DID YOU KNOW…
Colorado’s state budget pays for essential services like education, public safety and our transportation system that define our daily quality of life. Unfortunately, our aging population and a series of amendments which we’ve made to our constitution over the last several decades have created a fiscal conflict within our state budget that’s eroding our ability to sustain that quality of life.
We all understand that Colorado’s state budget pays for essential services that define our daily quality of life. But did you ever wonder…
“Where does the state get its money?”
“Where does all that money go?”
Learn where the Centennial State gets its money, how it spends that money, and your role in that budget process.
Watch the video and explore the information to get started!
Where do my tax dollars go?
Coloradans pay about 27% of their income in Federal, State and Local taxes to fund essential government services that define our quality of life, and only 16% of that goes to fund State government.
On average, Coloradans pay about 27% of their personal income through various taxes to fund federal, state, and local governments, with about 2/3rds of that going to the federal government and the remainder split between state and local governments.
State share of P-12 Education
Prisons & Courts
Local share of P-12 Education
Police & Fire
Culture & Recreation
Where does the state get its money?
The state budget is what our state government uses to pay for all those essential state services that we depend on. Our state government collects almost $30 billion each year through three sources of revenue, with about 40% coming from state taxes (“General Funds”), 30% coming from state fees (“Cash Funds”), and 30% coming from the federal government (“Federal Funds”).
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The state's $11 billion General Fund is the only part of the state’s revenue budget over which the state has much discretionary control, and is used to pay for the state’s core programs, such as education, health care, and prisons.
When people talk about the “state budget”, they’re usually referring to the state’s General Fund which is sort of like the state’s checking account. The General Fund is used to pay for the state’s core programs, such as education, health care, human services, and prisons. The General Fund amounts to about $10.6 billion for FY17-18 and is really the only part of the state’s revenue budget over which we have much discretionary control; the rest of the state’s budget is dedicated for prescribed uses dictated by state and federal laws.
About 70% of the General Fund comes from State Income Tax, 25% from State Sales Tax, and the remainder from Excise and Use taxes.
Cash funds are generated by specific state services and are restricted to be used to fund only those services and prescribed program areas.
Cash funds – amounting to about $8 billion in FY17-18, or 30% of total state revenues — are generated by specific state services and are restricted to be used to fund only those services and prescribed program areas.
The largest source of Cash Funds are college tuition, fees and research grants which make up 60% of Cash Funds, and these revenues must, in turn, be used to fund higher education. Other much smaller sources of Cash Funds include vehicle-registration fees, the Hospital Provider Fee, state lottery revenues, and marijuana taxes – all of which must be used to pay for prescribed program funding.
How much does Marijuana contribute in taxes, and what’s that used for? CLICK HERE to learn more!
Federal Funds cannot be used by the state for programs other than what the federal government prescribes.
Federal Funds are moneys which the state receives from the federal government to support specific programs such as Medicaid and transportation infrastructure; Federal Funds cannot be used by the state for programs other than what the federal government prescribes. For some programs, such as Medicaid, state funding is matched with federal funding, therefore, the amount of Federal Funds received depends on the amount of matching funds which the state contributes.
Some Federal Funds are simply passed through the state to local governments, such as money for human service programs like Temporary Aid to Needy Families (TANF) and food stamps; while these funds are technically part of the state budget, they are considered to be custodial funds and the state can’t use them.
What does the state spend its discretionary general funds on?
General Fund Expenses, FY 2017-18
Our state legislature’s primary responsibility each year is to adopt a balanced state budget, but they have surprisingly little control over this responsibility.
Since the General Fund is essentially the only state revenue over which our elected legislature has much discretionary control, these are the funds which our state relies on to pay for the state’s core programs, such as education, health care, human services, and prisons. The legislature’s primary responsibility each year is to adopt a state budget which provides for these programs and stays within the bounds of the constitutional fiscal constraints which the people have placed on the use of these monies.
In FY2017-18, the state’s General Fund was allocated to pay for $10.6 billion in programs.
The Big Three budget items:
K-12 Education, Health Care and Corrections consume almost 3/4th of the state's General Fund budget … and these expenditures are largely out of our legislature’s control.
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Health Care and Human Services constitute 35% of the General Fund budget.
Health Care – primarily representing the state’s 50% cost-share of the federal Medicaid program – makes up the second-largest expense item in the General Fund budget, consuming 27% of the General Fund budget in FY17-18. Federal law requires that states provide for a minimum level of Medicaid eligibility, therefore this expenditure is also largely out of our legislature’s control. Because of the increasing health care costs related to Colorado’s aging “Baby Boomer” population, this is the fastest-growing area of the state’s budget.
Human Services – representing 8% of the state General Fund budget – includes everything else that constitutes public assistance, such as child welfare/protection (foster care), adult protective services, food assistance, and temporary financial assistance.
Colorado’s Population is Aging Faster than Most States
… and Our Aging Population is Reducing State Revenues and Increasing State Costs
- Between 2010-16, Colorado's population of seniors (age 65+) grew by 34%, which was the 3rd fastest rate of growth in the US.
- Over the next 30 years, the percent of Colorado’s population which is age 65+ is expected to double from 10% to 20% — at which point 1 in 5 Coloradans will be seniors who will contribute relatively little tax revenue and generate relatively large health care costs for our state.
Health care for Colorado’s aging population is expensive.
Although “Elderly and Long-term Care” Medicaid recipients make up less than 6% of the state’s total Medicaid population, they consume almost 20% of the Medicaid budget.
- Seniors are forecast to be among the fastest growing cohorts within Colorado’s Medicaid population out to the year 2030.
- Medicaid costs related to care for the elderly are forecast to be among the fastest to inflate.
Colorado's increasing cost of health care for the elderly is reducing available funds for other state priorities like Higher Education.
The largest expense item in the General Fund budget is the state’s share of K-12 Education, representing almost 40% of the annual budget.
The state currently pays for about 70% of total K-12 Education costs while local governments pay for the remaining 30%. The amount of the state’s budget which must be dedicated to fund K-12 is mandated in our state’s constitution (Amendment 23) and this expenditure is therefore out of the legislature’s control.
Ironically, even though K-12 represents the largest item in the state’s budget, and the state is constitutionally-mandated to fund K-12 per Amendment 23, state funding for K-12 has been significantly reduced over the last decade. In 2010, in an effort to balance the state’s budget during the Great Recession, the state reinterpreted the Amendment 23 funding mandate which resulted in reducing funding for K-12 education by almost $1 billion per year.
While Colorado spent more than the national average on per-pupil funding in the 1980s, this investment has steadily declined and, today, we spend almost $2000 less per student than the national average.
The state’s cost for managing our corrections system represents 7% of General Fund expenditures. While state laws help provide for sentencing guidelines and can therefore influence the cost of incarceration, this area of our state budget is largely driven by the prevailing crime rate and is therefore beyond the legislature’s control.
Two other important areas of the state budget:
Higher Education and Transportation
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The state’s contribution to fund Higher Education is the fourth largest expenditure in the General Fund, currently representing about 8% of the state’s budget. But unlike K-12 Education (for which funding is mandated in our state constitution), Health Care (for which funding for Medicaid is mandated by the federal government) and Corrections (for which funding is driven by the caseload), Higher Education funding is entirely at the discretion of our legislature.
Since spending for K-12 Education, Health Care/Human Services, and Corrections/Courts continue to grow and are largely on auto-pilot, and the overall size of our state budget is constitutionally-limited by the TABOR Amendment, the legislature has been forced to dramatically decrease funding for this discretionary item of Higher Education over time.
What's the difference between state LAWS and our state CONSTITUTION?
Our state LAWS (also referred to as “statutes”) regulate how we live together in our civil society. We elect representatives who adopt laws that place limits and requirements on our individual freedoms so that we can all live in harmony.
For example, our legislature has adopted laws restricting how fast we can drive and prohibiting hunting after dark. While our elected legislature adopts most of our state’s laws, the people can also adopt laws separate from the legislature through the Citizen Initiative process by placing measures on the ballot to be voted on by everyone.
Our state CONSTITUTION regulates our government and places limits on the authority that our government exercises over the people who elect them. For example, our Colorado constitution places limits on how long our state elected representatives can serve and how state taxes can be levied.
While both our elected legislature and individual citizens can propose amendments to our constitution, ONLY WE, THE PEOPLE, CAN AMEND COLORADO’S CONSTITUTION.
Three amendments that we’ve adopted to our state constitution have restricted our legislature’s ability to manage our state budget.
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In 1982, Colorado voters adopted the Gallagher Amendment to our constitution to limit the increase in future residential property taxes by freezing the ratio between the state’s total value of Non-Residential and Residential property so that Residential property in Colorado would always constitute approximately 45% of the state’s total property valuation. While the Gallagher Amendment was a well-intended effort to limit the growth of Residential property taxes, it has since caused significant unintended effects which have limited the ability of local and state governments to provide the basic services which citizens expect:
- The taxable value of houses has been dramatically and continuously reduced (from 30% to 7%) which has put in jeopardy essential local government services which rely on that tax base (like fire protection, water & sewer infrastructure, and libraries).
- The forced decline in the residential tax base has reduced local property tax revenues to support K-12 school districts, which has shifted the burden for funding K-12 from local governments to the state government. Additionally, subsequent efforts by local taxing authorities to increase their mill levy to offset this decline has unfairly shifted the property tax burden to business property owners which creates an unfriendly tax environment for growing and attracting businesses.
- The forced decline in residential values has disproportionately and adversely impacted the poorest communities with the lowest rates of growth in property values.
Only ten years after adopting the Gallagher Amendment, Colorado voters adopted the TABOR amendment to Colorado’s constitution which primarily did two things:
- TABOR prohibits the state from collecting tax revenues each year in an amount in excess of the growth in “population plus inflation”; any General Fund revenues collected beyond this restriction must be refunded to the taxpayers. This limitation prevents the state from being able to take advantage of periods of economic growth to reinvest in our state’s infrastructure when the economy (and corresponding tax revenues) is growing faster than inflation plus population. Additionally, because the cost of many of the services that we expect state government to provide (i.e. health care for the elderly) rise in cost at a rate which grows FASTER than inflation, the state’s ability to pay for the cost of these services is diminished.
- TABOR also prohibits the state from raising tax revenues without a vote of the people. This not only applies to proposed NEW tax increases, but also to EXISTING floating local mil levies that had previously been allowed to automatically increase and decrease as circumstances warranted. While the previously existing floating mil levies are still allowed to DECREASE automatically as circumstances warrant, they can’t correspondingly INCREASE without a vote of the people, which means these existing tax bases (and the public services which they support) are being forced to unsustainably shrink over time.
Because of the combined adverse effect which both the Gallagher Amendment (1982) and the TABOR amendment (1992) were having on K-12 funding, Colorado voters adopted Amendment 23 into our state constitution in 2000 which mandated that the state must annually increase funding for K-12 education at the rate of “student enrollment plus inflation”. Again, while Amendment 23 was well-intended to benefit K-12, it has limited the state’s ability to address other state priorities.
WHAT'S THE PROBLEM?
While these three constitutional amendments which we’ve adopted concerning fiscal policy were each adopted independently of each other over a 20-year period, they interact with one another in ways that were likely never foreseen or intended when Coloradans voted for them. Amendment 23’s spending mandate for K-12 education (which, at about 40% of the total state budget, is the largest cost item in our state’s budget), coupled with the TABOR Amendment’s restriction on state revenues, coupled with the Gallagher Amendment’s unintended shift in funding for K-12 education from local government to state government have put tremendous strain on our state’s budget and forced significant reductions in essential state services.
Consequently, it will be up to Colorado voters – NOT their elected legislature – to change these constitutional funding constraints IF they desire a different outcome.