Opinion: Funding gap — Colorado is uniquely vulnerable to federal spending cuts

In 2018, Democrats swept statewide elections in Colorado. Democrat Jared Polis defeated Republican Walker Stapleton by more than 10 points to become governor. Considered a swing state just a few years earlier, Colorado had taken on a decidedly blue hue. Yet in that same election, two state initiatives involving tax increases all lost. The blue electorate’s disdain for tax hikes — as well as Colorado’s unusual combination of state spending laws — are important to consider as we try to prepare for the Trump administration’s massive changes to federal funding.

Roughly 40% of Colorado’s $60 billion annual budget comes from federal funds. These dollars go to things like health care, transportation and road maintenance, income security, education, job training, social services, community development, environmental protection, and more.

However, the Trump administration has committed to reducing the federal budget by $1 trillion — a 15% reduction in the $6.75 trillion annual budget. (Elon Musk, whom Trump has turned to for advice and action on a range of government issues, originally called for a $2 trillion (30%) cut in spending.)

While the specifics of what will be cut remain uncertain — and the prospects for actually enacting such cuts are rather murky — experts warn that large swaths of the social safety net are at risk. This includes programs where federal dollars are appropriated to states for everything from transportation (keeping road infrastructure up to date and investing in public transit) to education (funding public K-12 schools and universities) and health care (including the over 1 million Coloradans currently on Medicare).

If there were suddenly such drastic cuts in federal funding for state services, could Colorado’s state government make up the gap? It would be incredibly difficult, for two main reasons.

TABOR will limit Colorado’s response

Colorado’s unusual budgetary requirement known as the Taxpayer’s Bill of Rights (TABOR) is an amendment to the state constitution passed by voters in 1992. It prevents the state from retaining or spending revenue in excess of a predetermined level of spending. Any revenue collected in excess of this cap must be refunded to the taxpayers. In October, the state announced that taxpayers can expect roughly $1.4 billion in total TABOR refunds.

TABOR also requires any tax increase to be approved by voters; the state legislature and governor can’t impose a tax increase by themselves. And, as we saw in the two failed initiatives during the 2018 election, it is incredibly rare for Coloradans (or residents of almost any state, even pretty Democratic ones) to vote in favor of a tax increase on themselves.

So if the state can’t raise the money to pay for these services, can it still provide them?

That’s where Colorado’s second budgetary requirement comes in: the Balanced Budget requirement. Like most states, Colorado is not allowed to run a deficit. (Nor, under TABOR, can it run a surplus — any excess funds must be refunded to taxpayers.)

What this means is that cuts this substantial from the federal government would likely not be replaced by the state of Colorado. Instead, government services would need to be dramatically cut. There would be deep cuts in education, in health care, in transportation — programs and resources that drastically impact the lives of millions of Coloradans. This kind of deep reduction in overall government spending would severely dampen economic growth in the state.

How TABOR will limit Colorado’s social safety net

If federal funds for social services shrink, many will look to state and local governments to make sure families have enough to eat and can make their rent and can get necessary and life-saving medical care. But the restrictions put in place by TABOR will tie the government’s hands when it comes to making up the gap.

TABOR caps the state’s spending relative to revenue — but the law specifically excludes federal dollars. Even if the federal government slashes, for example, Medicaid or education funding, Colorado’s total spending cap under TABOR stays exactly the same.

When Elon Musk is proposing a 15% cut to overall federal spending, it is not absurd to imagine the federal government cutting Colorado’s appropriations by over a billion dollars. (This is especially worrisome given the administration’s threats to withhold state funds from regions that, for example, refuse to comply with mass deportation orders.) Even a 10% cut to federal appropriations to the state each year would mean $2.4 billion dollars gone from total state expenses — expenses that the state constitutionally cannot make up.

Even when the state government already has over a billion in excess revenue in its coffers.

TABOR refunds won’t solve this problem. 2025 refunds are based on household income — with the state’s richest households getting the biggest refunds. Low- and middle-income Coloradans will therefore be hit from both sides: reduced funding for social programs that keep folks housed and fed and out of poverty, and their tax refund won’t make up the gap.

And we don’t know which programs will be hit hardest. While the NIH and USAID have been in the spotlight over the last two weeks, even cutting these programs entirely would be nowhere near the $1 trillion target. The biggest components of the federal budget — where the biggest cuts might be made — directly impact welfare for millions of Coloradans: education, transportation, and health. But now is the time for state lawmakers to focus on what such cuts could mean for Colorado and ways they might be able to protect the most vulnerable residents.

Seth Masket is a professor of political science at the University of Denver. Kaitlyn M. Sims is an assistant professor of public policy at the University of Denver. 

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