Episode Transcript
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Speaker 1 (00:00):
Not an entirely unexpected headline over at the Colorado Sun yesterday,
Colorado lawmakers must cut a billion dollars from the state's
current budget because of GOP federal tax and spending bill.
And so I reached out initially to Mark Farandino, who
was the executive director of the Colorado State Office of
(00:21):
Planning and Budgeting. He used to head the Department of
Revenue as well. And I've known Mark, as I like
to say, I've known Mark a little bit for a
long time, going all the way back to when he
was Speaker of the House, which is probably longer ago
than either one of us want to remember. So not
only does Mark join us to talk about this challenging
budget issue, but another guy you might have heard of,
(00:45):
who is sometimes called the Boss and who is known
to others as Governor, Jared Polis, joins us for the
conversation as well. And I'm first thank you to both
of you for showing up today, especially on such short notice.
I'm grateful that you're here to talk about such an
important thing.
Speaker 2 (01:03):
Thank you, ross pleasure to be on.
Speaker 1 (01:05):
And yeah, and we'll see Jared's Jared's connection is if
he so we'll see and Mark you need to unmute yourself.
Speaker 3 (01:16):
There you go, Oh, yes, all right, there you go.
Speaker 1 (01:18):
All right, So why don't we start Why don't we
start with the macro and and maybe we'll start with
with Mark and tell us at the high level.
Speaker 3 (01:29):
What is the challenge and why is the challenge?
Speaker 2 (01:33):
Hey?
Speaker 4 (01:33):
Ross, if I could do the high level and then
we could go to Marco trail down.
Speaker 2 (01:36):
This is Jared Poles. Does that work for you, man?
Speaker 3 (01:38):
Yeah, whatever you guys want.
Speaker 4 (01:40):
Yeah, So okay, so real quickly, So, we are one
of very few states, in fact four states that immediately
for the current year adopt and the corresponding changes, so
our tax code aligns with federal There's a handful more
that do it on a delayed basis.
Speaker 2 (01:56):
So first of all, let me just say this is a.
Speaker 4 (01:58):
Good thing because in some states you have to file
a totally separate state income tax form and federal income
tax form with different deductions, different liabilities.
Speaker 2 (02:07):
It's twice as much work.
Speaker 4 (02:08):
So as a general matter, it's a good thing that we,
like ninety nine percent conform to federal There's always been
a few things we don't conform on, but for most taxpayers,
you can generally use your same documents for both. But
the downside of that or the upside, whoever you look
at it, is when the federal government makes changes, they're
automatically incorporated into the state tax codes.
Speaker 2 (02:28):
Sometimes they increase revenue, sometimes they decrease revenues.
Speaker 4 (02:31):
Now let me give an example, there's only four states
that for the current year were one of them immediately
stops with the tax on tips, which was in the
federal bill. That's a corresponding change we automatically agree to.
Grad There's other tax benefits that people lose immediately, like
the federal billah are one terminated personal exemption other than
(02:52):
for seniors that raises the state three or four hundred
million dollars. So there's like tons of these changes. Some
add revenue to state, some subtract revenue to the state,
but net it subtracts about nine hundred million dollars of
revenue for the state.
Speaker 2 (03:09):
In the current year that we are in.
Speaker 4 (03:12):
And of course, the state has a requirement to balance
the budget. That's a good thing I wish the federal
government did. Part of the problem is they can do
whatever they.
Speaker 2 (03:19):
Want and not bounce the budget. We balance the budget.
Speaker 4 (03:22):
So because of these tax changes in the current year,
and most of them are on the corporate side.
Speaker 2 (03:27):
The individual ones are more.
Speaker 4 (03:29):
Or less a wash sub gain revenue, some loans revenue,
but generally on the corporate side, there's a number of
them that net net lead us to have to cut
nine hundred million from the current year. So that's the
only reason that we're here having this discussion. It's because
the corresponding changes that are made to state tax code
to HR one. Again, positive side, they happen right away
(03:50):
for Colorado is it doesn't happen in other states. The
challenging side is we also have to make adjustments to
the state budget for the year we're in, not just
future budgets. I hope that kind of explains where we are.
Speaker 3 (04:00):
That does. That definitely does.
Speaker 1 (04:02):
And one quick thing before I get to Mark, to
jump into some additional detail, Governor, have you have you
made a decision about a special session or does this
information about having to cut a billion dollars from the.
Speaker 3 (04:18):
Fiscal year we're already in make.
Speaker 1 (04:21):
A special session something that is.
Speaker 3 (04:22):
Essentially not optional at this point.
Speaker 4 (04:26):
Here's why it's likely ross Okay, So if you were
to wait until January February, when the legislature starts to
cut nine hundred million dollars from their current year, is
more drag Codian because you only have at that point
five months left of the year. We have eleven months
left of the year. And to be clear for our
viewers and listeners, the year for Colorado starts July first,
(04:48):
the fiscal year and goes through June thirty, so we're
in the first month of the year.
Speaker 2 (04:52):
Now is a better.
Speaker 4 (04:52):
Time to do it if we can figure out how
rather than wait. So it's pretty darn important to figure
this out earlier ross because the longer you wait, the
more severe the cuts are for those.
Speaker 2 (05:03):
Fewer remaining months. So that's the long and the short
of it.
Speaker 1 (05:06):
Okay, that makes sense, So I will take from that
that a special session is very likely. Let me go
to Mark Farandino again. Marks executive director of the Colorado
State Office of Planning and Budgeting. He used to head
up the Colorado Department of Revenue and also used to
be Speaker of the State House of Representatives.
Speaker 3 (05:23):
The one high level ish thing for you, Mark.
Speaker 1 (05:26):
The Joint Budget Committee and the Legislature recently had to
find something like one point two billion dollars in the
state budget. So first question for you is that was
that stuff entirely unrelated to this stuff.
Speaker 5 (05:42):
So when you look at last year's when they passed
the budget in April May of last year that the
governor signed, we had growth higher than in terms of expenses,
higher than the available revenue. Revenue grew last year, but
for example, caseload for medicaid, spences on Medicaid grew at
like six to eight percent, where our revenue growth was
(06:06):
under the spending cap was about three three and a
half percent. So that pushes things out because that's growing bigger.
It's the largest part of our budget is growing faster.
It means you have to shrink other places to make
room for that. So when we talked about what they
did last year, a lot of it is prioritizing money.
We had the cash under the you know, with the
spending cap, but we had too many demandands and we
(06:29):
had to slow those demands to keep our balance, our
budget balance. This is as I said yesterday to the
Executive Committee, this is we don't have the cash. This
lowered our revenue below our spending cap, and now we're
about nine hundred million.
Speaker 6 (06:44):
We've lost a total of one point two.
Speaker 5 (06:45):
Billion, but we're about nine hundred million below our spending cap, so.
Speaker 6 (06:48):
We don't have the cash to meet the obligations that
we just passed a few months ago.
Speaker 5 (06:54):
And that is what HR one did versus the original
budget issues were higher growth versus where we could grow spending.
Speaker 1 (07:02):
Okay, and then also it would be correct to say
that in recent weeks there's been a lot of talk
about the impact of the so called Big Beautiful Bill
on Medicaid, and that's impact on the state budget, but
what we are talking about today is also not that,
and the real Medicaid impacts to the state budget will
(07:25):
hit a little bit later and will be an additional challenge,
but it's not what we're discussing today.
Speaker 3 (07:29):
Is that right.
Speaker 2 (07:32):
Or else?
Speaker 6 (07:32):
That's exactly correct.
Speaker 5 (07:33):
This is an immediate impact shock to the system of
loss of revenue from the tax cuts, But then over
the next three to seven years, the Medicaid and snap
cuts that shift costs from the federal government to states
are going to put more pressure on our budgets. And
(07:54):
as the governor said, we have to balance our budget.
Speaker 6 (07:57):
Congress doesn't have to balance our budget.
Speaker 5 (07:59):
So those shift up and by the time it's fully implemented,
we estimate it could shift up to a billion dollars
of cost to the state and that will put even
more pressure on the state's budget.
Speaker 1 (08:12):
Governor, do you want to add anything to what Mark
just said?
Speaker 3 (08:16):
And then I have a h question.
Speaker 4 (08:18):
I just want to present kind of the I mean, again,
while start for the state budget, there's a positive sign
for taxpayers. I mean, there's also a negative sign for
some who lose certain deductions earlier. But the fact that
we can form to federal means of course less paperwork
for taxpayers. Well, let me give an example of one
of the kind of more stimulus oriented corporate tax revisions
full expensing accelerated expensing of domestic research and experimental expenditure.
Speaker 2 (08:39):
So that one costs the state two to three.
Speaker 4 (08:41):
Hundred million in the current year, doesn't cost much in
the out years because it kind of advances the normal depreciation.
It'll cost maybe fifty million in the future years something
like that.
Speaker 2 (08:50):
Now, other states won't have.
Speaker 4 (08:52):
That rapid expensing of domestic research that we have, So
every one of these has a flip side, right, I mean,
while the.
Speaker 2 (08:59):
State is the Colorado taxpayers are experiencing these changes earlier
for better or worse.
Speaker 4 (09:05):
Right, some Colorados because of HR one, pay higher taxes,
some pay lower taxes. But some of these things will
have a stimulus effect on Colorado. Again relatively small. These
are not, you know, huge things. But I want to
point out this kind of two sides of the.
Speaker 1 (09:19):
Okay, and Jared, you just muted yourself there, so unmute
yourself because I got another question for you. So I
want to I want to ask you a quasi political
question here, because obviously you know budget cutting or or
budget increasing. Everything the legislature does there there is a
political aspect to it.
Speaker 3 (09:38):
There are interest groups and all this stuff.
Speaker 1 (09:40):
And the legislature just had to cut about a billion
dollars in order to, as as Mark said, kind of
leave room for medicaid. But at some point you won't
be able to just leave room for medicaid because it's
such a big part of the state budget. In a
more macro sense, Governor, how are you thinking about how
(10:04):
the state should cut spending in order to meet this challenge,
especially knowing that there's another challenge of at least the same.
Speaker 3 (10:11):
Size coming soon.
Speaker 1 (10:13):
It's maybe two and a half ish percent of the
state budget. What do you thinking should be cut will
be cut?
Speaker 4 (10:21):
Okay, so this is where the numbers and again it's
just numbers ross. But this year, this current year we're in,
is the year with the bulk of the revenue impact
from the federal changes. And I gave you one example
the expensive of domestic research that will cost the state
two to three hundred million this year, only fifty million
a year ish going forward.
Speaker 2 (10:42):
There's other ones.
Speaker 4 (10:43):
Like that full expensing for business property two to three
hundred million this year, one hundred and seventy five to
two hundred in future years. So the fact that these
changes take effect in the current year and accelerate tax
benefits that companies would have gotten in future years somewhat
nets out over like decade ro us right, Like I
can't not dollar for dollar, but effectively in accelera sense.
(11:04):
So the translation of that is longer term, the state
is in a stronger fiscal situation. There's not a need
for this level of cuts in year two, year three,
or four of HR one.
Speaker 2 (11:14):
It's largely the first year. Now there is going to
be a.
Speaker 4 (11:17):
Need for a larger backfill piece for things like Medicaid
and healthcare costs. So in that area one of the
biggest line it into the state budget. The state has
to do extraordinary work and we hope to work with
There's a fifty billion dollar federal Rural Hospital Transformation Fund.
We have to do more to contain costs. We hope
that there's a partner in the White House right because
(11:38):
it's hard to do.
Speaker 2 (11:38):
This on our own. When it comes to prescription drug benefits,
when it.
Speaker 4 (11:42):
Comes to hospital pricing, transparency, when it comes to negotiating rates.
Speaker 2 (11:45):
There's a number of things that are federal.
Speaker 4 (11:47):
Medicaid is administered by the state, but we only have
the flexibility that the Medicaid administer grant and administrator grants
us currently doctor Oz through waivers. So we hope the
federal government will partner with us to reduce costs in medicaid.
Is the short answer for longer term budget stability years,
three years, four years, five?
Speaker 1 (12:06):
Okay, And let me go to Mark now for just
a sort of a continuation of the same question. So
the governor focused on Medicaid, which, as both of you noted,
is the single biggest thing in the state budget right now.
But Mark, would you, okay, let me would you agree
with me as a macro sort of concept that at
some point the state legislature is not going to be
(12:29):
able to hold Medicaid completely harmless from any budget cutting
just because, like Willie Sutton.
Speaker 3 (12:35):
With the banks, that's where the money is.
Speaker 1 (12:37):
Or do you think you'll be able to cut other
things and never have to cut medicaid.
Speaker 5 (12:43):
So in last year's budget, the DRNT Budget Committee did
make some reductions in Medicaid that slowed the growth of Medicaid.
We actually proposed more of those that warn't taken by
the Joint Budget Committee. I think you'll see those proposed
again as we look at how do we slow the
cost of medicaid, and so you know we are it's
(13:06):
not about necessary cuts, it's about how do you slow
the growth?
Speaker 6 (13:09):
You control the growth in that area, and there are.
Speaker 5 (13:13):
Ways we can do, whether it's things like prior authorization
of services.
Speaker 6 (13:19):
Things like that. We are, you know, continuing to work
on that.
Speaker 5 (13:21):
That is one where we we have to have those conversations.
Otherwise if we don't slow that growth, that will have
huge impacts as you're applying to other parts of the
state budget like education.
Speaker 2 (13:32):
Right so ros so let me let me let me
add quickly.
Speaker 4 (13:34):
So some of the cost containment measures that we had
proposed last year for medicaid that the legislature didn't do
effectively will have to be back on the table now.
So they're going to have to look at some of
the cost containment measures we proposed and potentially others to
be able to uh to balance the budget.
Speaker 1 (13:50):
We're talking with Governor Jared Polis and with Mark Farandino,
the executive director of the Colorado State Office of Planning
and Budgeting, and we're discussed saying the recently reported fact,
although these guys knew it was coming before it was
a newspaper headline, that the Big Beautiful Bill is going
to have a large and immediate fiscal impact on the
(14:12):
Colorado State budget and then other large non immediate fiscal impacts.
So either one of you can take can take this question,
just one more follow up on what we're talking about.
Speaker 3 (14:21):
So Mark, you mentioned.
Speaker 1 (14:25):
Education, transportation, education anyway, historically before you guys, before Jared
was governor, you know, during the time, even Mark, when
you were in the legislature, it seems like historically when
there have been some budget issues, what we've seen is
cuts to education, whether it's K through twelve or big
increases in tuition at state universities, and then we've also
(14:46):
seen cuts to transportation, and at some point, you know,
transportation can't take any more cuts. We're known for having
bad roads in this state. So I'm just trying to
get a better handle on where are you going.
Speaker 3 (14:58):
To find the money? Mark when do you go?
Speaker 5 (15:03):
I don't know if we yet, you know, I do
think under Governor Pulis's leadership, we've put more money into
transportation than in recent memory. And I think that you know,
where we're talking, we are going to be below the
spending cap, so transportation probably is going to be okay
as we look forward.
Speaker 6 (15:23):
I think we have also made got.
Speaker 5 (15:26):
Rid of the budget stabilization factor, which was cut to schools.
Speaker 6 (15:29):
We don't want to see. The Governor's committed to not
seeing that come back.
Speaker 5 (15:34):
I think we, as I said yesterday, we've asked all
departments for next year's budget to do two and a
half percent reductions in their operating expenses, you know, so
at the margins we can.
Speaker 6 (15:45):
We'll look at those.
Speaker 5 (15:46):
Type of things, but it you know, we'll have to
prioritize funds across different areas and we'll continue to do that.
In partnership with the Joint Budget Committee and the legislature.
Speaker 4 (15:56):
Let me let me, let let me hold the tools
are very unlikely, and we would oppose it cutting them
in the current year we're in because again, these are
people already hired, classrooms that already allocated, the school years
already started effectively by the time these cuts. So we
would advocate, and I hope the legislature degrees to effectively
hold education and parreless for this round of nine hundred
(16:17):
million dollar cuts going forward. There's things we propose that
we wish the legislature rate it up. I'll give you
one example that we worked with former Senator to Paul
Lundan on The state currently funds phantom students.
Speaker 2 (16:27):
That means we fund students where they were two or
three years ago.
Speaker 4 (16:30):
We let districts who are declining enrollment average their enrollment
from it was up to five years ago.
Speaker 2 (16:35):
I think we decrease it down to three.
Speaker 4 (16:37):
We hope to decrease it more, but effectively, we are
funding where students used to be empty chairs rather than
actually where students are. That's one example that if you
were actually eliminated outright funding advantaged students, it would save
the state something like one hundred million dollars.
Speaker 1 (16:53):
Ish Jared, one last question and then we'll call it
good for today, although we'll hopefully have you guys back
as this is working its way through the system. Your
your party is in control of everything right now, and
your party historically doesn't love cutting spending, doesn't love cutting medicaid,
(17:13):
that sort of thing. So, as a as a political question,
as the guy who is the leader of the party
in the state of Colorado, how are you going to
talk with fellow Democrats about, Look, we don't like cutting things. Well, Jared,
you probably like cutting things more than the ever Democrat does.
Speaker 3 (17:28):
But how are you going to guide them? As a political.
Speaker 4 (17:31):
Question, You're gonna see really funny politics for us. You're
going to see Republicans advocating for more spending and less
cuts and bigger government. I mean, you're you know, yeah,
you're absolutely right. Democrats and responsibility governing, they're gonna have
to agree to us one hundred percent. You will also
hear Republicans making the argument, don't cut this, don't cut this,
and then they don't have to add up the numbers
because they are not governing. All of a sudden, they
(17:53):
don't want to cut anything, and the budget is out
of balance, and they're big spenders, so you will hear wacky.
Speaker 2 (17:57):
Politics out of this.
Speaker 4 (17:58):
There's no question you can follow it, you know, if
there's a special session and beyond. But at the end
of the day, I hope it's bipartisan governing majority. But
perhaps the Republicans feel they can score political points by
opposing these cuts because you know, they value healthcare, they
value schools. So I don't know what to predict. Partisanship
absolutely enters the picture in terms of how legislators behave.
Speaker 2 (18:17):
At the end of the day, we just need to
get it done.
Speaker 4 (18:19):
With the majority, whether it's all Democrats, whether it's bipartists, and.
Speaker 2 (18:22):
Whatever it is.
Speaker 4 (18:23):
A majority will need to figure out how to state
balance the budget, because that is of course a costs requirement,
a good one I would add when I support we
should balance a budget.
Speaker 1 (18:30):
Such as the nature of politics reminds me a little
bit of how in the Federal Congress Democrats suddenly care
to get the Epstein files released when they never cared
about it before. It's the same kind of same kind
of wacky thing. Governor Jared Polis Mark Ferandino Marcus, executive
director of the Colorado State Office of Planning and Budget.
Thank you so much, very informative conversation on a very
(18:53):
complex topic. I assume there's going to be a special session.
Speaker 3 (18:56):
We'll keep in touch.
Speaker 1 (18:57):
With you guys, either through that or just after to
discuss it all.
Speaker 3 (19:01):
I'm grateful for your time.
Speaker 2 (19:03):
Thank you, thank you.
Not an entirely unexpected headline over at the Colorado Sun yesterday,
Colorado lawmakers must cut a billion dollars from the state's
current budget because of GOP federal tax and spending bill.
And so I reached out initially to Mark Farandino, who
was the executive director of the Colorado State Office of
(00:21):
Planning and Budgeting. He used to head the Department of
Revenue as well. And I've known Mark, as I like
to say, I've known Mark a little bit for a
long time, going all the way back to when he
was Speaker of the House, which is probably longer ago
than either one of us want to remember. So not
only does Mark join us to talk about this challenging
budget issue, but another guy you might have heard of,
(00:45):
who is sometimes called the Boss and who is known
to others as Governor, Jared Polis, joins us for the
conversation as well. And I'm first thank you to both
of you for showing up today, especially on such short notice.
I'm grateful that you're here to talk about such an
important thing.
Speaker 2 (01:03):
Thank you, ross pleasure to be on.
Speaker 1 (01:05):
And yeah, and we'll see Jared's Jared's connection is if
he so we'll see and Mark you need to unmute yourself.
Speaker 3 (01:16):
There you go, Oh, yes, all right, there you go.
Speaker 1 (01:18):
All right, So why don't we start Why don't we
start with the macro and and maybe we'll start with
with Mark and tell us at the high level.
Speaker 3 (01:29):
What is the challenge and why is the challenge?
Speaker 2 (01:33):
Hey?
Speaker 4 (01:33):
Ross, if I could do the high level and then
we could go to Marco trail down.
Speaker 2 (01:36):
This is Jared Poles. Does that work for you, man?
Speaker 3 (01:38):
Yeah, whatever you guys want.
Speaker 4 (01:40):
Yeah, So okay, so real quickly, So, we are one
of very few states, in fact four states that immediately
for the current year adopt and the corresponding changes, so
our tax code aligns with federal There's a handful more
that do it on a delayed basis.
Speaker 2 (01:56):
So first of all, let me just say this is a.
Speaker 4 (01:58):
Good thing because in some states you have to file
a totally separate state income tax form and federal income
tax form with different deductions, different liabilities.
Speaker 2 (02:07):
It's twice as much work.
Speaker 4 (02:08):
So as a general matter, it's a good thing that we,
like ninety nine percent conform to federal There's always been
a few things we don't conform on, but for most taxpayers,
you can generally use your same documents for both. But
the downside of that or the upside, whoever you look
at it, is when the federal government makes changes, they're
automatically incorporated into the state tax codes.
Speaker 2 (02:28):
Sometimes they increase revenue, sometimes they decrease revenues.
Speaker 4 (02:31):
Now let me give an example, there's only four states
that for the current year were one of them immediately
stops with the tax on tips, which was in the
federal bill. That's a corresponding change we automatically agree to.
Grad There's other tax benefits that people lose immediately, like
the federal billah are one terminated personal exemption other than
(02:52):
for seniors that raises the state three or four hundred
million dollars. So there's like tons of these changes. Some
add revenue to state, some subtract revenue to the state,
but net it subtracts about nine hundred million dollars of
revenue for the state.
Speaker 2 (03:09):
In the current year that we are in.
Speaker 4 (03:12):
And of course, the state has a requirement to balance
the budget. That's a good thing I wish the federal
government did. Part of the problem is they can do
whatever they.
Speaker 2 (03:19):
Want and not bounce the budget. We balance the budget.
Speaker 4 (03:22):
So because of these tax changes in the current year,
and most of them are on the corporate side.
Speaker 2 (03:27):
The individual ones are more.
Speaker 4 (03:29):
Or less a wash sub gain revenue, some loans revenue,
but generally on the corporate side, there's a number of
them that net net lead us to have to cut
nine hundred million from the current year. So that's the
only reason that we're here having this discussion. It's because
the corresponding changes that are made to state tax code
to HR one. Again, positive side, they happen right away
(03:50):
for Colorado is it doesn't happen in other states. The
challenging side is we also have to make adjustments to
the state budget for the year we're in, not just
future budgets. I hope that kind of explains where we are.
Speaker 3 (04:00):
That does. That definitely does.
Speaker 1 (04:02):
And one quick thing before I get to Mark, to
jump into some additional detail, Governor, have you have you
made a decision about a special session or does this
information about having to cut a billion dollars from the.
Speaker 3 (04:18):
Fiscal year we're already in make.
Speaker 1 (04:21):
A special session something that is.
Speaker 3 (04:22):
Essentially not optional at this point.
Speaker 4 (04:26):
Here's why it's likely ross Okay, So if you were
to wait until January February, when the legislature starts to
cut nine hundred million dollars from their current year, is
more drag Codian because you only have at that point
five months left of the year. We have eleven months
left of the year. And to be clear for our
viewers and listeners, the year for Colorado starts July first,
(04:48):
the fiscal year and goes through June thirty, so we're
in the first month of the year.
Speaker 2 (04:52):
Now is a better.
Speaker 4 (04:52):
Time to do it if we can figure out how
rather than wait. So it's pretty darn important to figure
this out earlier ross because the longer you wait, the
more severe the cuts are for those.
Speaker 2 (05:03):
Fewer remaining months. So that's the long and the short
of it.
Speaker 1 (05:06):
Okay, that makes sense, So I will take from that
that a special session is very likely. Let me go
to Mark Farandino again. Marks executive director of the Colorado
State Office of Planning and Budgeting. He used to head
up the Colorado Department of Revenue and also used to
be Speaker of the State House of Representatives.
Speaker 3 (05:23):
The one high level ish thing for you, Mark.
Speaker 1 (05:26):
The Joint Budget Committee and the Legislature recently had to
find something like one point two billion dollars in the
state budget. So first question for you is that was
that stuff entirely unrelated to this stuff.
Speaker 5 (05:42):
So when you look at last year's when they passed
the budget in April May of last year that the
governor signed, we had growth higher than in terms of expenses,
higher than the available revenue. Revenue grew last year, but
for example, caseload for medicaid, spences on Medicaid grew at
like six to eight percent, where our revenue growth was
(06:06):
under the spending cap was about three three and a
half percent. So that pushes things out because that's growing bigger.
It's the largest part of our budget is growing faster.
It means you have to shrink other places to make
room for that. So when we talked about what they
did last year, a lot of it is prioritizing money.
We had the cash under the you know, with the
spending cap, but we had too many demandands and we
(06:29):
had to slow those demands to keep our balance, our
budget balance. This is as I said yesterday to the
Executive Committee, this is we don't have the cash. This
lowered our revenue below our spending cap, and now we're
about nine hundred million.
Speaker 6 (06:44):
We've lost a total of one point two.
Speaker 5 (06:45):
Billion, but we're about nine hundred million below our spending cap, so.
Speaker 6 (06:48):
We don't have the cash to meet the obligations that
we just passed a few months ago.
Speaker 5 (06:54):
And that is what HR one did versus the original
budget issues were higher growth versus where we could grow spending.
Speaker 1 (07:02):
Okay, and then also it would be correct to say
that in recent weeks there's been a lot of talk
about the impact of the so called Big Beautiful Bill
on Medicaid, and that's impact on the state budget, but
what we are talking about today is also not that,
and the real Medicaid impacts to the state budget will
(07:25):
hit a little bit later and will be an additional challenge,
but it's not what we're discussing today.
Speaker 3 (07:29):
Is that right.
Speaker 2 (07:32):
Or else?
Speaker 6 (07:32):
That's exactly correct.
Speaker 5 (07:33):
This is an immediate impact shock to the system of
loss of revenue from the tax cuts, But then over
the next three to seven years, the Medicaid and snap
cuts that shift costs from the federal government to states
are going to put more pressure on our budgets. And
(07:54):
as the governor said, we have to balance our budget.
Speaker 6 (07:57):
Congress doesn't have to balance our budget.
Speaker 5 (07:59):
So those shift up and by the time it's fully implemented,
we estimate it could shift up to a billion dollars
of cost to the state and that will put even
more pressure on the state's budget.
Speaker 1 (08:12):
Governor, do you want to add anything to what Mark
just said?
Speaker 3 (08:16):
And then I have a h question.
Speaker 4 (08:18):
I just want to present kind of the I mean, again,
while start for the state budget, there's a positive sign
for taxpayers. I mean, there's also a negative sign for
some who lose certain deductions earlier. But the fact that
we can form to federal means of course less paperwork
for taxpayers. Well, let me give an example of one
of the kind of more stimulus oriented corporate tax revisions
full expensing accelerated expensing of domestic research and experimental expenditure.
Speaker 2 (08:39):
So that one costs the state two to three.
Speaker 4 (08:41):
Hundred million in the current year, doesn't cost much in
the out years because it kind of advances the normal depreciation.
It'll cost maybe fifty million in the future years something
like that.
Speaker 2 (08:50):
Now, other states won't have.
Speaker 4 (08:52):
That rapid expensing of domestic research that we have, So
every one of these has a flip side, right, I mean,
while the.
Speaker 2 (08:59):
State is the Colorado taxpayers are experiencing these changes earlier
for better or worse.
Speaker 4 (09:05):
Right, some Colorados because of HR one, pay higher taxes,
some pay lower taxes. But some of these things will
have a stimulus effect on Colorado. Again relatively small. These
are not, you know, huge things. But I want to
point out this kind of two sides of the.
Speaker 1 (09:19):
Okay, and Jared, you just muted yourself there, so unmute
yourself because I got another question for you. So I
want to I want to ask you a quasi political
question here, because obviously you know budget cutting or or
budget increasing. Everything the legislature does there there is a
political aspect to it.
Speaker 3 (09:38):
There are interest groups and all this stuff.
Speaker 1 (09:40):
And the legislature just had to cut about a billion
dollars in order to, as as Mark said, kind of
leave room for medicaid. But at some point you won't
be able to just leave room for medicaid because it's
such a big part of the state budget. In a
more macro sense, Governor, how are you thinking about how
(10:04):
the state should cut spending in order to meet this challenge,
especially knowing that there's another challenge of at least the same.
Speaker 3 (10:11):
Size coming soon.
Speaker 1 (10:13):
It's maybe two and a half ish percent of the
state budget. What do you thinking should be cut will
be cut?
Speaker 4 (10:21):
Okay, so this is where the numbers and again it's
just numbers ross. But this year, this current year we're in,
is the year with the bulk of the revenue impact
from the federal changes. And I gave you one example
the expensive of domestic research that will cost the state
two to three hundred million this year, only fifty million
a year ish going forward.
Speaker 2 (10:42):
There's other ones.
Speaker 4 (10:43):
Like that full expensing for business property two to three
hundred million this year, one hundred and seventy five to
two hundred in future years. So the fact that these
changes take effect in the current year and accelerate tax
benefits that companies would have gotten in future years somewhat
nets out over like decade ro us right, Like I
can't not dollar for dollar, but effectively in accelera sense.
(11:04):
So the translation of that is longer term, the state
is in a stronger fiscal situation. There's not a need
for this level of cuts in year two, year three,
or four of HR one.
Speaker 2 (11:14):
It's largely the first year. Now there is going to
be a.
Speaker 4 (11:17):
Need for a larger backfill piece for things like Medicaid
and healthcare costs. So in that area one of the
biggest line it into the state budget. The state has
to do extraordinary work and we hope to work with
There's a fifty billion dollar federal Rural Hospital Transformation Fund.
We have to do more to contain costs. We hope
that there's a partner in the White House right because
(11:38):
it's hard to do.
Speaker 2 (11:38):
This on our own. When it comes to prescription drug benefits,
when it.
Speaker 4 (11:42):
Comes to hospital pricing, transparency, when it comes to negotiating rates.
Speaker 2 (11:45):
There's a number of things that are federal.
Speaker 4 (11:47):
Medicaid is administered by the state, but we only have
the flexibility that the Medicaid administer grant and administrator grants
us currently doctor Oz through waivers. So we hope the
federal government will partner with us to reduce costs in medicaid.
Is the short answer for longer term budget stability years,
three years, four years, five?
Speaker 1 (12:06):
Okay, And let me go to Mark now for just
a sort of a continuation of the same question. So
the governor focused on Medicaid, which, as both of you noted,
is the single biggest thing in the state budget right now.
But Mark, would you, okay, let me would you agree
with me as a macro sort of concept that at
some point the state legislature is not going to be
(12:29):
able to hold Medicaid completely harmless from any budget cutting
just because, like Willie Sutton.
Speaker 3 (12:35):
With the banks, that's where the money is.
Speaker 1 (12:37):
Or do you think you'll be able to cut other
things and never have to cut medicaid.
Speaker 5 (12:43):
So in last year's budget, the DRNT Budget Committee did
make some reductions in Medicaid that slowed the growth of Medicaid.
We actually proposed more of those that warn't taken by
the Joint Budget Committee. I think you'll see those proposed
again as we look at how do we slow the
cost of medicaid, and so you know we are it's
(13:06):
not about necessary cuts, it's about how do you slow
the growth?
Speaker 6 (13:09):
You control the growth in that area, and there are.
Speaker 5 (13:13):
Ways we can do, whether it's things like prior authorization
of services.
Speaker 6 (13:19):
Things like that. We are, you know, continuing to work
on that.
Speaker 5 (13:21):
That is one where we we have to have those conversations.
Otherwise if we don't slow that growth, that will have
huge impacts as you're applying to other parts of the
state budget like education.
Speaker 2 (13:32):
Right so ros so let me let me let me
add quickly.
Speaker 4 (13:34):
So some of the cost containment measures that we had
proposed last year for medicaid that the legislature didn't do
effectively will have to be back on the table now.
So they're going to have to look at some of
the cost containment measures we proposed and potentially others to
be able to uh to balance the budget.
Speaker 1 (13:50):
We're talking with Governor Jared Polis and with Mark Farandino,
the executive director of the Colorado State Office of Planning
and Budgeting, and we're discussed saying the recently reported fact,
although these guys knew it was coming before it was
a newspaper headline, that the Big Beautiful Bill is going
to have a large and immediate fiscal impact on the
(14:12):
Colorado State budget and then other large non immediate fiscal impacts.
So either one of you can take can take this question,
just one more follow up on what we're talking about.
Speaker 3 (14:21):
So Mark, you mentioned.
Speaker 1 (14:25):
Education, transportation, education anyway, historically before you guys, before Jared
was governor, you know, during the time, even Mark, when
you were in the legislature, it seems like historically when
there have been some budget issues, what we've seen is
cuts to education, whether it's K through twelve or big
increases in tuition at state universities, and then we've also
(14:46):
seen cuts to transportation, and at some point, you know,
transportation can't take any more cuts. We're known for having
bad roads in this state. So I'm just trying to
get a better handle on where are you going.
Speaker 3 (14:58):
To find the money? Mark when do you go?
Speaker 5 (15:03):
I don't know if we yet, you know, I do
think under Governor Pulis's leadership, we've put more money into
transportation than in recent memory. And I think that you know,
where we're talking, we are going to be below the
spending cap, so transportation probably is going to be okay
as we look forward.
Speaker 6 (15:23):
I think we have also made got.
Speaker 5 (15:26):
Rid of the budget stabilization factor, which was cut to schools.
Speaker 6 (15:29):
We don't want to see. The Governor's committed to not
seeing that come back.
Speaker 5 (15:34):
I think we, as I said yesterday, we've asked all
departments for next year's budget to do two and a
half percent reductions in their operating expenses, you know, so
at the margins we can.
Speaker 6 (15:45):
We'll look at those.
Speaker 5 (15:46):
Type of things, but it you know, we'll have to
prioritize funds across different areas and we'll continue to do that.
In partnership with the Joint Budget Committee and the legislature.
Speaker 4 (15:56):
Let me let me, let let me hold the tools
are very unlikely, and we would oppose it cutting them
in the current year we're in because again, these are
people already hired, classrooms that already allocated, the school years
already started effectively by the time these cuts. So we
would advocate, and I hope the legislature degrees to effectively
hold education and parreless for this round of nine hundred
(16:17):
million dollar cuts going forward. There's things we propose that
we wish the legislature rate it up. I'll give you
one example that we worked with former Senator to Paul
Lundan on The state currently funds phantom students.
Speaker 2 (16:27):
That means we fund students where they were two or
three years ago.
Speaker 4 (16:30):
We let districts who are declining enrollment average their enrollment
from it was up to five years ago.
Speaker 2 (16:35):
I think we decrease it down to three.
Speaker 4 (16:37):
We hope to decrease it more, but effectively, we are
funding where students used to be empty chairs rather than
actually where students are. That's one example that if you
were actually eliminated outright funding advantaged students, it would save
the state something like one hundred million dollars.
Speaker 1 (16:53):
Ish Jared, one last question and then we'll call it
good for today, although we'll hopefully have you guys back
as this is working its way through the system. Your
your party is in control of everything right now, and
your party historically doesn't love cutting spending, doesn't love cutting medicaid,
(17:13):
that sort of thing. So, as a as a political question,
as the guy who is the leader of the party
in the state of Colorado, how are you going to
talk with fellow Democrats about, Look, we don't like cutting things. Well, Jared,
you probably like cutting things more than the ever Democrat does.
Speaker 3 (17:28):
But how are you going to guide them? As a political.
Speaker 4 (17:31):
Question, You're gonna see really funny politics for us. You're
going to see Republicans advocating for more spending and less
cuts and bigger government. I mean, you're you know, yeah,
you're absolutely right. Democrats and responsibility governing, they're gonna have
to agree to us one hundred percent. You will also
hear Republicans making the argument, don't cut this, don't cut this,
and then they don't have to add up the numbers
because they are not governing. All of a sudden, they
(17:53):
don't want to cut anything, and the budget is out
of balance, and they're big spenders, so you will hear wacky.
Speaker 2 (17:57):
Politics out of this.
Speaker 4 (17:58):
There's no question you can follow it, you know, if
there's a special session and beyond. But at the end
of the day, I hope it's bipartisan governing majority. But
perhaps the Republicans feel they can score political points by
opposing these cuts because you know, they value healthcare, they
value schools. So I don't know what to predict. Partisanship
absolutely enters the picture in terms of how legislators behave.
Speaker 2 (18:17):
At the end of the day, we just need to
get it done.
Speaker 4 (18:19):
With the majority, whether it's all Democrats, whether it's bipartists, and.
Speaker 2 (18:22):
Whatever it is.
Speaker 4 (18:23):
A majority will need to figure out how to state
balance the budget, because that is of course a costs requirement,
a good one I would add when I support we
should balance a budget.
Speaker 1 (18:30):
Such as the nature of politics reminds me a little
bit of how in the Federal Congress Democrats suddenly care
to get the Epstein files released when they never cared
about it before. It's the same kind of same kind
of wacky thing. Governor Jared Polis Mark Ferandino Marcus, executive
director of the Colorado State Office of Planning and Budget.
Thank you so much, very informative conversation on a very
(18:53):
complex topic. I assume there's going to be a special session.
Speaker 3 (18:56):
We'll keep in touch.
Speaker 1 (18:57):
With you guys, either through that or just after to
discuss it all.
Speaker 3 (19:01):
I'm grateful for your time.
Speaker 2 (19:03):
Thank you, thank you.
The Ross Kaminsky Show News
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