Two days after the end of a special session that rolled back $153 million in tax breaks to help close a budget shortfall, Gov. Jared Polis on Thursday announced plans for $252 million in budget cuts that particularly will hit Medicaid and affordable-housing providers.
The immediate spending cuts — most take effect Sept. 1 — represent one more tool the Democratic governor is using to fill a $783 million fiscal-year budget shortfall created by the July passage of federal tax cuts in House Resolution 1 that also lower state revenues. Polis also announced Thursday that he will take $325 million out of the state’s reserve fund, reducing it from 15% to 13% of the total general-fund budget, and the Legislature authorized the sale of $100 million in tax credits that can be redeemed in future years.
Polis’ budget cuts include $146.7 million in transfers from cash funds to the general fund, most of which is represented by cutting $105 million from Proposition 123 money destined to a state agency to use for land-banking and building affordable housing. He announced $102.5 million in cuts to state programs too — most significantly a $79.1 million rescission from public-health programs in the Department of Health Care Policy and Financing — and said he expects to save $3 million by freezing state hiring through the end of 2025.
“There’s no easy decisions to make, and we all wish we were not here doing this,” Polis told the Joint Budget Committee during a presentation Thursday. “But we dug deep and made sure we could try to avoid major damage.”
Cuts to multiple healthcare reimbursements
The biggest impact to the business community may be that felt throughout the healthcare sector by the HCPF cuts, especially Polis’ decision to roll back a 1.6% reimbursement-rate increase for Medicaid providers starting on Oct. 1, which will leave rates flat from last year. The state also will save money by reducing dental provider rates ($2.5 million), reinstating prior-authorization requirements on outpatient psychotherapy ($6.1 million) and cutting reimbursement rates for pediatric behavioral therapy ($2.7 million), among other moves.
These reimbursement-rate reductions come as the state is experiencing a spike in the rates of uninsured patients, which leaves more people waiting to seek acute-care services in hospitals and unable to pay their bills, putting financial pressure on hospitals. As a result, nearly 75% of state hospitals have unsustainable operating margins of 4% or lower, and Colorado Insurance Commissioner Michael Conway expects 80,000 state residents to drop private insurance in 2026 because of double- or triple-digit premium hikes.
“Colorado hospitals are already navigating very difficult financial pressures, and this setback further strains the resources needed to care for patients and communities,” the Colorado Hospital Association said in a statement Thursday. “We recognize the tough choices required in this budget process, but reductions to provider rates – particularly alongside other health care cuts stemming from H.R. 1 – add to the challenges ahead.”
Controlling costs like the private sector
The cut in provider rates was one of the areas that drew bipartisan concern Thursday as Polis and Mark Ferrandino, director of the Office of State Planning and Budgeting, presented the plan to the JBC. Committee members fought Polis’ recommendation earlier this year to leave those rates flat, arguing that at a time of medical inflation, some boost was needed to ensure enough doctors continue to see Medicaid patients to provide a workable network for them.
Ferrandino said he understood the concerns, but he noted that Medicaid costs continue to outpace inflation so greatly that spending increases for the program could account for all the room that the Taxpayer’s Bill of Rights allows the state budget to grow next year. This year’s cuts to Medicaid represent just a first step to rightsizing the program, particularly as the federal government imposes work requirements on recipients in 2027 in order for states to seek federal reimbursement, leaving Colorado to decide to cut costs or raise revenues.
Some of the steps the state is taking now are likely to lead to a reduction in services that patients can get, but there must be a balance, Ferrandino and Polis emphasized.
For example, the state is reinstating requirements that patients receive prior authorization for outpatient psychotherapy in part because costs for those services rose 17% after the requirement was dropped a few years ago, Ferrandino said. And the state is implementing pre- and post-claim review of all pediatric autism behavioral therapy codes because it’s seen an unsustainable 30% growth in that program recently, requiring it to re-evaluate which claims should be accepted and rejected.
“The private sector controls growth through tools like prior authorization,” Ferrandino said. “We’ve removed some of those, and we are now working on putting them back in.”
Higher education targeted too in budget cuts
Another set of cuts that brought questions from both Democrats and Republicans was the $12.3 million reduction in funding to higher-education institutions — a reduction made in the same proportions in which the colleges and universities are funded. Polis will allow the individual schools and systems to determine how to reduce funding, but he emphasized that the cut represented only about a third of the $35.4 million increase they got in funding for this fiscal year, which ends on June 30.
University of Colorado Vice President of Communication Michelle Ames said that it’s too soon to know exactly which areas at her school will lose funding, but she emphasized that CU will not raise tuition this school year because of the change. “While no one wants to face budget cuts, at CU we understand the difficult budget situation we are in as a state,” she added in a statement.
Rep. Shannon Bird, D-Westminster, said she worries about what kinds of options will be open to universities that already have set their budgets for the school year that began this month and now could have to rescind educational offerings. And Sen. Barbara Kirkmeyer, R-Brighton, criticized Polis for taking money from programs that will affect a wide swath of Coloradans rather than eliminating narrowly tailored programs that have created a host of new government jobs.
“When we called on the governor to cut spending, we meant cutting his useless pet projects, not slashing Medicaid and higher education,” Kirkmeyer said in a news release after the hearing. “Time and again, this Governor has shown he has a crisis of priorities. Instead of protecting programs that millions of Coloradans depend on, he’s shielding the bloated offices he created that have done nothing to make our state more affordable.”
Polis also signs special-session bills
The decision to use $105 million from the Proposition 123 revenues for affordable-housing projects was something that specifically was allowed in the ballot initiative that voters approved in 2022 to create the fund, Ferrandino noted. It represents about 60% of the revenue that is slated to go to the program this year, and it won’t impact the roughly $80 million in gap-funding assistance that the state offers to developers who also get federal Low Income Housing Tax Credits.
Under state laws, Polis is allowed to make the cuts without needing approval of legislators to do so. Those senators and representatives unhappy with the specific cuts can offer supplemental budget bills after the 2026 session convenes in January that would rearrange some funding if passed.
In addition to announcing cuts on Thursday, Polis also signed each of the bills that was passed during the six-day special session that ended Tuesday, as he was expected to do. Those include four bills that roll back tax breaks for employers, two that authorize sale of tax credits and one that delays implementation of first-in-the-nation artificial-intelligence regulations from Feb. 1 to June 30, to give legislators time next session to loosen rules.
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