we have the buy-in from the folks that are directly impacted by this. And we had all summer and all fall, and I feel like this is déjà vu all over again.
“It doesn’t seem like there has been the kind of stakeholder engagement that needs to happen for a deal of this magnitude,” added Bridges, a Greenwood Village Democrat.
With a majority of the JBC’s six members unlikely to back the idea of selling Pinnacol this year, lawmakers could be forced to make even deeper cuts than Polis has proposed. Without an estimated $400 million in proceeds from a Pinnacol sale, the governor’s budget wouldn’t be balanced.
“To me the elephant in the room is the $400 million as it relates to the budget. And that scares me to death,” said Rep. Rick Taggart, a Grand Junction Republican who sits on the JBC.
“I agree,” Sirota replied. “That feels like a giant, gaping, unbalanced hole in our budget.”
Amabile said she would be “more than happy” to sell Pinnacol for the right price. She admitted that she is “pretty much alone in that place” among Democrats, but that she would rather feed hungry kids, fill potholes and make sure that families have health insurance than keep Pinnacol public.
No money available for other bills
With so much to cut, there won’t be much money available for lawmakers to spend on bills.
The JBC is expecting to save somewhere in the neighborhood of $5 million to $10 million for legislation.
The governor is still hoping the legislature can find some funds for a few of his priorities, including $4.2 million to respond to the spread of the destructive mountain pine beetle into Front Range communities.
He also wants lawmakers to spend $34 million over the next 18 months to treat criminal defendants deemed incompetent and unable to participate in their legal defense. Right now, those people must be released from jail and charges dropped after a certain amount of time if the person cannot be restored to competency.
The aim is to increase treatment options and make it less likely that incompetent criminal defendants will have to be released before the deadlines are reached.
“It is targeted at getting secure placements for people who are dangerous,” said Amabile, who is working on the proposal, “and to provide outpatient care for people who are not dangerous.”
KUNC reporter Lucas Brady Woods and Colorado Public Radio reporter Bente Birkeland contributed to this report.
