Gov. Jared Polis calls Colorado lawmakers back for special session to deal with budget fallout from tax bill

For the third consecutive year, Gov. Jared Polis is summoning Colorado lawmakers back to the state Capitol for a special session — this time to close a yawning budget gap ripped open by the federal tax bill.

Lawmakers will return on Aug. 21 for a session that lasts a minimum of three days, Polis announced Wednesday morning during a news conference at the governor’s mansion in Denver. They’ll be tasked with cutting or finding roughly $783 million to offset the net loss in revenue this fiscal year, which ends next June, as a result of the tax bill passed by Congress and signed into law by President Donald Trump last month.

“The approach here is a balanced approach that would involve major spending cuts, new revenue and limited use of reserves, as long as we can pay it back,” Polis said in an interview Wednesday. “The less revenue there is, the more the cuts will be.”

The hole is significant, representing more than 4.5% of the state’s general fund budget. The total revenue loss of roughly $1.1 billion — of which about $300 million is absorbed by the state’s previous surplus — is larger than the loss felt during the 2008 financial crisis, state budget officials said last week.

Those officials had previously estimated the general fund shortfall at nearly $1 billion, but they lowered the general fund impact to $783 million in updated projections released Tuesday. Polis told The Post that state officials were “not expecting, at this point, any furloughs or layoffs.”

But Polis implemented a state government hiring freeze, starting later this month and running through the end of the year. To fill the shortfall, he called on lawmakers to “restrict spending, enhance revenues and use a modest portion of the state’s rainy day reserves.”

Specifically, Polis’ office wrote that he wanted to allow some businesses to prepay their taxes; to limit who can access other tax deductions; to adjust a unique, $80 million annual tax reduction for the insurance industry; and to expand limitations on corporations that park their earnings in foreign countries to avoid tax liability here.

In the Wednesday morning interview, Polis said the hiring freeze would save between $3 million and $7 million. If the legislature were to adopt all of the revenue-raising proposals Polis put forward, that would account for $300 million, and his office recommends tapping 2% — or another $300 million — in reserves.

Assuming that all of the governor’s proposals pass the legislature, that still leaves nearly $200 million in needed cuts. Polis told The Post that he would refer legislators to cuts he’d previously proposed. Last year, he’d recommended cutting Medicaid provider rates, slow-walking a new school funding formula and privatizing the state’s workers-compensation insurer.

Polis stressed Wednesday he did not want to cut schools during the coming special session.

Any money pulled from the reserves would have to be paid back in the coming years, and any amount taken from the piggy bank means the state would be less prepared to weather any economic downturns that come in the short term.

He also asked legislators to tackle changes to Medicaid and food assistance, both of which are set to lose significant amounts of federal funding in the coming years under the tax bill. He asked them to tweak a November ballot measure that seeks to shore up funding for the state’s school meals program, so that revenue could be used to cover new costs for providing food assistance.

He also called for support for Planned Parenthood, which was targeted by the tax bill, and he asked for changes to a state program that charges a fee to insurers to lower premium costs. Coloradans are projected to pay more for health plans purchased on the individual exchange because the tax bill didn’t extend tax credits that trimmed those costs.

Finally, Polis charged legislators with addressing the state’s artificial intelligence law, which goes into effect in February. The governor had previously sought changes to the law, which seeks to prevent discrimination by AI systems, amid industry pushback against the coming regulations.

But the state Senate’s Democratic majority leader, Sen. Robert Rodriguez, who backed the law when it first passed, dropped his own plans to reform the regulations in the spring, which sent parts of the Capitol into a tailspin. A last-ditch attempt to ram changes through in the dying hours of the regular legislative session in May also collapsed.

Rodriguez did not immediately return a text seeking comment about the governor’s sought-after AI changes Wednesday morning. Supporters of the legislation have been preparing for another fight over the regulations, and Polis’ desire to delay or reform them will be a significant subplot of what’s likely to be a contentious special session.

Wednesday’s announcement came as little surprise. Congress had been expected to cut Medicaid this summer, and legislators had braced for an early return to the Capitol since the spring. That expectation solidified after the tax bill passed, and the governor’s office erased any remaining doubt last week, when budget officials told legislative leadership that each passing day made it harder to shore up the state’s budget.

Democratic lawmakers, who have near-supermajority control over both legislative chambers, have met repeatedly in recent days to discuss potential solutions. Lawmakers formed several working groups related to the budget, as well as to Medicaid and food assistance.

Lawmakers discussed supporting Planned Parenthood and further pulling the state away from the current reality in which its tax system closely mirrors the federal tax code. They also floated closing certain corporate-friendly loopholes and incentives, which Polis alluded to in his announcement.