Herman: Colorado’s over-spending problem explained

January 19, 2025 By Nash Herman

Colorado legislators are discovering first-hand the impossibility of having their cake and eating it too.

The Joint Budget Committee continues to meet with dozens of departments to reconcile an approximately $750 million budget shortfall in 2025, with some absurdly claiming that deficit is purely a result of the Taxpayer’s Bill of Rights (TABOR) at work.

Granted, it does sounds bizarre that the state must make budget cuts in a year that it is still expected to collect a surplus of revenue beyond what is allowed by TABOR. But by looking at the facts, anyone can come to see how the so-called budget “crisis” is actually a self-inflicted wound from the legislature’s relentless over-spending.

Having their cake 

Due to the Covid-19 pandemic, Colorado received a windfall of federal funds to prop up the state economy and boost recovery.  To fund that massive stimulus, the federal government printed money, causing an increased supply of dollars chasing the same number of goods.  This in turn lead to the dollar being worth less, also known as inflation.

The Covid-driven federal spending spree and subsequent inflation actually resulted in a two-fold boon to the Colorado state budget:

First, federal funds are TABOR exempt, meaning the state government could keep and spend all the stimulus money without being required to return any to Colorado taxpayers.

Second, the TABOR limit grows annually according to a formula of population plus inflation.

The increase in inflation meant state government spending was allowed to grow larger, according to TABOR.

Eating their cake 

Colorado state government used the federal largesse to pay for some of their biggest priorities like eliminating the K-12 education shortfall, expanding mental health and early childhood programs, and increasing higher education funding.

The problem with using federal bailout dollars to pay for ongoing state projects is that eventually the one-time money run out, while the special interest spending obligations remain.

Colorado received over $2.8 billion from the federal Education Stabilization Fund (ESF) after the pandemic, then distributed to several smaller funds: Elementary and Secondary School Emergency Relief (ESSER), Governor’s Emergency Education Relief Fund (GEER), Emergency Assistance to Non-Public Schools (EANS) and Higher Education Emergency Relief fund (HEER).

While funds from ESF were mostly used to address immediate needs during the pandemic, much of the almost $1.7 billion allocated to ESSER, for example, was used to fund projects with ongoing funding needs.

Additionally, while inflation permits increased spending for the state government, it also increases the costs for just about everything.

Now that inflation is finally cooling, the state government has less room for growth as allowed by TABOR.

Meanwhile, the less elastic costs of education, tax breaks, Medicaid, and other government programs and services remain high.

Moreover the idea of ever returning any money to taxpayers is appalling to the progressives currently dominating the legislature.  So instead they created and expanded an unprecedented amount of special interest tax breaks to spend down TABOR surpluses, thereby reducing state revenue and avoiding larger refunds.

The current budget shortfall is the logical conclusion when running out of federal funds, cooling inflation, and the loss of revenue due to tax loopholes smacks up against over-spending.

Insatiable state government 

Colorado’s ruling Democrats engage in a great Sisyphean delusion–if only they could retain just a little more of your money, they would deliver heaven on Earth, and they’re banking on Coloradans being stupid enough to believe TABOR is the obstacle stopping them from ever reaching the top of the mountain and into paradise.

But to those who know better, TABOR is the last and best defense Coloradans have against government overreach.

Ultimately, the 2025 budget deficit was caused by over-promising, and over-spending by Colorado legislators, and now they must deal with that shortfall as it is, not as they falsely claim it to be.

Nash Herman is a fiscal policy analyst at the Independence Institute, a free market think tank in Denver.

Herman: Colorado’s over-spending problem explained – Complete Colorado