Colorado’s Budget Faces Immediate Pressure from Changing Demographics

Colorado’s aging population will drive increases in the state budget immediately and reduce the rate of growth in general fund revenues over the long term, based on recent projections from the Colorado Futures Center (CFC).

On the expenditure side, this impact will be most visible in the Medicaid program. On the revenue side, we’ll see it in our sales and income tax collections. Colorado’s projected overall population growth will increase our state revenues, but that growth will be tempered because of our demographics.

The CFC report, prepared for the Strategic Action Planning Group on Aging, places an economic lens over the impact of our quickly expanding aging population on the state budget. These findings reinforce SAPGA’s recommendations: It is crucial we act now in order to be well-positioned for our demographic future.

Here’s a deeper dive into the findings.

Expenditures: Immediate & continued budget pressure

CFC examined the effect of our aging population on a variety of state programs that will support older Coloradans.

We can expect significant growth in age-based Medicaid expenditures – from $1.04 billion in FY 15-16 to just over $2.325 billion in FY 29-30, an increase of more than 100 percent. It will “directly impact the general fund.” 

CFC lists two reasons for this projection – growing enrollment and growing health care costs for this age cohort.

Currently, almost 3.1 percent of the Medicaid caseload are adults age 65 and older who are income eligible for Medicaid services. These services accounted for nearly 17 percent of Medicaid expenditures in FY 15-16. They include nursing home care, home-based care, assistance with Medicare premiums and co-pays, acute care, durable medical equipment and other home- and community-based services.

By 2030, overall growth in Medicaid enrollment is projected to be 1.67 percent– but growth in enrollees age 65 and over and partial dual eligibles (those who are enrolled in both Medicaid and Medicare) will grow to 2 percent and 3.42 percent, respectively. Additionally, the per person costs for these parts of the Medicaid caseload are projected to be among the fastest to inflate over the next fifteen years. Medicaid expenditures related to the aging of our population thus will grow to 21.7 percent of total expenditures by 2030.

Importantly, CFC found Colorado’s Medicaid expansions, passed in 2009 and 2012, have helped “dilute” the impact of the growing share of aging in the Medicaid population.

The study projects that in 2030, expenditures related to aging would have grown to 30 percent of the total program expenditures, versus a current forecast of 21.7 percent. This is because the expansion created a bigger pool of Medicaid enrollees overall.

CFC found at least ten other state programs that will see “a significant and increasing impact” due to the demographic shift, and noted that nearly all state departments will be impacted in some way. The programs examined in this report include the Old Age Pension Program, the Older Americans Act, the Older Coloradans Cash Fund, Dental Care for Low Income Seniors, Adult Protective Services, Health Facility Oversight and Licensing, health prevention, incarcerated older adults, and housing. The available data did not allow for much modeling or forecasting. The study noted that the fastest growing segment of Colorado’s population is the 80+ cohort, and they are the most likely to need publicly-funded services.

Revenue: Growth, but at a much slower pace

CFC forecasted Colorado revenues by looking at two main funding streams – individual income taxes and sales taxes. It also modeled outcomes for the Senior Homestead Property Tax Exemption.

The growth rate of our income and sales taxes, the biggest chunks of the General Fund, will likely “dampen” because of our aging population.

With respect to income taxes, this will happen because

  • a.) “taxable income falls once the taxpayer moves from higher earning employed years to retirement years,” and
  • b.) tax benefits available to older adults result in taxable income reductions.

With respect to sales taxes, consumers age 65 and older spend less on taxable goods than other age groups and this age cohort is growing as a percentage. Simultaneously, the higher spending age cohorts are shrinking. CFC noted its research goal was to isolate the impact of aging on revenue. Other variables, such as strong business and non-resident spending or different consumer behaviors, could also impact the big picture.

CFC projects the Senior Homestead Property Tax Exemption will grow from $127.1 million to $297.3 million by FY 2029-30.

This property tax exemption is a constitutional provision through which the state reimburses local governments for exemptions that certain Colorado homeowners aged 65 and older can claim. Annual growth rates will range from 10.7 percent in the current fiscal year to 4.7 percent by 2030. Although this exemption is in our Constitution, the provision allows the General Assembly to adjust the value of the exemption without a referendum to voters. It has done this in years past, but only in times of recession. This exemption may be an area of legislative focus in the future.

Both outcomes will impact the General Fund. For various reasons, the study projected only general information about the impact of our demographic shift on property taxes and local revenues.

CFC did not make any formal recommendations to SAPGA. However, in a December 2016 presentation of the findings, CFC commended the group’s recommendation that the state create a formal, inter-state department focus on aging.

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