Colorado legislators spar with Gov. Jared Polis over proposed Medicaid cuts, school funding changes

Colorado legislators questioned Gov. Jared Polis on Wednesday about what he has described as his “belt-tightening” budget proposal, previewing the difficult months to come as state leaders seek to fill a looming $635 million shortfall.

“There are some things in this proposal that won’t be acceptable by our colleagues, and we will have to find another way,” Sen. Jeff Bridges, the Democratic chair of the Joint Budget Committee, told Polis. “There are choices we’re going to have to make.”

Members of the committee, which is tasked with crafting the state budget in the coming months, questioned Polis’ recommended cuts to certain Medicaid provider rates. They also questioned a slow-rolling of the state’s new school funding formula and a proposed change that would more rapidly impact school districts with declining enrollment.

And they raised concerns about Polis’ proposal to privatize Pinnacol Assurance, the state’s workers compensation insurer and a quasi-governmental entity.

The hearing was an opening salvo for what will be months of tight and tense budget negotiations as the legislature seeks to fill the $635 million hole in the $14.8 billion general fund budget proposal. The shortfall — which Sen. Barbara Kirkmeyer called a “self-imposed recession” — is largely a result of high Medicaid caseload costs, coupled with softening inflation that means the state keeps less money under the terms of the Taxpayer’s Bill of Rights.

Wednesday’s skepticism came from right and left: Kirkmeyer, a Brighton Republican, said she struggled to take Polis’ budget request seriously because of its impact on schools and because it didn’t propose more cuts to specific state agencies.

Rep. Emily Sirota, a Denver Democrat, added that while she looked forward to working with Polis’ office in the coming months, “I have some significant concerns about some of these larger pieces of your budget-balancing proposals.”

Polis countered that the financial hole was so large that his office needed to look at the largest shares of state spending — like Medicaid and school spending — to balance the budget. He said he was not proposing to resurrect the budget-stabilization factor, the mechanism that had chronically underfunded Colorado schools and was just eliminated earlier this year. He said he had sought to avoid steeper cuts to higher education.

If lawmakers wanted more cuts to state agencies, he told Kirkmeyer, “you need to, as a legislature, reduce some of the statutory items the agencies are required to do.”

Compounding the budget-writing difficulties is last week’s passage by voters of Proposition 130, an initiative spearheaded by a conservative advocacy group that requires the legislature to provide $350 million in additional funding for a variety of law enforcement purposes.

But because of the way the measure was written, legislators don’t need to provide all of that money this year or under any defined timeline.

That offers some breathing room, and the governor’s office proposed that the legislature allocate the money over a period of several years, paid out of the state’s reserves. The legislature could then take five to seven years to pay back the money.

The Medicaid issue is thornier. Since states began removing people from their pandemic-era Medicaid rolls, more people in Colorado have lost Medicaid coverage than in nearly any other state, according to a July report by KFF, formerly the Kaiser Family Foundation. Still, state budget director Mark Ferrandino told the committee that utilization rates were going up. Sirota and Kirkmeyer both warned that cuts to provider rates, which were just improved by the legislature, would impact an already fragile ecosystem of vulnerable patients and cash-tight providers.

Ferrandino said it was unclear why utilization — people actually using Medicaid services — was increasing even as enrollment went down. It’s also unclear if that trend will hold as a new normal or if it will flatten over time, he said — posing additional problems.

“If you ask me, where’s the most uncertainty in the budget? It would be: What is that Medicaid forecast?” Ferrandino told the committee. “And that is not something that is unique to Colorado.”

Bridges said legislators were specifically concerned about Polis’ proposal around Pinnacol, and several lawmakers questioned Polis and Ferrandino about that idea Wednesday. Polis said Pinnacol could not effectively continue as the state’s insurer of last resort in the future. He suggested that privatizing it would also help the Public Employees’ Retirement Association.

Education funding issues are likely to loom large in coming debates, too.

Kirkmeyer accused Polis of cutting funding for schools, and Bridges said after the hearing that Democratic lawmakers wouldn’t support proposed changes to the school funding formula that would leave school districts at more risk of funding swings based on sudden enrollment declines. Polis has proposed delaying the implementation of recent changes, adding a year to the six-year timeline.

No legislator has signaled any willingness to return to the budget-stabilization factor status quo of chronically underfunding schools.

Bridges told Polis that his office had done “too good of a job” in spreading out the cuts. Still, he said, the hole was too large to avoid painful decisions in the coming months.

“There’s no way to cut $635 million from a $14 billion budget without some people feeling significant pain,” Bridges said. “And I think that is a message that has been missed by my colleagues, by the lobby and by folks in the public.”

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