Last year, in their continuous search for new ways of funding state programs, Colorado legislators authorized the sale of as much as $250 million in future tax credits to generate $200 million to balance the general fund and the Health Insurance Affordability Enterprise.
Sponsors called the unusual maneuver a clever way of tackling a budget shortfall.
But it did not go as well as hoped.
So, in the recently concluded legislative session, majority Democrats passed a new measure to try to get the unsold credits pedaled quickly and to close what otherwise would be a budget gap of at least $30 million. But while the proposal, House Bill 1346, has headed to Gov. Jared Polis’ desk and is expected to be signed, it reraised questions about whether the overall policy is a smart one.
During last year’s special session, called in large part because federal tax cuts blew a roughly $1 billion hole in the budget for the fiscal year that ends next month, legislators sought to eliminate tax breaks and boost revenues to close the gap. One of the tax breaks they ended was a longstanding 50% reduction in premium taxes for insurers that have a substantial portion of their workforce in Colorado — a bill expected to cost those insurers $91 million annually.
How the idea arose to sell tax credits
But, needing to do more to close the budget gap, majority Democrats also passed a law that permitted insurers to purchase as much as $125 million in cumulative future tax credits at a rate no less than 80 cents on the dollar, to be used when they have tax liability — and gave preference in the sales to insurers who lost the regional-home-office tax credit. A separate bill allowed sale of the same amount of tax credits to fill a shortfall in the state’s health-insurance-subsidization enterprise, which funds initiatives like the reinsurance program and the OmniSalud program offering policies to undocumented immigrants.
While the Colorado Treasurer’s office has raised about $150 million in revenue through the tax-credit sales, however, it hasn’t found enough buyers to cover the budget hole that legislators needed to fill, said Senate Minority Leader Cleave Simpson, R-Alamosa. So, legislators came up with House Bill 1346 to try to close that gap quickly.
The bill, said cosponsoring Rep. Steven Woodrow, D-Denver, permits the state to sell the credits to a third-party broker that will buy them and sit on them to sell in later years to insurers. That plugs the immediate budget hole and leaves that third-party broker — with whom state officials already have talked — with the liability for selling the tax credits, though presumably at a higher rate than it purchased them from the state.
Why insurers weren’t interested in buying tax credits
This follow-up legislation is necessary because only two of Colorado’s 10 largest for-profit insurers bought the credits, Woodrow told the House during debate on April 20. When state leaders asked why, half of those insurers said they were not interested in purchasing credits years in advance of them being used and instead wanted to wait each year to see whether their tax liability justified the eight-figure spend on tax credits, he said.
Thus far, the credits have been selling at an average rate of 82 cents on the dollar — higher than the 80% floor value set in HB25B-1004 but lower than the 90% value some sponsors hoped to generate, said Simpson, who was not a sponsor of either bill but was heavily involved in the debate over the bills. The sales to the third-party broker are expected to go at a rate of 82% or 83%, he added.
For sponsors of HB 1346, the primary motivation seemed to be finding a way to plug the budget hole without having to add to the $1.5 billion in cuts that legislators already made through the budget this year. Cosponsoring Sen. Cathy Kipp, D-Fort Collins, said that $30 million more in budget cuts would be needed without passage of the bill.
“Insurance companies and C corporations, they are not wanting to buy further years out,” cosponsoring Sen. Marc Snyder, D-Manitou Springs, said, noting the two types of companies permitted to buy the credits under the special-session bills. “They would rather see what their tax liability is when they buy tax credits.”
Republicans argue the sale was a bad idea
HB 1346 permits sale to a third-party buyer — but then limits that buyer to reselling the bills only to insurance companies.
But for many of the Republicans who opposed both last year’s bills allowing the tax-credit sales and this year’s follow-up, the new debate reopened old arguments about the efficacy of the strategy.
During discussion on the House floor during the 2025 special session, Rep. Ken DeGraaf, R-Colorado Springs, noted that companies that just lost a significant tax break would only be getting about a 2.7% discount on future taxes under the credit sales. That, he said, didn’t seem to be enough to inspire significant sales.
Sen. Scott Bright, R-Platteville, argued during Senate debate on May 1 that the inability of the state to sell all available credits was unsurprising because the state flooded the market with these tax credits but limited who could buy them. The whole idea of trying to balance the budget through sale of a state product that had unknown demand was a bit “bananas,” argued Bright, a business owner.
“The simple law of supply and demand is: The more product you have out there, the lower the price is going to be,” Bright said. “It’s too bad we got ourselves into this in the first place by oversupplying tax credits and restricting the buyers.”
Could new buyer make money from tax credits?
But Sen. Adrienne Benavidez, D-Adams County, argued that the new sale offers a win-win situation. It will plug the budget gap, she said, and it could allow the buyer to sell the credits for more than it purchases them for this year if there is more demand in the future.
It’s worth noting that the HIAE, which was the beneficiary of about $100 million in credit sales — credits that were given priority over the general-fund credits sold in HB25B-1004 —did not seek to use the same revenue-raising tactic as it sought once again to plug another $140 million gap with a bill that passed this year.
Instead, the new HIAE bill allows the enterprise to sell about $140 million in bonds to keep the programs afloat for one more year until a more permanent funding source is found or decisions are made to reduce spending. Sponsors originally proposed supplementing $100 million in bond sales with a $40 million one-time fee on health insurers and their customers, but they scrapped that under pressure from business leaders and legislators.
Polis has until June 12 to sign or veto HB 1346 and all other bills passed this legislative session. The third-party sale is expected to happen quickly after the bill is signed.