Colorado’s budget director on Friday laid out a list of actions the state could have to take — including higher-education funding cuts that could lead to “consolidation of campuses or closure of campuses” — if a pair of property-tax-cut ballot initiatives pass in November.
Speaking to the Commission on Property Tax, Office of State Planning and Budgeting Director Mark Ferrandino said state officials would have to cut the $17 billion general-fund budget between $2.25 billion and $3 billion annually if voters approve Initiatives 50 and 108. Initiative 50 would cap annual statewide growth of property tax revenues at 4%, and Initiative 108 would cut tax-assessment rates for both residential and commercial property and require the state backfill local governments for money they lose due to the measure.
Members of the appointed commission expressed both surprise and concern at the level of cuts the state would have to undertake to bring down its budget, and they prodded Ferrandino about potential alternatives such as cutting Medicaid funding. Some local officials on the commission said they believed that even the full list of proposals would not leave them whole via backfill.
“None of these are good decisions. They are all bad decisions,” Ferrandino said at the public meeting of the commission.
Property-tax-cut initiative author pushes back
But Michael Fields — the president of Advance Colorado, which has collected enough signatures to get Initiative 50 on the ballot and is working with Colorado Concern to put Initiative 108 before voters as well — labeled the presentation as a work of fearmongering. In an email to The Sum & Substance, he said he rejected the premise that such significant cuts are mandatory, asserting that the initiatives are not prescriptive on the size of reimbursement the state must give local districts, meaning that is up to the Legislature.
“They are just trying to use scare tactics to misrepresent what would happen if the Citizens’ Tax Cut passes and property taxes are cut and capped,” Fields said. “People just saw a 30%+ increase in their property taxes — and they want relief.”
Ferrandino, however, told commissioners an assessment by the nonpartisan Legislative Council determined there the wording of the initiatives and of current state school-funding laws leaves little wiggle room around the idea that the state must backfill local coffers. The only question is whether the state must reimburse local governments just for money they won’t get because of the cuts and cap or also for money that districts repaying bonds won’t be able to get by floating mill levies higher to ensure a stable revenue stream.
Initiative 108, which requires the state reimburse local districts for money lost because of it, would reduce the current 7.15% residential assessment rate to 5.7% and would cut the current 29% nonresidential rate to 24%. Both initiatives come after residential property valuations spiked an average of 40% after the 2022 statewide reassessment and jumped by a similar amount for businesses in some parts of the state, leaving property owners with severe sticker shock even after a 2023 legislative special session offered some relief.
Legislators passed own plan to head off potential cuts
Legislators passed a plan put forth by the commission at the end of the 2024 session that sets a 5.5% cap on property-tax revenue increases for local governments but exempts school districts and money that already has been pledged to repay bonds and other debt. Senate Bill 233 also lowers commercial assessments to 25% by 2026 and creates a new residential assessment rate of 6.95% that is applied only after homeowners subtract 10% of their property value, up to $70,000.
Commissioners offered the plan, which passed with significant bipartisan support, as an alternative to the ballot proposals because they feared the cuts the initiatives would require would be too draconian. And on Friday, Ferrandino laid out for them a plan that many seemed to believe had confirmed their fears.
The budget director — a former House speaker and member of the Joint Budget Committee — said the proposals would require reductions of either 13% or 18% from the general fund, which is the portion of the state budget over which officials have most control. The rest of the roughly $40 billion budget comes from nondiscretionary federal allocations for programs like Medicaid or road projects, cash funds filled with fees that must be spent on certain things or interdepartmental transfers.
Details of potential cuts
Asked to map out how the state would find the money, Ferrandino offered the following plan, which would be subject to intense negotiations and legislative approval if the two property-tax initiatives were to pass:
- Cuts of $800 million to $1.1 billion in higher education, the largest source of state funding that doesn’t have constitutional or federal requirements around its expenditures;
- Reinstitution of the budget stabilization factor — a cut to otherwise protected K-12 education funding that can be made during times of revenue shortfalls — between $500 million and $950 million;
- A $450 million reduction in fees that go to Highway User Trust Fund spending — spending on roads and other transportation projects — that likely would translate to cuts in local road funding when HUTF distributions to county governments are reduced;
- $300 million in savings from a 10% reduction in reimbursements to Medicaid providers;
- A $100 million sweep of severance-tax funding that is given to local governments impacted by development of minerals such as oil, gas and coal; and,
- $100 million achieved by across-the-board cuts of 2% to the state’s departments.
Could colleges, hospitals close?
The higher-education and provider-reimbursement cuts likely could have the most significant reverberations, Ferrandino said.
While some universities could offset the funding cuts partially by increasing tuition to out-of-state students, schools like Adams State University and Fort Lewis College that serve a high portion of lower-income Coloradans could not do that, he said. In that case, the state would have to look at campus consolidations and closures to deal with the anticipated reduction in services from the colleges and anticipated reduction in students.
Similarly, a 10% Medicaid-provider-rate cut could cripple rural hospitals and safety-net systems like Denver Health that already struggle to stay in the black because Medicaid doesn’t cover 100% of service costs, leading them to bleed reserves in recent years.
“We will see hospitals, especially rural and safety-net hospitals, unable to survive at the rates we are talking about,” Ferrandino said. “It’s a big impact, and it’s not done here lightly.”
What about cuts to other areas instead?
Some commissioners asked whether the state could reduce Medicaid services or reduce reimbursements to local governments for human services like food stamps, which the state now covers at a rate of 80%.
Ferrandino responded that local governments would struggle to provide the human services at lower rates of subsidy. And he noted that while the state could roll back Medicaid eligibility from levels to which it was expanded during the pandemic, such cuts would be inefficient, as the federal government is covering 90% of patient costs for that pool of residents.
Fields, however, said he believes the level of local-government reimbursement can be determined by the Legislature, which will allow those officials to decide if the money is better spent by the state or by city and county officials. And he expressed confidence that such presentations won’t derail his efforts to pass initiatives that he called a “reasonable, common-sense approach.”