‘Even worse than we thought’: Colorado is stuck in a cycle of annual, $1B state budget shortfalls

Each year the cycle continues, state lawmakers will have fewer ways to address the gap without cutting state programs and services. Skyrocketing Medicaid costs are primarily to blame.

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Colorado lawmakers are stuck in a cycle of annual budget shortfalls of roughly $1 billion, predominantly caused by the skyrocketing cost of Medicaid.

That was the warning last week from the top nonpartisan staffer for the legislature’s Joint Budget Committee, which is tasked with drafting the state budget. JBC Staff Director Craig Harper called the trend “alarming.”

The shortfalls come from how much money lawmakers have to spend each year growing more slowly than the cost of maintaining existing state programs and services.

There was a $1.2 billion gap this fiscal year, which began July 1. The deficit is projected to be about $850 million next fiscal year. And in the following fiscal year 2027-28, Harper thinks it will be about $1 billion again.

“I’m starting to get a little bit of a ‘Groundhog Day’ feel, because it seems like each year, in each presentation, I come in and there’s a shortfall of about $1 billion to talk about,” Harper told the JBC on Wednesday.

Balancing the budget each year without cuts to the biggest line items — Medicaid, K-12 education and higher education — will only get harder the longer the cycle drags on.

To make the numbers work this fiscal year, the JBC adopted a number of one-time spending decisions, largely by tapping cash funds consisting of unspent tax and fee revenue.

“We knew collectively that the state was taking a lot of one-time measures in order to make it work for ’25-’26 with the intent of then moving and progressively addressing the structural issues,” Harper said. “Now, when we find ourselves back with a similar shortfall, that means we don’t have as many of those one-time tools available. The cash fund balances that the General Assembly transferred are no longer available.”

The cash fund well isn’t completely dry. But there’s definitely less there.

“You have fewer options available than you did last year,” Harper said.

Harper also warned that according to his preliminary calculations, the state budget will be in a $1 billion hole again for the 2027-28 fiscal year.

“We will find ourselves in exactly the same situation next year,” Harper said. “That’s the piece that I really want to emphasize here — that this is still an ongoing issue.”

Jesse Paul/The Colorado SunColorado Gov. Jared Polis presents his budget-cut plans to the legislature’s Joint Budget Committee on Thursday, Aug. 28, 2025, at the Colorado Capitol in Denver.

He said the main driver of the annual shortfall is rising state spending on Medicaid, a problem that’s been compounding since the Great Recession. It got worse during COVID, at which point, Harper said, the growth in Medicaid spending was “explosive.”

Since the 2018-19 fiscal year, state spending on Medicaid has grown by 43%, or $1.7 billion, which is far more than inflation. At a distant second, higher education grew the next fastest, by 29% or $378 million.

“Appropriations to most departments have roughly kept pace with inflation,” JBC staff wrote in a report to the panel, highlighting how much of a burden on the budget Medicaid has become.

At one point during the presentation, JBC Chair Emily Sirota, a Democratic state representative from Denver, summed up the sentiment of the six-member panel.

“I think we’re all just feeling ‘oh, it’s even worse than we thought,’” she said.

“I know the feeling,” Harper replied. “It’s even worse than I thought.”

Hart Van Denburg/CPR NewsDemocratic Rep. Emily Sirota, on the House floor, Aug. 22, during a special legislative session.

Jared Polis wants to rein in Medicaid spending. The JBC doesn’t like his plans.

Harper’s presentation, which kicked off the months-long budget-writing process, came after Gov. Jared Polis spoke to the JBC on Wednesday about his fiscal year 2026-27 budget proposal and heard an earful about his proposed cuts to Medicaid spending from Democrats and Republicans on the panel.

The governor’s plan calls for increasing Medicaid spending next fiscal year by nearly $300 million, or about 5.6%. That’s less than half the $631 million, or roughly 12%, increase in projected costs if the state kept its Medicaid offerings the same. About 1.2 million Coloradans are covered by the program, which is funded by a mix of federal and state dollars.

“My concern about the cuts that have already been made, and about what we’re looking at going forward, is that we are impacting our most vulnerable populations in the state,” said state Sen. Judy Amabile, a Boulder Democrat. “I wonder about the long-term consequences.”

She added: “I just am not sure that we’ve landed on exactly the right thing.”

State Sen. Barbara Kirkmeyer, a Brighton Republican, said the state was facing a “crisis of priorities” and that Medicaid was the wrong place to cut. She went so far as to call Polis’ proposal appalling.

“The senator said Medicaid should increase 12%,” Polis said of Kirkmeyer. “Of course, you can. You can do that if you choose. Basically this trend will crowd out all other public spending that we do. No money for roads. No money for public safety. Education and health care will be (cut). We don’t think that’s the right direction for the state.”

Jesse Paul/The Colorado SunMark Ferrandino, director of the Governor’s Office of State Planning and Budgeting, departs after speaking to top state lawmakers about the state budget at the Colorado Capitol in Denver on Wednesday, July 30, 2025.

One of the most memorable exchanges from the JBC’s meeting Wednesday was between Rep. Rick Taggart, a Grand Junction Republican, and Mark Ferrandino, who leads the Governor’s Office of State Planning and Budgeting.

Taggart asked why the Polis administration wasn’t doing more to trim Colorado’s bureaucratic costs to help balance the budget. Republicans have continually complained about the size of state government growing under Polis.

Ferrandino said doing so would be a drop in the bucket.

He pointed to how about 10% of the legislature’s roughly $18 billion general fund goes to the state’s administrative operating budget. If the administration were to cut that by 10%, it would save somewhere in the neighborhood of $200 million.

That may sound like a lot, but it would come nowhere near covering the annual increases in Medicaid spending that the state is facing right now.

“Remember, you do that for one year, and then the next year, if you don’t address Medicaid growing at 12%, you’re going to have to find another 10%, 20% or 30% of operating cut as well because you’re not addressing the structural issue of Medicaid growing at a faster rate than the amount of available funds (are) or even (how much) revenue is growing at the state level,” Ferrandino said.

Taggart conceded that the entire annual increase in Medicaid spending couldn’t be accounted for by trimming administrative costs alone. But he still encouraged the Polis administration to slash spending beyond what it’s already done, including a temporary hiring freeze and ordering agencies to keep their budgets for next year flat or reduce them.

“Messaging from leadership is really important in budgeting,” Taggart said.

Sirota had a different takeaway. She said the legislature should find a way to raise more revenue. That could mean changes to the Taxpayer’s Bill of Rights, which caps the annual growth of government spending. Changing TABOR, which is in the state constitution, requires voter approval.

The legislature could also attempt to raise taxes without altering TABOR — but that, too, would require voter approval under TABOR.

The JBC’s work drafting the next fiscal year budget starts off with briefings of agency requests.

The pace picks up once the full legislature reconvenes in January.

The budget will be debated and finalized early in the spring.

Colorado Capitol Alliance

This story was produced by the Capitol News Alliance, a collaboration between KUNC News, Colorado Public Radio, Rocky Mountain PBS, and The Colorado Sun, and shared with Rocky Mountain Community Radio and other news organizations across the state. Funding for the Alliance is provided in part by the Corporation for Public Broadcasting.