The Colorado Capitol will return to a bustle Thursday as lawmakers flock back months early for a special session on the budget that no one wanted.
The bills they pass in the coming days could determine the fate of certain state tax breaks and how much the state dips into its reserves — as well as the need for spending cuts for programs. The federal tax-and-spending bill signed by President Donald Trump last month blew an estimated $783 million hole in the state budget for the current fiscal year, spurring Gov. Jared Polis to call the special session and sending the Democratic majority into a scramble to rebalance the books and shore up state services.
Republicans, who have framed the problem as one of too much state spending by Democrats, are being pulled along. They have hailed the federal law as a package of tax cuts whose state-level benefits the legislative majority wants to pave over.
The result is a dash expected to last five days or so.
Lawmakers hope to balance proposals that would raise state revenues, dig into the state’s rainy-day fund and give Polis more authority to make cuts to spending between now and the start of the regular legislative session in January.
And in the background, lawmakers will attempt to tinker with state regulations around artificial intelligence that have pitted the tech industry against consumer advocates.
Already, the special session has taken on a sharp partisan edge as the Democrats who control state government hammer Trump and congressional Republicans for passing the tax bill that created the problem for the state. They’ve put a particular emphasis on the Colorado congressional incumbents they see as vulnerable in the 2026 election.
“This session is about what the Republican (tax and spending law) did to our state, that Republican members of our congressional delegation like Rep. Evans and Rep. Hurd voted for — and us having to pick up the pieces and make the math add up,” Polis said in an interview Wednesday, referring to Republican U.S. Reps. Gave Evans and Jeff Hurd.
The special session is the third one called in three years, on the heels of past ones geared toward property taxes.
Heading off ‘enormous and devastating’ cuts
Since Polis formally called lawmakers back earlier this month, the Democratic legislators who control the Capitol have coalesced around a three-pronged approach to overcome the estimated $783 million shortfall: making revenue-raising changes to the tax code, borrowing from the state’s piggy bank and cutting spending.
Each prong could take care of roughly a third of the shortfall, which represents more than 4.5% of the state’s general fund budget for the fiscal year that began July 1.
The scale of the shortfall — and the looming threat of cuts — has generated more unity among lawmakers around a typically contentious topic, even among Democrats: limiting or eliminating tax incentives for corporations.
At a meeting last month to discuss the federal law, Democrats were walked through polling data that showed a majority of voters believe the tax bill will help the wealthy and hurt the poor. More data showed support for taxing the wealthy and larger corporations.
In line with that, Democratic lawmakers from across the left-of-center spectrum have repeatedly criticized the federal tax law as a giveaway to billionaires and laid the blame for it at the feet of Trump and Republicans.
“That is why we’re coming back,” Sen. Jeff Bridges, a Greenwood Village Democrat and chair of the powerful Joint Budget Committee, told reporters Tuesday. “No other reason, no matter what anyone says.”
The federal tax bill, signed into law by Trump on July 4, cut taxes by $4.5 trillion, while slashing Medicaid and food stamps. Because of Colorado’s rare and close mirroring of the federal tax code, the state was hit right away with the trickle-down effects of the tax bill, through lower state income tax collections — resulting in the budget gap.
Or as Democratic Sen. Kyle Mullica put it at a Northglenn town hall Monday: “We’ve been dealt a (expletive) hand. That’s what Congress has done.”
Sen. Barbara Kirkmeyer, a Brighton Republican and a member of the budget committee, acknowledged that the tax bill did add to the state’s budget woes. But it did so, she argued, by cutting Coloradans’ taxes by $1.2 billion.
She characterized Democratic plans as simply raising state taxes to account for tax cuts made at the federal level.
“Thanks to H.R. 1 and our Republicans, we’re getting federal tax relief and state tax relief,” Kirkmeyer said, using the legislative shorthand for the tax bill. “And Democrats are upset about it.”
Republicans are set to oppose all of the revenue raisers that Democrats plan to pursue. They instead call for spending cuts to address the state revenue shortfall caused by the tax bill.
Kirkmeyer and Minority Leader Rose Pugliese, the top Republican in the House, have said Polis should’ve immediately instituted across-the-board budget cuts using his own statutory authority, without having to call lawmakers back early.
Kirkmeyer also questioned if the proposed changes to the state tax code would run afoul of the Taxpayer’s Bill of Rights, the state constitutional amendment that requires a vote of the people to raise taxes.
While Democrats want to minimize cuts, the state will have to reduce spending, depending on how much money is raised through other legislation or borrowed from reserves. The decision of what to cut will fall to Polis and his staff, though the details of those reductions will come later this month, after the session ends — and legislation to tweak Polis’ spending-cut authority would require him to notify the Joint Budget Committee about them.
Polis’ office said Tuesday that even if lawmakers reduced the shortfall by $250 million by nixing some business-friendly tax incentives, the scale of the budget gap would still require cuts to services.
In the Wednesday interview, the governor said the extent of the reductions would depend on the final details of laws passed during the special session. Polis was confident the state could avoid funding cuts to K-12 education spending, but he otherwise left the door open to other spending cuts, including to reimbursement rates for health care providers who treat Medicaid patients.
“We have to make those corresponding cuts because, unlike the federal government, which increased their deficit with H.R. 1, we actually need to balance our budget,” Polis said.
If the state legislature doesn’t act, he said, the cuts would likely be “enormous and devastating.”
Included in Polis’ order calling the session was a direction for lawmakers to tackle other impacts of the tax bill. They now plan to change a November ballot initiative, which as written would shore up funding for the state’s school meals program, to direct excess money to food assistance if voters approve it.
They also plan to tap a state treasurer fund to help curb rising health care premiums. And they will move to direct state health officials to reimburse Medicaid providers like Planned Parenthood, which were targeted for defunding by federal lawmakers because they perform abortions.
Debate over AI resumes
Polis also wants lawmakers to reform the state’s artificial intelligence regulations, a policy debate that presents its own internal conflicts and debates. The state has AI regulations on the books that seek to prevent discrimination when AI is used to make consequential decisions, like hiring or educational applications.
Those go into effect in February, but Polis and the tech industry — as well as a coalition of companies and agencies that use AI — have called for that law to be reformed beforehand. Polis said Wednesday that he supports an approach backed by more moderate legislators and the business, tech and government groups.
But more progressive legislators, together with labor and advocacy groups, are backing a separate bill that’s more focused on consumer protections, setting up a fight.
There’s more alignment among Democratic lawmakers on how to fix the budget crisis. Since TABOR prevents them from raising taxes without voter approval, they instead have identified several business-friendly tax policies to eliminate.
That includes expanding the list of offshore foreign tax havens so the state can tap revenue held in countries including Singapore and the Netherlands, plus eliminating a tax credit for insurance companies that keep offices here. (Recent audits showed the incentive didn’t keep jobs in the state.)
For several years, lawmakers have temporarily eliminated a tax deduction for earners who make more than $500,000. During the special session, they intend to make that provision permanent.
In response, Republicans have proposed several bills that directly counter those plans. While Democrats want to eliminate a policy that lets businesses keep a slice of sales tax revenue, Republicans are proposing to double the amount that companies can retain.
Other bills would require voter approval before that fee or other tax changes could be implemented.
Pugliese, the top House Republican, said her caucus would make its priorities known, though she acknowledged that the balance of power in the Capitol was tilted against the GOP.
The likelihood of bipartisanship has been further strained by the messaging heading into session, as Democrats have vented about Republicans’ attempt to shift blame for the shortfall from the federal tax bill to longer-standing — and largely separate — arguments over state budgeting and funding priorities.
Kirkmeyer said Democrats haven’t sought to work with her or other Republicans on the measures and have largely kept the minority in the dark. She predicted some filibustering in the House but, like Pugliese, noted the imbalance of power.
“I think our bills are going to be dead on arrival,” Kirkmeyer said. “That’s just what happens in a minority. And (Democrats are) going to rush through their bills to increase taxes.”
Some of the Democrats’ proposed tax changes, like ending the deduction for high earners and eliminating the insurance incentive, have been discussed before, only to run into opposition among Democratic policymakers.
Now, Democratic leaders say their members are largely aligned.
“I think that our colleagues understand that any loophole we don’t close means cuts to services that Coloradans depend on,” Bridges said, “and I think no one wants to see that.”
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