In The Know: State Reserves

Unlike many other states, Colorado does not have a “rainy day fund.” The state does have reserves that act as an emergency parachute in the case of an economic downturn. When the broader economy slows down, or goes into a recession, tax revenues decrease.

That reduces the revenue in the budget to fund important governmental programs like education, health care, and transportation. Simultaneously, demand for services increases, as more families qualify for programs like Medicaid, child care support, and food assistance. In Colorado reserves have been an important backstop against cuts that would only make things worse in an economic downturn.

In recent years, Gov. Polis and members of the legislature’s Joint Budget Committee have committed to increasing the state’s reserves. They want a strong buffer if state revenues decline. Colorado’s reserves are larger than in any year since the turn of the century. Yet, many believe our reserves should be higher.

Reserves are a pot of money set aside from the General Fund to protect against declining revenues and economic downturns. Dollars put in the reserve count as spending against the state’s TABOR limit. Historically, Colorado has had a hard enough time adequately funding all programs, and in many years reserves have been neglected as a part of the budgeting process.

In fact, going into 2020 the highest the state’s reserves had been slightly over 7.25 percent of General Fund revenues, less than half is what is recommended by experts. But with economic uncertainty since the onset of the COVID-19 pandemic, it has made sense to put some money aside in case revenue is needed to plug budgetary holes.