SB21-205 2021-22 Long Appropriations Bill (Moreno (D)) [McCluskie (D)]

From the Joint Budget Committee

Note this includes budget package bill SB21-206-228, although some of those bills have their own Engage writeups as well.

Appropriation: n/a this is the budget
Fiscal Impact: n/a this is the budget

Goal:

Enact the 2021-22 fiscal year budget at $34.1 billion, $3.8 billion higher than last year’s budget, by using leftover funds from last year’s budget thanks to better than expected tax returns. This budget largely restores 2019-20 spending levels while setting aside $800 million for other stimulus measures (some already signed by governor, others already introduced and others yet to come in this session in other bills), $1.75 billion for state reserves, an extra $100 million for higher education, and $580 million toward K-12 education for reserves and the “negative factor”. The legislature has promised to entirely erase the negative factor with federal stimulus money. None of the $3.9 billion federal money coming to Colorado is accounted for in the bill: will be spent in future legislation.

Description:

Enacts the 2021-22 fiscal year budget at $34.1 billion, which is $3.8 billion higher than last year’s budget. These increases are achieved in part by better than expected tax revenues and also by rolling over money from last year’s budget (in essence we cut much more than we had to last year and so have excess money). All of that rolled over money is of course a one-time measure, not indicative of new annual levels. The budget does not include any of the $3.9 billion the state will receive thanks to the federal American Rescue Plan passed earlier this year, but as you’ll see, some of that money is already being accounted for while the state determines how to spend the rest.

$800 million in the budget is set aside for stimulus measures, some of which have already been introduced in the legislature (and a few already signed by the governor). You’ll know them in Engage because they will always reference the $800 million to spend in the Arguments Section. This is totally separate from the $3.9 billion in federal money—so essentially the state is going to spend $4.7 billion in one-time funds in bills this year (some of that money won’t be spent until next year as you’ll see).

The budget sets aside $480 million for the state’s “negative factor”, which is the amount the state owes schools under our Constitution but has not paid. That brings the factor down to what is was in 2019-20, prior to the pandemic, around $572 million. But the Joint Budget Committee is promising to spend an additional $1.1 billion from the federal stimulus money over the next two years to wipe out the negative factor entirely for this year and next (brings the total available down to $2.8 billion). This will mark the first time since the Great Recession in 2009 that the state has paid schools the entire amount it is required to. The bill also restores a $100 million cut made to the school construction program, BEST, and dumps $100 million in the state education fund which should balloon the fund to $560 million. This is a reserve fund. What is done with this money would be up to future budgets but it is possible it could be used to stabilize negative factors after next year or it could be used to help transition the state to an entirely new funding model for K-12 education (the Joint Budget Committee has made noises about using it in this manner).

The budget entirely restores the massive cuts made to higher education in last year’s budget, $494 million worth (most of this was backstopped with federal aid, so institutions did not actually see cuts that massive), and adds $100 million more, with $40 million of that tagged for retention and recruitment of students of color, low-income students, and first-generation students. The budget allows institutions to raise their tuition rates by 3%, except for the University of Northern Colorado which can raise its rates by 7%.

The bill includes a 3% raise for all state employees and restores the $225 million cut made to contributions to the state employee retirement fund, but puts off the distribution to next year. It adds another $155 million which can be used for the fund down the road.

The budget sets aside a massive amount for state reserves, which were slashed last year, 13.5% of this year’s budget or $1.75 billion, and mandates an even higher amount of reserves for next year, 15% (this can and probably will be changed when they actually write the budget for next year. It also puts another $101 million to the emergency state reserve fund, which can only be spent during a declared disaster emergency (like our current one), which increases overall emergency disaster reserves to $446 million.

The bill also puts $198 million into the capital construction fund, $27 million into the IT capital account, and $110 million into the controlled maintenance trust fund, all of which state agencies and institutions of higher education can tap for construction, IT projects, and controlled maintenance projects. These must be approved by the legislature and are included in the budgeting process.

The bill also sets aside $124 million for transportation for a bill that has not yet been introduced to reverse cuts from last year.

Larger individual items include: removing a cap that was put on dental benefits in last year’s budget (and never actually enacted thanks to federal law), $10 million repaid to various cash funds that had money removed in last year’s budget, $20 million to create more slots for the state’s Medicaid 24/7 program for people with intellectual or developmental disabilities (which should reduce the wait list by ¼), $25 million of additional federal funds in Medicaid by aligning better with federal law, temporary increase of $84.9 million in federal Medicaid funding that will expire once the disaster emergency is over, $21 million for a future bill to help keep public health departments funded at higher levels for the pandemic, a large decrease in employees in the department of corrections due to fewer projected inmates (thanks to various legislative changes in other bills), large decreases in the local affairs and office of governor budgets because those two funneled most of the federal disaster relief money last year (so returning to normal levels), the standard 2.5% provider rate increase for community health care organizations, $6.9 million for a future bill to increase capacity in child welfare system and $1.2 million for a future bill to increase capacity to serve children with intellectual or developmental disabilities, and $5 million to grants to repair watersheds damaged by the 2020 wildfires

The following programs all had funding restored from last year’s cuts: History Colorado, Quality Teacher Recruitment Program, Educator Loan Forgiveness Program, Professionals Matching Grant Program, K-5 Social and Emotional Health Grant Program, Ninth Grade Success Program, School Leadership Pilot Program, Automatic Enrollment in Advanced Courses Grant Program.

Each department’s budget is included in Additional Information.

Additional Information:

Auto-Repeal: n/a

Arguments For:

Bottom Line:

• Much of this huge windfall is one-time money: it’s leftover from last year’s budget and is not an actual reflection of on-going revenue, which has not recovered to pre-pandemic levels. So we cannot create new structural programs that require on-going spending because the money won’t be there next year
• We also have $2.8 billion more to spend from the federal government and the $800 million in state money that isn’t in this bill. So many of those huge priorities? We’re addressing them, just not here. This by the way could include tax refunds
• The bill restores pretty much all of the funding cuts made so we are back to 2019-20 levels while simultaneously putting away a lot of money in savings for the next rainy day
• The bill completely erases the negative factor for schools, which is a huge accomplishment, and actually boosts our higher education funding beyond 2019-20 levels

In Further Detail: We are extremely fortunate to have a huge windfall of money to spend in this year’s budget, but we have to recognize that a lot of it is one-time spending. That is we cannot create new structural programs that require constant funding streams because a huge chunk of the increases are coming from us slashing too much last year. We have in fact not yet recovered to 2019-20 revenue levels. We also have to consider the massive federal stimulus money coming to the state. So this budget keeps all of that in mind by basically putting us back to 2019-20 spending levels in most areas, supporting the fact that our current revenue doesn’t match that through excess 2020-21 revenue. That of course is priority one. Priority two is stimulus money, some of which is already accounted for and the rest will be coming in other bills. One-time money we can spend to boost various areas of the state: transportation, infrastructure, job training, school infrastructure, broadband access, water projects, clean energy projects, etc. Priority three is saving for a rainy day. Because you never know when one is coming (just think about what we all thought 2020 was going to be like at the end of 2019). So the bill rebuilds our state savings and puts money away for education as well. On education, wiping out the negative factor is a huge deal. It is not all accomplished in this budget bill itself but the promise of using a big chunk of the federal stimulus money to do it should suffice. We of course still owe our schools from past years, but it is a huge achievement to put this much extra money into them this year. Higher education is another area that has been horribly neglected and is therefore getting a boost beyond 2019-20 levels, with a particular focus on underserved communities and students. And giving our state employees a raise is also a great way to boost our economy. When it comes to some of the specific areas mentioned in Arguments Against it is worth remembering three things: we have $2.8 billion of federal stimulus money still to spend, we still have millions of state stimulus money (from the $800 million) that have not yet been allocated, and we cannot create new programs that we will be unable to fund in future years (like higher teacher pay or a steady long-term source of funds for transportation)

Arguments Against:

Bottom Line:

• This allocates too much to reserves: we should be spending more on our biggest state priorities like transportation and water, many of which can be done as one-time project investments
• We need to spend a ton of money on forest management as well to mitigate risk of huge wildfires
• We could spend even more on education in teacher pay (perhaps as bonuses since this is one-off spending) and paying down previous years’ negative factors

In Further Detail: This allocates too much to reserves, which yes, we need to rebuild but not to this extent. That is money we could be spending on our billions of dollars in transportation needs instead of increasing fees as another bill in this session proposes to do. That is money we could be spending on the tens of billions we need for our state water plan. That is money we could be spending on forest management to mitigate wildfires where we need to be doing controlled burns of hundreds of thousands of acres every year instead of the measly 13,336 we did in 2019. That is money we could be spending to boost behavioral health infrastructure and early childhood care infrastructure all over the state. And that is money we could use to pay our teachers more. Perhaps not on an on-going basis but at least one-time bonuses. There is another bill in this session that creates a fund for increasing teacher pay but puts no money into it. And what about paying down some of the negative factor money we owe schools from previous years? On a more technical note, since retirement fund money is invested, it does not matter that the fund may not need it this moment—you invest the money now so it can earn and grow into a larger pot of money with compounding effects.

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Bottom Line:

• Enormous one-time windfalls like this could also be returned in part to state taxpayers. We are forbidden to return any of the $3.9 billion federal money coming in stimulus to taxpayers, so the place to do it is with our budget. It can be a one-time refund to help boost the state economy targeted at those who need it the most