Nov 30, 2022 - News

Colorado Democrats are flush with power but face a fiscal cliff

Illustration of a hundred dollar bill with a donkey as the face.

Illustration: Aïda Amer/Axios

As Democrats celebrated historic victories on election night, Scott Wasserman stood among the revelers at the party with a dour look.

  • "A blue state needs money to pay for blue things," the president of the Bell Policy Center, a progressive advocacy organization, told us.

What's happening: In the midterm election, Colorado voters agreed to an income tax cut that will reduce state revenue by $1 billion in the first two years and roughly $413 million in subsequent years.

  • In addition, successful ballot measures pushed by special interests will siphon off as much as $300 million a year for affordable housing and about $100 million annually for school meals.

Why it matters: The tax cut — the second in as many years — and dedicated earmarks mean less money is available for other Democratic priorities, including education, fiscal reserves, public assistance programs and health care.

  • The ballot measures only "accelerated our path to a fiscal cliff," Wasserman warned.
  • "This makes anything this blue state wants incredibly hard to fund," he added.

Context: How much Colorado can spend each year in the state budget is limited by the Taxpayer's Bill of Rights and any excess revenue must go to taxpayers in the form of refunds or programs as outlined in law.

  • Democrats — and the Bell Policy Center — consider it a fiscal knot that limits their ability to spend money to pay for their new programs, such as expanded preschool or kindergarten.
  • Gov. Jared Polis proposed a $40.6 billion spending plan for the 2022-23 fiscal year that starts July 1, but it sets aside more money than anticipated for taxpayer refunds.

Reality check: Right now, the state is flush with cash and receiving a huge infusion of federal dollars for pandemic relief and infrastructure projects.

  • The cliff would arrive down the road, possibly in the 2025-26 fiscal year when the federal money expires and economists expect the state's growth to plateau.
  • Wasserman says his organization will embark on a campaign to educate elected officials and voters about the "tough choices" ahead and create a more sustainable fiscal system.

The other side: Polis is one target for those messages, but he supported the income tax cut and told Axios Denver in a recent interview that he'd like to see more cuts, echoing conservatives.

  • "We want to look at the economy and see where we are at … but obviously one of the things that Colorado can do to attract businesses and secure our further economic growth is to further reduce the state income tax," he said in an interview.

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