Initiative 108 Would Force $3 billion in Cuts in Colorado

Colorado Initiative 108 Would Force $3 billion in Cuts

Here are the ways that could play out between TABOR law and budget impacts in Colorado

Property tax cuts usually impact local services. This is because in Colorado property taxes are local taxes. However, statewide Initiative 108 would reduce local property taxes while simultaneously causing massive cuts to the state budget.

As we describe in this fact sheet, Initiative 108 would cut property tax assessment rates and require the state to reimburse local governments for the lost revenue. Colorado’s nonpartisan Legislative Council Staff estimates that assuming all taxing districts must be reimbursed, Initiative 108 could cost the state government $3 billion in the first year. In practical terms, this means that if Initiative 108 passes, existing priorities will have to be cut by at least $3 billion to make room for this new expense.

While Colorado does have reserves which some say could be used to limit the impacts of Initiative 108, these dollars are meant to protect state services during economic crises. Even now, when the state’s reserves are at an all-time high, they’re still below what Moody’s and the Government Finance Officers Association believe are needed to withstand a fiscal crisis. If reserves were used to fill holes left by Initiative 108, the state would either be vulnerable to an economic downturn or would need to replenish spent funds in the following budget cycle.

Others have suggested that normal, yearly increases in the state’s General Fund could cover Initiative 108’s impacts and prevent the need for service cuts. However, TABOR in Colorado restricts annual General Fund increases to a function of population growth plus inflation. Between FY 1999-2000 and FY 2021-2022, the state’s General Fund grew by a yearly average of 4.3 percent. This is far lower than the over 18 percent increase needed to realize an additional $3 billion in the General Fund between FY 2024-2025 and FY 2025-2026. Moreover, it’s also important to recognize that TABOR, essentially, only allows the General Fund to keep up with inflation. As a result, much of the yearly General Fund revenue increases are used to simply maintain current service levels within existing programs.

Three billion dollars is an enormous amount of money and equates to over 18 percent of the state’s FY 2024-2025 General Fund budget. By comparison, during the Great Recession – the largest, sustained  economic downturn in recent times – the state’s General Fund fell by 11 percent and then slowly rebounded. In contrast, Initiative 108 would create an even larger,  permanent, reduction in state funding.

While the specific budget impacts of Initiative 108 are dependent upon the decisions of state lawmakers, we examine three potential paths using the FY 2024-2025 General Fund budget as a starting point. What becomes clear from this analysis is that no matter the selected path, Initiative 108 forces impossible choices on our state.

Option One: Proportional, Across the Board Cuts

In option one, the budget for each of Colorado’s departments would be cut by the same flat percentage – 18.45 percent. This would have an enormous impact on all departments, but especially those that are either smaller in size or use state dollars to leverage additional federal resources. 

Most of Colorado’s departments are relatively small; over one-third have a General Fund appropriation of under $50 million in FY 2024-2025. These departments often provide a limited set of core services, and there are few places to cut if their General Fund allocation is reduced by nearly one-fifth.  In practice, this means that under option one we would likely see significant rollbacks in the fundamental services meant to keep Coloradans safe and prosperous. These might include:

Departments that draw down federal support with state money, like the Department of Health Care Policy and Financing (HCPF), would also see significant service cuts under option one.

  • Department of Agriculture: Reduced ability to respond to disease outbreaks among livestock
  • Department of Natural Resources: Diminished oversight and management of water resources
  • Department of Law: Reduced ability to keep consumers safe from bad actors
  • Department of Early Childhood: Reductions in Universal Pre-school services

Departments that draw down federal support with state money, like the Department of Health Care Policy and Financing (HCPF), would also see significant service cuts under option one. HCPF is one of the largest departments in the state, and most of its funds are used to reimburse providers who offer services for those on Medicaid. Importantly, the cost of these services is, generally, split evenly between the state and federal government. For every dollar the state spends on Medicaid services, the federal government spends a dollar in return. As a result, if HCPF had to reduce the amount of state money spent on Medicaid services by $900 million, this would result in a total reduction of approximately $1.8 billion.

Option Two: Targeted Cuts

A second option imposes more selective, targeted cuts. Notably, there is precedent for this path. During the Great Recession, the state’s General Fund saw a more than 11 percent decrease between FY 2008-2009 and FY 2009 – 2010. To protect core services, some departments saw relatively small budget reductions. By contrast, others, like the Department of Higher Education – which saw a 35 percent decrease in General Fund support – were more significantly impacted. Additionally, it was during this time that the Budget Stabilization Factor was introduced because the state didn’t have the funding to keep up with its constitutionally required K-12 obligations.

If lawmakers were to enact targeted cuts in response to Initiative 108, it may include:

  • A 6 percent cut to all departments except the three largest which collectively constitute nearly 70 percent of General Fund spending. In this way, impacts to the fundamental government services mentioned in option one would be mitigated.
  • A 9 percent cut to HCPF. This reduction equates to a 15 percent decrease in Medicaid reimbursement rates, which are already recognized as too low to reliably cover provider costs. The potential impact on rates for personal care services for those who are older or who have a disability is seen below. It should be noted that these rates are expected to cover all provider costs, including worker wages and benefits, supervisor costs, equipment, training, and overhead expenses.
  • A 25 percent decrease in the General Fund share of K-12 spending. This would lead to a more than a $1 billion drop in funding. As we’ve documented elsewhere, an ongoing cut of this size  would lead to the return of a Budget Stabilization Factor.
  • A 65 percent reduction in higher education funding. As has been the case during prior periods of fiscal stress, higher education would likely receive the bulk of budget cuts. It is probable that, in order to help institutions makeup for lost revenue and cover their costs, post-secondary tuition would increase for Colorado students and families.    

Option Three: Prioritize K-12 Education

Finally, lawmakers may decide to protect certain services and prevent cuts in key areas. K-12 education is  a widely recognized priority that many see as critical to Colorado’s long-term well-being. With this in mind, we take a look at what it would take to maintain K-12 funding in full should Initiative 108 pass:

  • An 18.45 percent reduction in all departments except Medicaid and higher education. This would lead to the dangerous cutbacks in fundamental government services discussed above in option one.
  • A 15 percent cut to HCPF. This would equal a 25 percent reduction in Medicaid reimbursement rates. The impacts to provider rates for personal care services are seen below.
  • An 80 percent reduction in higher education funding. Reductions of this size would certainly lead to higher post-secondary costs for Colorado families, as mentioned in option two. However, this level of cuts is likely to jeopardize the ability of some schools throughout the state, but particularly those outside the Front Range, to remain open.

If Initiative 108 passes it isn’t a question of whether Coloradans will see a reduction in services, but which services will receive the largest cuts. Will it be child care or Meals on Wheels? Higher education or K-12? Medicaid or environmental monitoring? Initiative 108 pits each of these essential services which Coloradans rely upon against one another and unnecessarily forces difficult decisions.