Joint Budget Committee [Jun 18, 2026]

. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you Thank you. Thank you. . Thank you. Thank you. Thank you. Thank you. Thank you Thank you. Thank you. Thank you. Thank you. . . Thank you. Thank you. Thank you. Thank you. Thank you . The Joint Budget Committee will come to order. We are here this morning to hear our quarterly revenue forecasts, and we will be starting with Legislative Council and the Office of State Planning and Budgeting. The other thing that we have on our agenda today are consideration of interim supplemental funding requests, and I think it is our goal to accomplish all of this before lunch, but that just means that we have to, you know, stay on task. So that is the goal, but if we take a long time, then we may have to take a break and come back to it. But for now, we will get started with our revenue forecast, starting with Mr. Sebecki, sorry, Chief Sebecki and Legislative Council.

Good morning members of the committee and other members that are maybe in attendance. I am David Hansen principal economist at legislative council staff and I it is my pleasure to present to you our economic outlook. The U.S. economy is still expanding, and we continue to forecast a slow to moderate expansion over the next couple of years. Real gross domestic product, a measure of the nation's inflation-adjusted economic output, is expected to accelerate a bit from 2025 and increase 2.3 percent in 2026. is expected to slow to 1.7% in 2027, then accelerate to 2.1% in 2028. The nation's economic activity has been influenced by two big factors that I would like to highlight specifically in this forecast presentation. A surge in business investment and slowing labor markets and consumer spending. Business investment associated with information equipment has exploded over the past year. This chart shows business investment in computer equipment specifically as tracked with real GDP. In the first quarter, the annualized growth rate from the fourth quarter was 75.4%. The surge has accompanied strong growth in related areas of investment like software and is associated with investment in AI technology and infrastructure, like data centers more broadly. The surge in investment has offset reductions in other areas like investment in buildings and transportation equipment The surge in business investment is boosting productivity This chart shows growth in labor productivity by measuring output per hour worked in non industry sectors Over the past couple of years, productivity has grown at a healthy pace and higher than the pace through most of the last economic expansion. In the first quarter, labor productivity was up 2.8% from the first quarter of 2025. Other measures of productivity are also indicating growth. At this point, it is too early to tell if productivity will continue to accelerate as AI investments take hold, but it is an area of optimism for economic growth in general and could lead to more jobs, higher wages, and other positive outcomes. However, at the same time, employment growth in the U.S. and here in Colorado has essentially stagnated. Data indicate that employment was up just 0.3% over the year in the U.S. and was up just 0.1% in Colorado. These are rates of growth that are well below what was typical following the last expansion, following the Great Recession. The labor market overall appears to be stuck in a slow growth trajectory. Indicators do not point to either an imminent collapse or an imminent rebound. We are projecting employment will continue to be stagnant through the rest of the year, slowly pick up in 2027. Atypically, stagnant employment growth has accompanied a low unemployment rate. The unemployment rate is shown in the chart on the left. Claims for unemployment insurance continue to remain low and at healthy levels, and people reporting they are unemployed and looking for work hasn't jumped and seems to be improving over the past few months. However, and concerningly, the stagnant labor market and low unemployment rate Rate has been accompanied by a drop in the labor force, as shown in the chart on the right. The labor force is a pool of people who are either employed or looking for work. Unfortunately, many people appear to be going from employed or unemployed to not being in the labor force, either from being discouraged, taking time away from work, retiring, or other reasons. Just looking at employment growth overall and the unemployment rate masks wide variation in sector level performance. Job performance has been poor for many sectors. Unemployment gains have been largely concentrated in health care and social assistance.

Thank you, Madam Chair. Just going back one slide to the labor force. That's a steep drop in Colorado. Do you have any insight into, you said you listed some various things, but do you have a weighting within those different things? Like, do you have any idea what's happening here? Is, like, increased cost of child care causing folks to leave the workforce? Like, what's driving this?

Mr. Hanson.

Vice Chair Bridges.

Thank you, Madam Chair.

My intuition is that we have generally a younger workforce in Colorado, but there also could be, in addition to that 55 plus, I mean, we have demographic shift. We have definitely a rapidly aging workforce. We're kind of catching up in Colorado. Immigration could be a factor in this. And some other factors, we have noticed a rise in those that are either underemployed, meaning they would like better work or more work, or those that are also marginally attached to the labor force. So it does seem that there are a variety of factors leading into this, but it is definitely a point of risk and I think a point of concern.

Madam Chair, just because we have more information in the forecast document, I'd also point Mr. Vice Chair and anyone else who's interested in specifically this labor market dynamics question to page 69 of the forecast document where we explain the unemployment rate that we're reporting here, the headline unemployment rate or the U3 rate and other measures of underemployment. the one that we focus on there is called the U6 rate. The U6 rate is different because in addition to counting people who are in the labor force and actively looking for work but unable to find work, it counts people who are working part-time even though they'd prefer to be working full-time, people who have stopped looking for work because they don't think that they would be able to find work. And those populations are increasing. So it's not just the case that people are LEAVING THE LABOR FORCE SO THAT WE HAVE STAGNANT EMPLOYMENT GROWTH, BUT ALSO THAT THERE'S A GREATER SHARE OF THE POPULATION THAT'S SORT OF IN THIS UNDEREMPLOYED, WOULD LIKE TO BE WORKING, BUT DON'T FEEL LIKE THEY CAN FIND JOBS POPULATION. SO MR. HANSEN MENTIONED PULL FORWARD RETIREMENTS, CIRCUMSTANCES THAT MAY BE A GOOD ECONOMIC ENVIRONMENT FOR SOMEBODY WHO'S 58 AND FEELS THAT THEY'VE GOT A GREAT NEST EGG AND DOESN'T NEED TO CONTINUE PARTICIPATING IN THE LABOR FORCE AND IS CHOOSING TO RETIRE AT THAT AGE. Or there might be somebody who's 58 who lost their job, their company went under, or they recently moved and haven't been able to find something and just don't feel like they're going to be able to find work again. And so I think that that second group is probably more prevalent and more concerning for us because of this rising U6 unemployment rate, which, again, we discuss in more detail in the printed forecast document. Thanks.

Yes, let me break down a little bit of the variation here in our sector level performance. So there are a lot of sectors that have lost jobs over the year. And let me just walk you through this chart a little bit. It shows both the year-over-year change in jobs in thousands and also the percent change. The sectors with the most job gains are at the top of the chart, and those with the most losses are at the bottom of the chart. This chart shows a mix of broad combined super sectors in gold and then the individual sector detail in teal or blue green from april 2025 to april 2026 colorado education and health services sector grew by 19 200 jobs another question rep

Mr. Hanson. Thank you, Madam Chair, and thank you for the question, Representative Taggart. Health services versus health care, I think health services would be encompassing of this broader sector, healthcare and social assistance, meaning we have hospitals, we have doctors, nurses, but we also have like nursing homes and assisted living and stuff like that. A lot of folks that are employed in that social assistance sector.

So the construction bar is a super sector as well? Yes, Madam Chair.

Madam Chair, looking at this chart, you cannot.

OKAY. REB TAGGERT, DID YOU HAVE ANY FOLLOW-UP?

VICE CHAIR BRIDGES. SENATOR KIRKMAYER.

Madam Chair, Senator Kirkmeyer, also professional and business services at 0.1, though it's hard to make out the color of that chart because that's such a very small increase.

No, I just think it's telling that if it weren't for the health services, we'd be in pretty dire straits right now with regard to job loss.

Thank you, Madam Chair. These are, this does not take into account, these are like actual people working in these industries. So we've seen a 4% decrease in financial activities, employment, jobs available here in the state, 3.9, but I'm routing it to 4. And that is total jobs. Does that mean that those jobs have gone or that people are not employed? IN OTHER WORDS ARE THOSE POSITIONS THAT HAVE LEFT THE STATE OR THAT HAVE BEEN ELIMINATED OR ARE THOSE PEOPLE NO LONGER WORKING POSITIONS THAT ARE NOW OPEN FOR OTHER PEOPLE TO WORK IN THANK YOU MADAM CHAIR Or are those people no longer working in positions that are now open for other people to work in Chief Zabetsky Thank you Madam Chair Thank you Mr Vice Chair

Consequence of that that Mr. Hanson mentioned at the top of the presentation is better labor productivity, right? economy is producing a higher quantity of goods and services with fewer labor hours. That's the benefit, right, is that we as an economy are becoming more productive. The downside is that you have a stagnant labor market environment, which is what we're highlighting here. Okay. Mr. Hanson. Yeah, I appreciate the

Question from Senator Weissman. Thank you, Madam Chair. Mr. Hanson, you kind of already just hit it, but I think we're at a 15-year high for the 90-day delinquency measure on credit card, and I think the total national outstanding volume is probably around or north of a trillion dollars. I guess the question is how is that then baked into downstream sort of risk to, say, the general fund forecast, if you could give us some sense of that. And then I'll just get all my questions out of the way, Madam Chair.

Chief Stavetsky. Thank you, Madam Chair. Thank you, Senator Weissman. A couple things here. First, we do have a more robust discussion of specifically buy now, pay later. It's on page 75 of the forecast document. I think there's a couple dynamics that are of interest to the committee here. One is that this is showing you the percentage of loans that are delinquent. And so this is emphasizing, I think, financial distress among households that are more dependent on credit cards as a means of making ends meet from month to month. this is part of a larger discussion about rising economic inequality, about households at the lower end of the income distribution being unable to keep pace with rising prices during the post-pandemic high inflation period and now as inflation has risen further. That's clearly I think identifiable here. The reason why you've seen this slide in presentations that my team has given for the past two years now is because of specifically the credit card trajectory because it is a pretty awful leading indicator of household stress among that part of the economy. Our big lesson when I talk to academic groups about the consequences of the pandemic recession is that the state general fund is more heavily dependent on higher income earners. It's the case that you can have economic distress that's very significant for the lower end of the income distribution without there being immediate exposure for the general fund in a way that would have shocked me before the pandemic. We saw huge job losses during the pandemic recession. those job losses were not mirrored in income tax collections or sales tax collections because of relative economic health on the middle and high end of the economic distribution. So that's what we learned. I think this is indicative of rising inequality, which is independently noteworthy as an economic concern. In terms of your general fund exposure, I think everything Mr. Hansen said is correct about sales taxes. we haven't seen depression in wage withholding or individual income taxes that can't otherwise be explained by things like OBA changes. And so that's where I'd say that there. With respect to the macro economy in the United States, we always care about consumer activity. It is the most important driver of economic growth in this country. And that will continue to be the case through the forecast period. We don't anticipate changes there. whether that consumer spending growth can be maintained in a more unequal environment or one where lower households are more over leveraged. So far, the answer to that question is yes, but we haven't been in this environment or an environment worse than this one before with respect to credit cards. Mr. Hansen emphasized an important point, though, that I want to echo, which is total debt delinquencies are not at historically high levels. Total levels of household savings are near historically high levels. It's credit card debt that is the outlier here. That's what's concerning on a historical trend level.

Sorry, before you go ahead, we have a question from Senator Mabley.

Mr. Hanson. Thank you for the question, Senator Mopile. So just to maybe speculate here a little bit or perhaps offer just some personal insight. So I think companies have been retooling their product lines. They have been making these AI investments, and perhaps at the expense of other product lines that they may have been investing in. But that boost in productivity, I mean, really, if it does accelerate, it could very well be like other boosts that we have seen perhaps in the late 1990s, other periods throughout history where that eventually led to new companies, new types of jobs, and then folks that are, you know, leading to better wages or better prospects. I think it's too early to tell whether we are on the cusp of that, but I do think it is an upside risk to our forecast.

Thank you, Madam Chair, and thank you for those comments, Senator Wiseman. And we, I mean, really what we've built into our forecast is a pretty anemic amount of employment growth over the next couple of years. And that's why I put this into our upside risk part of this forecast. Just not knowing exactly how this will shake out. But our baseline is a pretty stagnant job market. So, moving on to some downside risks. First off is the potential lingering effects of the Middle East oil supply shock and trade flow disruptions. The situation appears to be resolving, but it could unravel or leave an imprint on the economy longer than anticipated. Weak household finances are another concern. If debt levels continue to rise and bad debt accumulates, it could impact consumer spending or financial stability. A weak labor market is also a concern and as workers leave the labor force over time they may lose job skills, they may not come back. It could impede the ability of companies to expand, to find available workers, and may impede the prospects of households. These are things that we tried to allude to during the forecast and summing up here, but with this I would like to conclude and open it up for any further questions.

Mr. Henson. It didn't materialize. Like what's going on? Thank you for the question, Senator Kirkmaier. I tried to highlight I guess what would be maybe our top potential upside risk. I do think that the HR1, the One Big Beautiful Bill Act, has had some near-term upside to the economy. It has boosted – it has made the prospect of some business investment better with lower taxes. It has also helped boost some consumer spending in the near term. But yes, if it does continue to do that, it could definitely be upside risk.

All right. Chief Sovetsky, why don't you continue?

No, it's governed by Madam Chair, Mr. Vice-Chair, it's governed by the actual level of

Right. Thank you.

It seems a little interesting to me, actually. I mean, what are you what indicators are you talking about? What those things?

You said you can see them on the treasurer's website.

Right.

Should we feel uncomfortable about this?

Thank you.

So as to the accounting for proceeds received from sale of tax credits, if you know, would that be accounted for on a cash basis? So sort of lump sum date whenever the transaction closes whatever fiscal year that happens to be or is it accrued spanning fiscal years in the usual way Director Szevetsky Chief Szevetsky Thank you Madam Chair Thank you Senator Weissman The answer so I going to tell you the way our forecast accounts for it which is the only way that selling tax credits makes sense, which is for it to be accounted on a cash basis, because the premise of the 2025 special session bills was to essentially accelerate revenue into FY25-26. We're assuming that that is how it will be accounted. the actual answer to your question is I don't know how it will be accounted because I haven't seen the accounting yet. So here's the good news. The good news is because of our revisions to the revenue forecast in large part and some other stuff that we'll talk about, we expect the 2526 general fund budget to end the year in balance relative to the 13% reserve requirement that you set in House Bill 1363 with a $116 million dollar year-end general fund surplus we expect that incorporating the appropriations you all enacted in the long bill and all other legislation adopted during 2026 that you will end FY 26 27 with a 148 million dollar surplus note that one includes the other you can't sum these two values together the 116 million dollar surplus from 26 is part of the 148 million THAT WE ANTICIPATE FOR FY27. FOR FY27-28, WE NOW GET TO PREPARE SCENARIOS FOR YOUR BUDGET AS YOU BEGIN THE PROCESS OF CONSIDERING THE FY27-28 BUDGET. SO WE EXPECT THAT YOU WILL HAVE $873 MILLION MORE AVAILABLE TO SPEND OR SAVE IN FY27-28 THAN IS BUDGETED TO BE SPENT IN FY26-27. THAT IS A BIGGER NUMBER THAN THE ONE THAT I'VE GIVEN YOU IN JUNE FORECAST PRESENTATIONS IN PREVIOUS YEARS. THERE ARE SOME REASONS FOR THAT. WE'VE WORKED WITH YOUR JOINT BUDGET COMMITTEE STAFF TO PREPARE A SCENARIO B THAT ANTICIPATES BUDGET PRESSURES FROM CURRENT LAW OBLIGATIONS. THAT SCENARIO B SHOWS A $315 MILLION DEFICIT RELATIVE TO YOUR RESERVE REQUIREMENT. I WILL NOTE, FOR BOTH OF THESE SCENARIOS, THE RESERVE REQUIREMENT IN CURRENT LAW IS 15%. HOUSE BILL 1363 REDUCED the reserve requirement for only the current fiscal year and FY26-27, not for FY27-28. So these numbers that you're seeing here are presented relative to a higher reserve requirement than the one that exists in current law, well, that exists in current law for the current year. I am calling this the Goldilocks forecast. And the reason I'm calling it the Goldilocks forecast is because we're in a position where revenue is hitting just right for the FY27-28 budget to essentially be the best case scenario I can be presenting to you right now. That means that number one, differences in revenue expectations for the current fiscal year and for future years could cause revenue to be below our current levels such that you end up with a worst budget outlook for 27-28. Also, our revenue forecast doesn't turn on the FATC and the expanded EITC. If we were to revise up our 27-28 revenue forecast, those credits would be on for tax year 27, which would reduce FY2627. So all of those dynamics are playing out in such a way that whereas in some previous presentations I've given you sort of a worst case scenario, this is the best that your budget might look based on the dynamics that are in play here. Though I'll note the OSPB numbers look even better. So there's maybe even a best or best case scenario available in a different set of forecast expectations. Mr Harper and I have been talking a lot about this forecast over the last couple of days and he when we IMing one another routinely expresses shock that things could look this good So I thought that where I start is by telling you what happened to get your FY26 budget into balance This is the scenario A expectation that we presented in March. We expected that even if you held appropriations constant between FY25-26 and FY26-27, that you would have a deficit of $807 million against the then 15% statutory reserve requirement. You, of course, had to also accommodate budget pressures that existed for 2627. So you made these changes. First, relative to our March forecast, you approved $74 million in appropriations for 2526, mostly through long bill add-ons. Second, you increased appropriations relative to FY2526 for FY2627 by $355 million in general fund appropriations, mostly through the long bill, also through special legislation. And if you had maintained the 15% reserve requirement, those appropriations would have increased your reserve requirement by $53 million. You also made transfers out of the general fund, mostly to fund capital projects in 26-27. Those transfers totaled 149 million. That left you with a $1.44 billion hole to fill relative to the March forecast from LCS, WHICH IS NOT THE FORECAST YOU CHOSE FOR BALANCING, BUT IF WE HAD TAKEN OUR MARCH FORECAST AND ALL OF THE BUDGETING DECISIONS THAT YOU MADE TO THE BAD, THE ONES THAT SPENT MONEY, THEN THIS IS WHERE YOU WOULD HAVE BEEN SORT OF AT THE TROUGH OF YOUR BUDGET CYCLE. YOU ALL OF COURSE NEEDED TO ENACT A BUNCH OF BALANCING ACTIONS IN ORDER TO BRING THE BUDGET IN BALANCE RELATIVE TO THE OSPB FORECAST THAT YOU CHOSE FOR BALANCING. SO ONE THING THAT YOU DID IS MADE A HUGE AMOUNT OF TRANSFERS INTO THE GENERAL FUND, 478 million dollars total across FY 2526 and FY 2627. This is a lot of things. They're in table 8A in the forecast document, if you're curious. But the largest ones are House Bill 1360. That's the affordable housing transfer. House Bill 1401. This is the FY 2526 transfer from the unclaimed property trust fund and House Bill 1405, which has a whole bunch of transfers in it. You also reduce your reserve requirement from 15% to 13% after accounting for all of the money that you appropriated that reduced your reserve requirement by 341 million dollars and while the JBC didn't sponsor it the General Assembly did pass House Bill 1419 that reduces your refund requirement by 153 million dollars assuming that the bill is turned on if the bill is turned off by the way that would mean that revenue in the current year is about 465 million dollars higher than in our forecast so you wouldn't have 153 million dollars in the reduced refund obligation next year but you would have four hundred sixty five million dollars more in your beginning balance if it's general fund revenue that's causing that difference so that you'd end up still in a comfortable budget environment with that change. That's where you would have ended the session then we've made changes in our forecast. We increased our expectations for general fund revenue by four hundred ninety eight million dollars relative to the March forecast. You'll see that on the next slide. We also made some other changes in this forecast. Some of those actually derived from legislation. So we're increasing cash fund revenue by less than we're increasing our expectation for TABOR revenue next year, which means more available in the general fund to spend or save. Some of that is things like Senate Bill 42, which caused money that was being deposited in the aviation fund to be accounted as collections for another government and therefore not subject to TABOR. bill 1401 the unclaimed property fund bill again results in a smaller or non transfer to the adult dental fund next year which means lower cash fund revenue subject to TABOR and then we also downgraded our severance tax forecast which means less cash funds subject to TABOR. There's a slide on severance coming up. So that's how you got to this $148 million surplus relative to the reserve requirement in next year's budget. Talking about revenue, this is obviously the headline in terms of what changed RELATIVE TO THE MARCH FORECAST. WE HAD EXPECTED A 3.9% REVENUE.

CHIEF SEBESKIE. MADAM CHAIR, SENATOR AMOBLE, MY TEAM ASKED ME THE SAME QUESTION DURING OUR DRY RUN YESTERDAY, SO I GET THAT THIS SLIDE ISN'T CLEAR. WHEN YOU CHANGE THE RESERVE REQUIREMENT, MY BEAUTIFUL WATERFALL CHARTS DON'T HAVE A GREAT WAY TO ACCOMMODATE THAT. WHAT'S HAPPENED IS, HAPPENED HERE IS SORT OF IN THE MIDDLE OF THE CHART, THE RESERVE REQUIREMENT CHANGED FROM 15 TO 13. THAT GRAY HASHED SEGMENT SHOWS THE SAVINGS THAT YOU GOT FROM MOVING TO A 13% RESERVE. SO THAT 148 MILLION DOLLAR SURPLUS IS RELATIVE TO THE 13% RESERVE THAT'S IN LAW NOW. OKAY. THANKS.

AND IF WE WOULD REMAIN AT 15%, WHAT WOULD WE DO?

MADAM CHAIR, SENATOR KIRKMAYER. We expect that the $148 million surplus is a 13.6% reserve. So you would be in deficit if you had maintained the 15% reserve requirement. The amount of the deficit relative to the 15% reserve requirement does not appear in the forecast document, but it's easy to calculate. I can get it to you right after the meeting. It's bigger than 148 million, but less than twice as big.

We had expected a 3.9% deficit in the March. Sorry, not deficit. Madam Chair, excuse me. In the March forecast, we expected a 3.9% decrease in revenue in the current fiscal year ON BOTH INDIVIDUAL AND CORPORATE INCOME TAXES. WE HAVE REVISED OUR EXPECTATIONS UP. NOTE THAT WE ARE STILL EXPECTING A 1% REVENUE DECREASE IN THE CURRENT FISCAL YEAR. SO LESS THAN 3.9 BUT A SIGNIFICANTLY SMALLER DECREASE IN REVENUE. THE REASON FOR THAT IS AN UPGRADE TO OUR INDIVIDUAL INCOME TAX REVENUE FORECAST. THIS IS BASED ON ACTUAL COLLECTIONS FOR March, April, and May, none of which we had at the time of the March forecast. So on net across all three years, we have upgraded our forecast by $498 million this year, $343 million next year, and $13 million in our out year. We are still expecting a significant year-on-year decrease in corporate income taxes as we actually reduced our corporate income tax forecast relative to March. This was a little bit of the discussion I provided at the beginning of my portion of the presentation, which is our best guess at this point, and it is only a guess, is that OBA has had a more significant cut for corporate income taxes in Colorado than we thought, and a less significant cut for individual income taxes in Colorado than we thought. Note, this is something THAT WE HAD EMPHASIZED FOR THE COMMITTEE SINCE OBA PASSED LAST JULY, WE WERE USING JCT, JOINT COMMITTEE ON TAXATION, CONGRESSIONAL ESTIMATES, WHICH ARE JUST A FISCAL NOTE, That's the congressional equivalent of a fiscal note that contains its own error for reasons that you are all familiar with as legislators. We were then taking that, determining which aspects of the bill we expected to have impacts in Colorado, and then doing apportionment to figure out how they would impact Colorado revenues. We understood, while performing those methodological adjustments, that that was all very fraught. It was based on JCT estimates that we didn't have a window into and that we couldn't independently vouch for, but that were the best estimates that were available. and then a bunch of judgment calls by our staff about what would affect revenue here and how it would be applied. The consequences may, by the way, still suggest that same level of revenue loss. I don't think it's correct to conclude definitively from the revisions that we're making that OBA didn't cause the loss of state revenue that we expected. It may be the case simply that the economy supported more revenue such that it offset a bigger chunk of that revenue loss than we expected. Like we talked about in Mr. Hansen's portion of the presentation, I know from the COVID experience that revenue is largely dependent on economic conditions for higher income earners. It may be the case that people made a lot of money trading stocks, making capital gains through dividends, interest, and rent, et cetera, during 2025, and simply had larger tax burdens that were enough to offset the OBA tax cuts for that population. We won't know about the definitive impacts of OBA on Colorado taxpayers until the IRS shares what's called their extract of tax year basis tax data, which we won't get. We, LCS, will never get. They're not allowed to share that with us. It's confidential taxpayer information. Analysts in the Department of Revenue will get in 2028. And that is when they and us, we can ask them a bunch of questions about what those data say. and I can come back and attempt to report it to you all, though I imagine that in 2028, the area of focus for this committee will probably have moved on to other things. And that's frustrating to me. I'd rather be able to give you a conclusion to that right now. But those upgrades reflect actual revenue data that we have for these last three months, which may suggest a stronger economy or smaller OBA impacts or both. In any case, I think risk to the revenue forecast is a lot smaller now than it was in March. We know something in terms of how much revenue collections were supported by the combination of tax policy and economic conditions that were in place for 2025. And so whereas I've been beating the drum on uncertainty for a long time now, this is a significant downgrade to the level of uncertainty in the relationship between tax policy and revenue. IN THE VEIN OF WEIRD STUFF THAT'S HAPPENING IN 2025-26, I HAVE THIS SLIDE HERE THAT I'LL JUST SPEND A QUICK SECOND ON WITH RESPECT TO INSURANCE PREMIUM TAX COLLECTIONS. SO ESSENTIALLY, INSURANCE PREMIUM TAXES HAVE BEEN GOING BANANAS FOR YEARS. THIS IS CONSISTENT WITH INSURANCE PREMIUMS GOING BANANAS FOR YEARS. FOR JULY THROUGH DECEMBER, WE SAW A 26% INCREASE FOR THOSE six months relative to the same six months at the end of 2024. In January through April 2026 we've seen a 13 percent decrease relative to those same four months in 2025. That doesn't make sense to us it's out of line with forecast expectations we've talked with Dora about this what they've explained is that insurance premium taxpayers have to remit taxes through a national system because they're all national companies that system has been changed as a result we're not SEEING REVENUE COLLECTIONS AT THE TIME THAT WE SHOULD THIS IS ANOTHER CASE WHERE THE FORECAST IS MAKING SOME ASSUMPTIONS THAT THAT REVENUE WILL COME IN AND BE BOOKED TO FY25 BUT AGAIN WE DON KNOW THAT DEFINITIVELY AND THAT ANOTHER REASON WHY WE HAVE SOME RISK TO THIS FORECAST OUTLOOK DESPITE THE FISCAL that that revenue will come in and be booked to FY2526 but again we don know that definitively and that another reason why we have some risk to this forecast outlook despite the fiscal year ending 12 days from now. TABOR revenue is expected to fall below the RFC cap in FY2526. You know basically what that means. There are three things I want to very quickly highlight. One is House Bill 1419. THAT IS ONLY GOING TO CAUSE A REDUCTION IN YOUR REFUND OBLIGATIONS FOR THE NEXT TWO YEARS IF REVENUE IS IN FACT BELOW THE TABER LIMIT, WHICH WE DO EXPECT HERE. THE SECOND IS THAT THE REVENUE FORECAST HAS DIRECT IMPACTS ON YOUR BUDGET, WHICH YOU UNDERSTAND WELL BECAUSE WE'VE TALKED ABOUT THAT FOR A LONG TIME. THE THIRD IS THAT THE GENERAL FUND WILL BE RESPONSIBLE FOR PAYING FOR HOMESTEAD AND THE PRIMARY RESIDENTS SENIOR PROPERTY TAX ASSESSED VALUE REDUCTIONS FOR PROPERTY TAX YEAR 2020. 26. THAT IS IMPLICIT IN BOTH YOUR BUDGET AND ALSO THIS FORECAST, BUT IT IS A DEPARTURE FROM RECENT YEARS. ADDITIONALLY, WE HAVE A ONE TIME NOW TRANSFER FROM THE UNCLAIMED PROPERTY TRUST FUND TO THE HOUSING DEVELOPMENT GRANT FUND. THIS USED TO BE A $30 MILLION TRANSFER FOR THREE BLOCK YEARS. YOUR JBC BILL, HOUSE BILL 1401 REDUCED THAT TO ONE TIME $2.2 MILLION. IT IS STILL A TRIGGER THOUGH AND SO WE INCLUDE ALL OF THE STUFF THAT THE STATUTE REQUIRES OF US IN TERMS OF IDENTIFYING THE TRIGGER AND SHOWING THAT YES, IN FACT, WE DO EXPECT THAT 2.2 MILLION DOLLAR TRANSFER TO OCCUR. THAT IS BASED ON THE LCS JUNE FORECAST SO THAT IS HAPPENING BECAUSE OF THE FORECAST THAT WE ARE PRESENTING TO YOU. HERE ARE EXPECTATIONS FOR TABER REFUNDS, NOTABLY HERE BECAUSE WE DON'T EXPECT THERE TO BE A REFUND OBLIGATION FOR 25-26. THERE ARE NO GENERAL FUND PAYMENTS FOR PROPERTY TAXES, EXCUSE ME, THERE ARE NO REFUND PAYMENTS PAYMENTS FOR PROPERTY TAXES FOR TAX YEAR 2026 WHICH MEANS THAT THE GENERAL FUND WILL BE REQUIRED TO PAY FOR THOSE REIMBURSEMENTS IN FY2627. ALSO NOTE WHEREAS THE SURPLUS AMOUNTS WERE 483 AND 674 FOR THE NEXT TWO YEARS, THE REFUND AMOUNTS ARE 330 AND 521. THOSE ARE DIFFERENT FROM THE SURPLUS AMOUNTS DUE TO THE 153 MILLION DOLLAR REDUCTIONS from House Bill 1419 for each of those two years. And that bill only applies for those two years, presuming that total refunds are reduced by $360 million across those two years. After that, it would cease to apply.

Thank you, Madam Chair. I don't think your mic's on. Thank you, Madam Chair. 1419 was what again?

Thank you, Madam Chair. Senator Kirkmeyer, that is the Tabor over refund correction bill.

Yes, Senator Kirkmeyer.

Chief Sovetsky.

REP TAGERK. THANK YOU, MADAM CHAIR. CHIE, SEBESKY, COULD I ASK YOU TO GO BACK ONE SLIDE FOR A MOMENT? THERE'S A NUMBER THERE THAT I'M PUZZLED BY. IN OUR SOON-TO-BE FISCAL YEAR 26, 27, IF I'M READING THIS CORRECTLY, THERE'S $206 MILLION FOR PROPERTY TAX REFUND, AND YET WE PUT THE PROPERTY TAX REFUND THIS YEAR INTO THE GENERAL FUND APPROPRIATIONS. SO I'M PUZZLED WHY IT'S SHOWING UP HERE.

THANK YOU, MADAM CHAIR. THANK YOU, REPRESENTATIVE TAGGERT. I UNDERSTAND THE CONFUSION. So you correctly assumed that the general fund would need to pay for property tax reimbursements in FY2627. This slide is showing you that revenue subject to TABOR is expected to exceed the REFC cap in FY2627. So that $206 million is expected to be refunded to taxpayers via those property tax refunds for tax year 2027, which defrays the general fund obligation for FY 27-28. So it's a timing issue. The 206 million affects your general fund budget for 27-28, and that 213 million you see in the right most common would affect FY 28-29. And I get why that's confusing, so I appreciate the question. Thank you.

Healthy school meals for all. This is really not much of a revision relative to March. The Prop MM first applies for a full fiscal year in FY 2627. So that is the amount that needs to be compared with the $95 million ballot authorization. The $95 million ballot authorization we expect to be exceeded in FY 2627. Our accrual basis Prop MM revenue estimate is 136 million dollars that would prompt the need to either refund the excess which in this estimate is 41 million dollars or receive voter approval to retain and spend that money at some later date This doesn prompt immediate action from the General Assembly You may choose to refund the money or refer a ballot measure in 2028, or based on past precedent, potentially refer a ballot measure in FY28-29, excuse me, in the 2029 election, rather. 2027 election next year, yes, 27 or 2028, not 2029.

You can refund the money.

Madam Chair, thank you for the question. The General Assembly doesn't need to refer a measure to ask voters to retain the excess. The General Assembly could choose to simply refund the money. It doesn't need to ask for permission if it doesn't want the money. The clarification I was seeking was if we were to seek to retain the dollars, that's required to be in the next election. that's closest to when that dollar amount is certified? Madam Chair, I love that you asked this question because this has long been confusing to me. We know that this estimate applies for FY26-27, and we know that Tabor says that you are required to refund the money in the next fiscal year, which would be FY27-28. However, in the 2027 session, when the General Assembly is meeting, you will not know definitively that revenue has exceeded this estimate. Because this estimate is for FY2627, and during the 2027 session, it will be FY2627. Excuse me. Which means that during that session, you won't know if you exceeded the estimate. You could anticipate that you will exceed the estimate and refer a measure to voters at the 2027 election on the anticipation that you will exceed the estimate. However, in the last two instances where this has come up, you have chosen to wait until the following session, which would be 2028, when you know as a fact that this has been exceeded, and then refer a measure to voters at the 2028 election. So there is precedent for that. That's what you've done the last few times, despite the fact that 2028 election occurs during FY28-29, which is not the next fiscal year.

Madam Chair, it sounds like you're asking an economist whether he is able to give in a legal perspective on whether you've been violating the Constitution.

Okay. My attempt to keep you on schedule has failed miserably, though it's because of your excellent questions and I do love answering them. Diversions based on taxable income, essentially we haven't talked about this in a while just to remind you. We divert income tax that otherwise would go to the general fund to three other places based on the level of taxable income. This is the SEF, the state affordable housing fund and starting next year the Kids Matter account, which is in the SEF. We receive reports each June from the Department of Revenue that indicate the level of tax credits and taxable income. Those reports are really helpful to us in knowing the amount that ought to have been transferred in earlier years and how it trues up with our forecast. Essentially, what learned this June is that the amount of tax credits for tax year 2024 was greater than we had previously thought. And for that reason, we now expect, in fact, know that taxable income for FY2425 was greater than the amount that we had assumed when we set those transfers. So we are catching up with our understanding of the level of taxable income. And as a result, both on sort of three reasons like one making up for prior year under transfers to revising up our expectations for taxable income this year and then three also upgrading our income tax revenue forecast this year. We are revising up our transfers for all of these revenues pretty significantly. So these are monies that will be in these funds rather than the general fund. Just to note since you're the JBC everything that I've told you about the general fund is the general fund right. That's when I told you about the general fund surplus amounts when I told you about our revenue forecast revisions, when I'm about to tell you about Scenario B, that's all general fund money, but also in this forecast, there is more money in the State Ed Fund, the State Affordable Housing Fund, and the Kids Matter account. So for example, when building Scenario B, we talked with Ms. Yule about the fact that there's more money in the State Ed Fund, and that may change the amount that you need to appropriate from the general fund to meet your school finance obligations. Severance tax, you're going to hear a lot about this later today in your 1331 requests. Essentially just to show you what happened here as sort of a amuse-bouche for those conversations. You've... An hors d'oeuvre, I guess. So... Madam Chair, I've slept very little this week. What's happened here is that in our March forecast, we had revenue tracking data for FY25-26 526 up through February, excuse me, 2026. And we had expected strong receipts of oil and gas severance tax revenues for the remainder of the fiscal year. Instead, what happened is a very large net refund amount in May 2026. So this is brand new information for last month. These net refunds are clearly cases where an oil and gas producer owed less in taxes for a prior tax year than the amount that they paid, and therefore they were owed a refund. Exactly the circumstances are confidential taxpayer information, and I do not know them, but that's what has occurred. So we don't expect this to be precedent-setting. It appears that this most likely was one or maybe a very small group of oil and gas producers who were owed tax refunds. We are not using this as determinative of our future revenue forecast, but it does change the FY2526 picture significantly. So this is less money going into all of the severance tax funds, including those from which you have made transfers. I know the committee is aware of this and we'll be hearing more from Ms. Yule and Ms. Shen later today. on those implications.

Thank you, Madam Chair. I'll defer this question to our severance tax forecaster, Mr. Hanson. Mr. Hanson.

Senator Weisman.

large tax bill to try to find ways to reduce that tax bill that sometimes includes pushing on dor it sometimes means if somebody really thinks that prevailing interpretation is wrong lawyering up and going to court understanding you won't be in possession of all the answers trying to drive at whether this change might flow from something like that.

Senator Kirkmeier.

MR. HINSON.

SO FOR EXAMPLE, IF IN WELD COUNTY THEY INCREASE THEIR MILL LEVY AND 87% OF THE OIL PRODUCTION IN THE STATE OF COLORADO THEY INCREASE THEIR MILL LEVY JUST IN WELD COUNTY ALONE OR ANY OF THOSE SCHOOL DISTRICTS FIRE DISTRICTS AND OTHER TAXING ENTITIES INCREASE THEIR MILL levy the offset would have been changed and that could be what affecting this million refund

Yes, that could be a factor that is impacting that, that is just making up a higher percentage of gross tax liability where that oil is being produced. It could be in areas that have increased their mill levy or just have higher mill levies.

Senator Kirkmeyer.

Mr. Henson?

Thank you. Rep. Taggart.

Help them in what way? There's $55 million. You're talking about taking general fund money and putting it into grant programs?

Well, then how would we help them? Rep Taggart.

I think I'm missing the relationship you are drawing between the local – Are you talking about local government dollars in affordable housing or in the severance side?

Because you're bringing severance into it.

Let's leave severance alone because severance is worse off than we expected it to be.

But the state affordable housing fund is better than we expected to be, than we expected to the tune of $55 million.

given the additional um tax taxes that we have gained there might we consider taking some of OF THAT 55 MILLION AND DISBURSING THAT TO OUR LOCAL GOVERNMENTS. BECAUSE THEY GOT A DOUBLE WHAMMY. WE COULD THINK ABOUT A FEW THINGS. WHEN WE ARE NEXT IN SESSION, I DON'T THINK THERE'S ANYTHING WE CAN DO IN THE INTERIM, BUT ALSO THESE ARE STILL ESTIMATES. NOTHING HAS BEEN SOLIDIFIED YET. JUST, I DON'T KNOW, FOR EVERYONE'S REFERENCE, DOES ANYONE KNOW, director harper or chief sabetsky when these transfers were scheduled to take place

senator kirkmaier yeah and i guess my question is this when the money is coming in this 55 million dollars if that's what it ends up being based on the forecast that just goes automatically into the housing fund correct it's not like it's getting dumped into the general fund she's so I don't know why we would transfer money anywhere it's going into their fund so we're just not sweeping it yet they're getting more the amount of the the transfer to the general fund is is definitive it's the 130 month three excuse me 130 million dollars in statute. So you're right that that money that we're anticipating going to the State Affordable Housing Fund goes to the State Affordable Housing Fund and from there to the housing

More than we thought.

Just to correct myself, the support fund in DOLA, the financing fund in Oedit, not the development fund, that's a different thing. Madam Chair, we'll move now to Scenario B. And the way that I've done this in every prior June forecast and the way that my team did it last year when I wasn't here is here's your excess reserve under Scenario A. Now let's talk about all of the assumptions that get us to Scenario B. But when I showed this to Director Harper, again, his reaction was, wait, how are we at $873 million surplus under Scenario A? Which I think is the forecast part of this, right? Everything else here is sort of anticipating potential spending decisions. But I wanted to pause and talk about how we got to $873 million under scenario A, and this gets me back to my Goldilocks forecast conversation. So the first thing, in the prior several forecasts, everyone that Rep Brown, for example, has seen as a member of this committee, we've talked first of all about the fact that you're beginning the fiscal year in a whole. That's not the case in this forecast. We expect that you are ending FY 2627 with a surplus, and that surplus gets carried forward into FY 2728. And so there's no carry forward deficit that makes budgeting in 2728 a little bit easier. We also anticipate that the Tabor limit will increase 4.4% this year. That's higher than it's increased recently. That's because of high inflation expectations for calendar year 2026. Our current inflation forecast for Denver or Lakewood for 2026 is 4.2% and that is contributing to faster growth in the Tabor limit for FY27-28. Cash fund revenue subject to Tabor is expected to rise by just 3.7%. That's lower than the 4.4% growth rate since cash fund revenue is rising more slowly than general than the Tabor limit, there's more space for general fund revenue to grow under the Tabor limit. We also are expecting that you will have a Tabor surplus for FY 26-27. That's what's been the case recently in most years but it's not the case notably in 25-26. So in 26-27 you're spending for Homestead out of the general fund in 27-28 you don't have to because you have a prior year Tabor surplus that is there to accomplish that. And you also have the second year of House Bill 14-19 the Tabor over refund collection bill reducing your refund obligation by 153 million in FY 2728. So most of the things I just mentioned are one-time occurrences right the Tabor limit going up by a lot we don't expect that to happen again our forecast is for receding inflation next year the homestead stuff again that's a year-over-year benefit from having to pay for it in 2627 to not having to pay pay for it in 27, 28, which effectively frees up $200 million year over year. 14, 19 is going to go away after 306 million is reduced in future Tabor refund obligations. So all of this stuff happens once and then isn't present in your 28, 29 outlook if I were able to present that to you. This is a one-time Goldilocks scenario where it's neither happening too early or too late, but just at the right time to make this an easier budget than I had expected based on the June forecast when I ran these numbers for this June based on the March forecast when I ran numbers for June So that where we start With the help of your JBC staff we have projected how you might choose to increase appropriations in 27 to meet current law obligations. That includes 463 million for HICPF. This is a big year-on-year increase. It's not just for medical services premiums. This is every line in HICPF for which Mr. Kurtz was able to give me at your projection. So that's medical services premiums, that's the Office of Community Living, Office of Behavioral Health, CHIP, etc., that is contributing to that $463 million year-on-year amount. Ms. Ewell originally gave me a $300 million year-on-year increase in general fund requirements for school finance. After I showed her that there would be more money in the SEF, she consulted with our school finance team and they landed on $175 million as a good proxy for year-on-year general fund appropriations for K-12 in FY27-28. Again, fuzzy depending on how you want to maintain a balance in the SEF and the Kids Matter account, etc. 33 million is an inflationary adjustment for higher ed at the recommendation of Mr. Kem. And by recommendation, I'm using that term loosely. This is recommendation for inclusion in exactly this slide, not for a budget decision. And then we also got a hand from OSPB, JBC staff got a hand from OSPB in forecasting total comp for that out year. This is 94 million year-on-year increase to accomplish a 1.25% growth rate for salary survey and then anticipated health life and dental pressures associated with the WINS agreement. The health life and dental pressures might not directly be associated with the WINS agreement, but that's where the 94 million is trying to land on. Note this does not include a provider rate increase. The reason it doesn't include a provider rate increase is because traditionally we've tried to reflect decisions that the JBC has made in prior sessions. Of course in 2026 you chose to cut provider rates rather than replicate a cut. We are choosing for this scenario to show a zero increase. That said, if the committee chooses to increase provider rates that will be additional increases in appropriations beyond what is shown here. For capital, we have 32 million for out-year project costs. These are projects that you've already funded for FY 2627 that have out-year costs both capital construction and IT capital. And then we never know exactly what to do for the spending bill, the capital projects bill. What we've done traditionally is use the state architects recommendation which is 1% of current replacement value of state assets which shakes out to 283 million in the most recent few years you haven't transferred this much money and so if you were to transfer less then that would result in a smaller deficit projection for FY27-28. Remember that your reserve requirement is 15%. The 15% reserve is already baked into scenario A for FY26-27 carry forward appropriations but since we're growing appropriations in scenario B we also need to increase your reserve requirement in IN THIS CASE BY 114 MILLION, THAT'S 15% OF THE GOLD BAR. AND SO YOU END UP, NET OF ALL OF THOSE CHANGES, WITH A $315 MILLION DEFICIT RELATIVE TO THE 15% RESERVE REQUIREMENT IN THAT YEAR.

THANK YOU, MADAM CHAIR. THANK YOU, CHIEF SEBEZKI. REALLY APPRECIATE THIS. I ASSUME THAT IF WE WERE TO EXTEND THE 13 VERSUS THE 15 REQUIREMENT TO THIS FISCAL year that this little this deficit would pretty much evaporate is that correct Chief Sebecki Madam Chair Representative Brown thank you for the question Yes is the answer I wanted to get you the exact percentage that we have and

Great. Thank you.

You do go back to 15.

Chief Stavetsky. Thank you, Madam Chair. Representative Brown, let me go back just two sentences here to maybe get us on the same page. Scenario B is presented entirely in the context of current law. Current law is a 15% reserve requirement for FY27-28. So we are presenting in scenario A an $873 million surplus relative to the current law 15% requirement if you didn't grow appropriations at all. We know that you are going to grow appropriations, or we expect with high likelihood that you will grow appropriations. We work with your staff to build scenario B. Scenario B includes the things that JBC staff suggested you might want to do and our assumptions there. These are all your decisions. After making those assumptions, which I've just walked you through, you end up with a $315 million deficit relative to the 15% reserve requirement.

That represents a 13.2% reserve.

Got it. Okay. Thank you. Thank you very much.

Senator Kroekmeyer.

Chief Sovetsky. Madam Chair, Senator Kirkmeyer, that's correct. If the credits were on, what would happen is that revenue would be reduced. That wouldn't necessarily affect your budget. It could. It's a function of how on they are and how much revenue would be. for FY27-28, the years of the credits that matter are tax year 2027 and tax year 2028. The presence of the credit for tax year 2027 is based on the OSPB December 2026 forecast for FY27-28. So if they had a large enough expectation for TABOR revenue in order to cause the CAGR to be at a level that the credits would be turned on, I think it's relatively likely that those credits would be reducing the TABOR surplus and not necessarily affecting the amount available for your budget. That not again necessarily the case The problem that you run into before with timing and the problem that you might run into here with timing is a situation where revenue in one year is much lower than revenue is going to be in the next year. So if, for example, FY27-28 revenue is going to be below the RFC cap, the FY28-29 revenue is going to be way above the RFC cap, then the credits might turn on for 2028, which reduces revenue for the FY27-28 budget. That's where the CAGR calculation kind of breaks down. It presumes sort of a consistent increase in revenue over time. If that's what happens, then you'll probably be in a circumstance where the credits are only affecting the amount of the TABOR surplus and not the amount that's available for the budget. And then there are other things that could happen, like the legislature has referred a ballot measure to de-bruce in a world where that ballot measure is approved by voters, then the credits are always reducing revenue available for the budget because they're just revenue reductions and there is no Tabor limit effectively or the Tabor limit is much higher than it is under current law.

Chief Sovetsky. Thank you, Madam Chair. Senator Weissman, I'd have to refer you to Mr. Kurtz. We don't independently forecast the growth in expenditure requirements. You know, for what it's worth, JBC staff isn't exactly doing that either. They're coming up with a guesstimate of how much current law spending obligations might require. And that, in this case, is reliant in part on forecasting that's done at the department. All right. I see we've got one more slide left, and then we've got OSPP next. Madam Chair, I am excited for you to get to ask questions of someone else. I'll wrap up here quickly. I think something that we've learned relative to March is that we had bidirectional risk to the March forecast. We, I hope, did a good job of emphasizing the presence of upside risk. That's clearly what's happened vis-a-vis the revenue outlook. The fact that revenue differed greatly from the March forecast is noteworthy, of course, in terms of your budget outlook, which I've already walked you through, but also in terms of what it means about our ability to write revenue projections going forward. Like, it's clear that the way that our models were working based on the data inputs that we had in March were too pessimistic about revenue collections. And like I said, I view this forecast as a retreat for uncertainty to some extent. That said, we don't exactly know why our March forecast was wrong yet. remember this could be Oba, this could be the economy, this could be both and because we don't exactly know those different explanations carry directionally different risks in terms of what they mean for this forecast. Those late-breaking accounting changes the chair asked me to detail those and so you've already heard about them I won't go back into that here and then the applicability and the impact of House Bill 1419 our forecast expects that we're fairly far away from this trigger, but the OSPB forecast doesn't. Again, this doesn't rely on a forecast. It's actual level of revenue collections. If revenue is above the Tabor limit in FY25-26, then 1419 turns off, which results in a different set of budget expectations for the next two years. And then, as you've heard me say many times before, recession risk is budget risk. We have, I think Mr. Hansen did an excellent job of showing you how we see sort of differing weights on the economy in terms of rising productivity, horrible employment situation. THOSE TWO THINGS COMBINE TO I THINK PRESENT MODERATE RECESSION RISK THOUGH IF A RECESSION WERE TO OCCUR IT COULD BE DEVASTATING FOR YOUR BUDGET. AND THAT'S ALL I HAVE, MADAM CHAIR. I WILL NOT ASK FOR FURTHER QUESTIONS UNLESS ANYONE HAS ONE.

Thank you, Madam Chair. Mark Ferrandier, Director of OSPB. Pleasure to be with the committee. We are here to present the Governor's Economic Forecast. You'll see something pretty similar. We have some differences in the current year, but over the three years, it all lets out to be pretty relatively similar to what you heard. Given time, I will turn it over to – I think we're waiting for the deck to go up. Once that goes, we'll start. You tell me when you're ready. Deputy Director Cook will start with our economic outlook.

Thank you, Madam Chair. Energy includes both utility bills and gas prices, correct?

Okay, thanks. I guess, are we seeing almost all of that increase then in, or rather the change that we're seeing in this? How much do we attribute that to gas versus just general utility costs?

Thanks. Okay. So as inflation has come back into the focus, there's been a lot of discussion about what the Federal Reserve should do next Yesterday there was an announcement at their meeting that it would be likely that there is one federal hike between now and the end of the year A lot of market participants also believe the case for our forecast Since we did not have that information at this time,

And we expect that there is a real possibility that we will see a negative real income report by the time we get to the end of 2026. The last time this occurred was in 2022, which was when inflation was at its highest and would likely be the cause for this situation as well. A question from Senator Mobley. I'm just wondering about the interplay of the Medicaid work requirements. and the labor market and whether that changes that dynamic at all. Like if you're in your 50s and you retire, you might be able to be on Medicaid, but now you have to work in order to get the Medicaid. I wonder if that forces some people back into the market. And also whether people are reluctant to work more if they have a job because then they lose their Medicaid so that they're deliberately not engaging more hours of work in order to maintain that so that they have health insurance, especially for people who retire younger than 65. Deputy Director Cook. Thank you, Senator Mable. That is something that we had not considered to be a major driver. I will say that the last three months of jobs growth have been significantly higher than what we've seen for the previous year. And so I wouldn't rule out that there is some motivating factor there. But our general expectation is more along the lines of it's difficult to get hired right now as very few companies appear interested in taking on new workers. turning to household savings and this is tied back to you know stress on household balances savings rates are falling they are currently at 2.6 percent in the most recent april report this is the lowest it's been since mid 2022 mid 2022 is also the time where there was the highest amount of inflation we've seen in recent history. And so that is also likely causing some of this stress that people are facing. And because of those low savings rates, because that real wages are going down, because we do see elevated credit delinquencies like LCS had previously talked about, changes to student loan repayments and the like, we do think that all of this is going to coalesce into an environment where you do see falling real consumer spending by the time that we get to the end of 2027. And that's really the driver of what we think will happen as far as putting some muted impact on GDP growth in the second half of 2027. And that aligns with our FY28 count our fiscal year and so that's an important note on some of the weakness that we're seeing on the revenue side with FY28 is we see some real economic weakness that aligns with that year. However, in the near term we are still seeing consumer spending being strong. Again, retail spending is in nominal terms and so through February in that dark bar at The top, it actually grew from then until April, but a large reason why was because spending on gasoline in nominal terms as prices began to rise. And what we really want to point out here is that spending really was shifted to things that are more necessities. So your gasoline health purchases in the retail category and shifting away from things like hobbies, clothing, cars, restaurant spending, Those are some of the categories that are going down from February to April as people reassess what they can afford to spend money on. One of the other things here that I'd like to point out is the New York Fed has a report called the Economic Heterogeneity Indicators, and they break out retail spending in real terms after accounting for inflation for different levels of households. And even the high-income group, which they classify as households with $125,000 or more, saw drops in year-over-year retail spending in real terms in April. So everyone is feeling a little bit of the consumer pinch there. Senator Weissman. Thank you. Real quickly, I'll need to go run down that report. Do they sub-bucket $125,000 plus, or do they just draw a line? Okay, that sounds like yes. New York Fed, thanks. Thank you, Madam Chair. I think this so far, and I think you – I looked through the slides, so it seems like this is the point where – this is where I ask this question. Given that sort of switch from the stuff that people normally spend on to maintain their quality of life and, like, the stuff they have because, you know, we're Americans, we like stuff, to the necessities where we have to drive to work in order to continue to get the money to have our stuff. We need a place to live and rent and things like this. That combined with the slide that we saw from LCS on credit card debt, is that sort of combination of things why you feel from that first slide, to go back to the question I waited for until now, Is that why you see, why you predict that in the next year or two, folks just aren't going to be able to keep that up? Like that's the dip that you are predicting that perhaps is different than the dip that you're seeing many other economists predict. You're just saying, like, we think this is going to stop at some point. Like this whole thing breaks at some point, and you think that comes in the next year. Deputy Director Cook. Thank you, and thank you for the question, Senator Bridges, and for your patience on asking it. another 10 slides later. And the short answer is yes. I think that is why we're seeing a lot of this risk. And we're also, I think, looking at this as there is an increasing amount of the dependency on maintaining economic growth will be relied on the wealthiest among us in order to support that sustained growth And we viewing this as it starting to now hit all categories of income And so we reaching a point where that might not be the case headed forward And maybe we can push it off a little bit but to your point by the second half of 2027 here you do see that negative personal consumption drag on GDP, and that's being driven by overall exhaustion by enough of U.S. consumers that it's unsustainable. Thank you, Madam Chair. So whereas the exhaustion for most people, even more than half of Coloradans or Americans, is sort of that exhaustion is perhaps already present and we see it and we see that decline. What you're saying is that our economy, because it's fundamentally broken in some way, depends on the wealthiest folks and their spending. And what you're saying is that we're starting to see the problems that have been affecting the majority of people, the vast majority of people starting to affect that sort of top quartile of folks as well. Yes, Senator Bridges, that's our takeaway from this early data, and that's what our assumption is. We will see if that comes to fruition or not, but that's where we think things are headed. Thank you. Okay. So turning to the residential market, in figure 14, you can see that permitting has been relatively stable. However, multifamily construction has actually not only sustained its construction levels in recent months, but it's actually shown a little bit of a positive trend. And this has led to somewhat of a supply-demand imbalance where you end up seeing in Colorado home prices and rent prices end up being lower than they were a couple years ago, which is out of line with the U.S. trend where you still have rising home prices and rising rental prices. That all being said, one interesting thing that we found out about in the March, so not the data report we just got, but the previous data report that we got after the March forecast on CPI, was that Denver's shelter inflation category was rising more quickly than it was for the nation. We asked BLS about this given what we're seeing on home prices and rental prices, and their explanation was that shelter inflation was being driven by insurance costs. And so some of that related to the cost of rebuild as there is elevated risk of wildfire and hail is playing a role in increasing the inflationary pressure there as well. On drought conditions, they have worsened over the past year. we did have a very mild winter and very low snowpack over this past winter. And as a result, there is at least a moderate drought, if not a severe drought for the entirety of the state, according to the National Drought Mitigation Center. This has led to households experiencing usage fees and also there being water restrictions in the agricultural sector that could have an impact on food prices in the future, depending on outcomes. One of the other things I wanted to highlight is what an update to what's happening with trade barriers. It's relatively similar to the March forecast. It's actually been revised down in 2026 from 9.3 to 9.0 percent. This is due to a change in Section 232 tariffs on metal products and basically they've moved them to a multi-rate system so not everybody's paying the 50 percent tariff anymore. We made more minimal revisions in the out years I also highlight that Colorado effective tariff rate in our estimate based on the current basket of goods and the differences between Colorado and the U is slightly lower at 8 I will note there are ongoing Section 301 investigations on forced labor practices. Those are not incorporated into our base forecast here because the hearings are still going on at the U.S. Trade Representative. They were announced that they are going to have hearings on June 2nd, but those are not going to be completed until July. Once they are updated, they will have an impact if they remain at current levels, probably moving up our effective tariff rate by a half a percent in the current year and more than that in the out years. Getting to the end of my section, the chance of a recession in the next 12 months, we expect to remain at 40 percent, same as what we had in the March forecast. However, However we do think that the risk is higher if we move to 12 to 24 months out as we see a weakening labor market, limited consumer demand as well as a result of compounding inflation costs. And to the upside and downside risks in our minds the major two are both potentially upside or downside risks being geopolitical conflicts or trade barriers they could put in place. They could have an impact on inflation and thus consumer spending. And with that, I'll open it up to any questions before turning it over to Mr. Shuck. Any questions for Deputy Director Cook? All right. Seeing none, Mr. Shuck. Thank you, Madam Chair. For the record, Skylar Shuck, Principal Economist, OSPB. So to get started with our general fund revenue section, our main takeaway is that revenue in FY26 is expected to finish just below the Tabor cap after tax season even better than expected in our March forecast. To table set first though, we wanted to show our forecasted Tabor revenue for FY26 over the past year and a half. After HR1, we came to you last August with Tabor revenue below the cap by about $740 million. After special session, that helped to close that gap and our forecasted FY26 revenue in deficit of the TABOR cap hovered between 220 and 310 million dollars from our September forecast to our March forecast. However, since March, we've had a strong tax season and that has revised up TABOR revenue by over 200 million dollars from to our current position, 15 million dollars just below the cap. But to peek under the hood of what's changed in our forecast since last June. Weakness in corporate income is the biggest drag on general fund revenue thanks to those HR1 provisions reducing taxable income. And this is despite individual income outperforming expectations as well as some additional help from cash funds and sales and use tax as well. And to highlight something that Mr. Spetsky highlighted in the LCS forecast is that there's a lot of items underpinning this, but we can say with a lot of certainty that for individual income that overall revenue growth compared to last June would have been better without HR1. The corporate income weakness is not unique to Colorado. Using analysis that compiled state by state revenue collections for the first half of fiscal year 26, the median change in corporate revenue is a 14% decline. In this analysis, Colorado is even below that at a 33.2% decline here. We do want to highlight that you're seeing, you know, this big red graph with a lot of declining corporate revenue, particularly because more states are coupled directly to federal tax policy for corporate income than on the individual side In terms of top general fund revisions we revised up FY26 by million on those better-than-expected individual income months offsetting those weak corporate collections. In FY27, they're offsetting income in sales revisions, but top-line downward revisions of $90 million on weaker insurance and interest forecasts. And finally, FY28 is revised up $160 million from the FATC and EITC tax credits being turned off. However, we do want to note that there are weaker underlying economic fundamentals in that year. A question from Rep. Tackert. Thank you, Madam Chair. I'm not sure it's a question as much as it's a statement. I think to place the revenue shortfall as it relates to corporate strictly on HR1 is a misrepresentation. Corporate America has also seen, and Colorado, significant increases in regulations. It bears the brunt of inflation when it tries to absorb those inflationary costs. and it absorbs, in many cases, increases in tariffs. So I understand the statement that our taxable dollars have gone down as it relates to corporate taxes, but to place it all on H.R. 1 I don't believe is accurate at all. Deputy Director Cook. Thank you, and I appreciate the comment, Representative Taggart. I think just one thing I do want to clarify so it's not lost is that what this on slide 20 is trying to show is not an expectation of impacts of HR1, but just what we expected in June of 2025 compared to June of 2026. We are still formulating our final, you know, the impacts of HR1 are constantly being updated, and we will continue to make updates as we continue to get more information. I think our main suggestion is compared to our initial estimates that more of the impacts are hitting corporate income than individual income compared to what our expectations were. And this is the same line of logic, I think, that Mr. Sobetsky, sorry about that, was using right before this. Senator Amable. Remind me, does this include pass-through like subchapter S corporations and the like? Like where are they? Are they in individual or are they in corporate? Dr. Director Cook. So the S corporations are going to be held in corporate. Okay. But there is also, well, to clarify, if you're filing a K-1 with your individual filing, that's going to be hit on the individual side. So there's, it depends on what piece of that you're talking about. Well, I just, thank you. I just remember from last year that it was different between you all and the previous forecast. Sure. Yeah. Senator Kirkmayer. Thank you, Madam Chair. And I guess I thought that Representative Taggart was speaking to slide number 21 where it says corporate income weakness from HR1, not unique to Colorado. That's where I was taking his comments from, just so you know. Looks good. Pretty much like we're blaming it on HR1 there. Well, I'm not. Mr. Shett. Thank you, Madam Chair. Again, yeah, like I said before, oh, sorry. On slide 23, legislative impacts are largely neutral to top-line general fund revenue, particularly in FY27 with offsetting impacts, particularly from House Bill 26-12-23, which is increasing sales and use tax revenue, but simultaneously decreasing individual income tax revenue with the addition of the family affordability credit and sales and use tax is going up from the addition of downloadable software. But we'll highlight total revisions to sales and use tax later. As we discussed before, we've revised up taper revenue in FY26 by over $200 million to now we are just $15 million under the ref-seed cap. However, we do still forecast a taper surplus in FY27 and 28, despite revising down revenue in both of those years. We do want to highlight for FY28 specifically as well that there's a substantial revision there, primarily being driven from our revision to inflation, as that revision to inflation moved the taper cap by over $300 million. On individual income revisions from actuals, this graph compares our March forecast for tax season compared to actuals and what we saw was that refunds only grew by 12% when we had previously expected them to grow by 20%. And cash worth returns as well only fell by 4% when we had previously expected those to fall by 13%. So overall across the tax season, revenue beat expectations compared to our March forecast. On the top line, individual income is revised up a little over $700 million from that good tax season. We are up $127 million in FY27 from base effects in a stronger economy in 2026. And FY28 is up $125 million, again, thanks to the FATC and EITC credits being turned off from weaker economic and wage conditions. For those FATC and EITC tax credits, due to weaker revenue growth expectations, they are assumed to be unavailable in tax years 27 and 28. In the March forecast we had previously come to you and said that the credits would be partially available in tax year 28, that is no longer the case. As a reminder, the compounding annual growth rate threshold required to turn these credits on starting in FY26 is 3%. And in tax year 28, looking at the growth in FY29, that growth rate is 2.8% just under that threshold. And that is something we will continue to monitor in our future forecasts. Like we talked about earlier, federal tax policy changes have had a clear impact to corporate income revenue in FY26, despite corporate profits remaining strong and growing in both 2025 and 2026. Earlier we had showed that map showing national trends in the first half of FY26 for corporate revenue. But in Colorado, when we compare collections in 2026 from January through May to 2025, what we saw was that corporate refunds more than doubled while estimated payments fell by a quarter. However, cash worth returns had generally minimal revisions. But on the top line, we have revised down all forecast years since March. with FY26 going down million from higher refunds FY27 is going down million on lower economic conditions in 2027 And FY28 is down minimally from base effect changes as well as some offsetting revisions to corporate profits. Moving out of individual income and on to sales and use tax, we've revised these up in all years, despite slowing growth in consumer demand underlying this. The primary change in this is policy changes, again, like I highlighted earlier, from the addition of downloadable software in House Bill 26-12-23. So with this, FY26 is also revised up from some better than expected actuals in the current fiscal year. So we are up $27 million. For FY27, we are up $48 million, and FY28 is up $124 million from those legislative impacts growing in the out years. However, we did want to highlight that it is a little counterintuitive that sales and use tax is going up. And we just talked about how there's a lot of weakness in consumer demand, and we're heavily relying on those high-income earners maintaining the economy. But this is primarily due to some smaller impacts from our revisions in inflation, which provide upward pressure as when inflation increases, it nominally increases spending, which also has some effect to sales and use tax. General fund interest income is also revised down in all years off of our downgraded expectations on monthly average general fund balances. And this is primarily driven from legislative impacts including the $500 million in general fund reserve being held at para, the reduction in the general fund reserve requirement from 15% to 13%, as well as downgraded taper surpluses across the forecast period. And all of this leads to overall lower interest income collections across the forecast period. And to tie out total general fund, revenues are following the same trend in Colorado as with most states. And what we've seen, and we've heard this reflected in some recent roundtables with other states, is that despite some sharp declines in corporate income, thanks to the stronger than expected tax season with individual income receipts, as well as some moderating but still slowing sales tax revenues has meant that total general funds broadly, both in Colorado and in the nation, are still growing in FY26, though at a lower amount. And with that, that concludes the general fund section of my forecast. I will pause here for any questions before moving on to cash funds. Cash funds it is. Awesome. Thank you, Madam Chair. So for cash funds, here the main story is policy impacts from this most recent session, specifically from you guys. And with that, we have significantly revised down cash fund revenues. We also want to highlight this is paired with some major revisions to severance tax collections from overall volatility. In FY26, we have revised down $232 million primarily from those legislative impacts. In FY27 and FY28 is also revised down, albeit a lesser amount due to severance tax volatility providing an upward swing in revenue pressure and so overall our revisions down are lesser in those years. However, overall cash on revenue is still expected to grow in all years across the forecast period. Getting into the individual streams, severance tax monthly collections continue to be volatile and unpredictable as May collections plunged to negative $45 million as refunds massively outpace remittances in that month. FY26 overall is revised down to million compared to our March forecast So our total annual revenue collections for severance for f26 is now 108 million dollars f27 is conversely revised up 82 million dollars to 278 million dollars total as there are fewer projected refunds and sustaining upward pressure from high oil prices to underscore the volatility of severance tax revenue may was the second highest month ever for refunds. When you pair that with the fact that six of the past 23 months have had net negative revenue collections, the volatility has a major impact on annual revenue collections for severance tax totals. Outliers like May of this year and February of last year are basically impossible to forecast because they are dependent upon a very narrow base of taxpayers and their individual tax liabilities, not just market conditions. Things like AV credits can reduce taxpayers' liabilities a lot and that combined with refunds from previous year over your previous year overpayments in tax liabilities means that monthly refunds can be very large like we see here. On to transportation revenue, overall revenue is revised down due to policy changes with primary impact coming from a reduction or from the reclassification of thirty million dollars annually from Senate Bill 26042. That revenue primarily is from aviation fuel taxes which we are still collecting but we are just no longer counting it against the cap here anymore. There's also some smaller impacts outside the HUTF from weaker economic conditions as the daily rental fee revenue collections are down as people are renting fewer cars and we have seen that reflected in DIA data as well. Despite these downward revisions to transportation, one thing we did want to highlight is that revenue, excuse me, despite these downward revisions to overall transportation revenue subject to TABOR from these policy and economic conditions, total transportation revenues when you layer in CDOT enterprises is still maintaining a long-term trajectory of growth and is forecasted to crest over $2 billion by FY28. And it is growing each year across forecast period as well. We also want to maintain or want to state that these revenues do not include additional funding from Cineville 21 to 60, which adds another 50 to 100 million dollars per year in transportation funding on top of this. Miscellaneous cash funds has been revised down in all years, primarily from, again, legislative impacts from this most recent session. We were already forecasted to decline, have a revenue decline in FY27 as special session revenue-raising measures boosted revenue in FY26 on a one-time basis. Like Mr. Sebecki pointed out in the LCS forecast, much of this comes from the tax credit sales that they were unsure about the final ending point of. but I personally worked very closely with the Treasurer's Department on this, and we got word literally two days ago that the tax credit sales have been finalized, and they have come in at the expected level. So those have not shown up in any revenue report yet, but it is sitting in the bank account. So on this decline in FY27, again, we wanted to highlight that this decline in revenue is more substantial now as policy impacts reduced revenue by more than $130 million from this most recent session. The biggest changes to miscellaneous cash funds mainly come from long-wheel orbitals from yourselves. And many of these, you know, shift programs like the adult dental benefit and a very higher education campus programs to being general funded And so we are no longer taking a TABOR revenue hit from those program expenditures So it is important to note that you know for all of these legislative impacts, while there are large and growing out your downward revisions to revenue that are concentrated to transportation and miscellaneous cash funds, what we're seeing here is mostly a change in accounting and not an overall change in revenue collections. To tie everything together, though, for TABOR refunds, we are forecasted to be narrowly under the TABOR cap in the current fiscal year by about $15 million, which means there are no TABOR refunds available. However, this is expected to rebound in FY27, where we have a TABOR surplus of $470 million, which is enough to fully cover Homestead. In FY28, refunds are forecasted to be at $52 million, which is enough to partially cover the Homestead in FY29. The reason TABOR refunds are revised down so significantly in FY28, like we highlighted before, is primarily from that revision to our inflation forecast, which moved the TABOR cap by more than $300 million, thereby bringing down TABOR refunds as well. We also wanted to highlight that overall revenues are revised down from those cash fund impacts related to policy that we just discussed. On diversions, new taxable income data for tax year 24 came in above previous expectations. and is expected to correct FY25 diversions to the SEF and Prop 123. This FY25 correction is the main driver in diversion revisions since our March forecast for FY26, though OSPB does expect smaller revisions up in our forecasted taxable income, which drives some smaller revisions to these diversions in FY27 and FY28. For the SEF, we have revised up in all years with the retention of Prop MM revenue in House Bill 26, 1351, helping in all years, as well as FY26 getting a specific boost from a one-time transfer in that bill as well. So now the SEF ending balance is subsequently revised up in FY26 and 27. However, FY28 is revised down $100 million, again, due to our change in our inflation forecast primarily. And now the FY28 ending balance for the SEF is at $160 million. For HSMA revenues, we have revised those up across the forecast period. In FY27 and FY28, there's about $16 million in each fiscal year over the Blue Book estimate that will need to be refunded to taxpayers unless voters approve to retain that revenue. Based on this forecast, in FY27, there's expected to be about $39 million appropriated to SNAP, with that growing in FY28 to $51 million. Though, in the out years, HR1 cuts and costs to SNAP may draw down the HSMA cash fund balance even further, but Director Ferrandino will have more information on this in his section here shortly. So, to close out the revenue section, there are balanced risks to the downside and the upside across the forecast period for revenues, even though FY26 revenues came in better than we had previously expected. However, we did want to highlight that OSVB does have a weaker economic outlook than other external forecasters, which does provide additional upside risk in state revenues in future year outlooks. And with that, that concludes the revenue section of this forecast. And I'll pause here for questions. Thank you. Senator Kirkmeyer. Thank you. So quick question on your downside risk says, again, federal HR1 will impact tax year 26. The tax year 25, so you're expecting, because it didn't seem like it in your slide, you're expecting a close to $800 million decrease in corporate income taxes? No, so compared to our March forecast, so that $800 million revision to corporate income is just comparing direct levels between our June forecast of last year and our June forecast of this year, which includes impacts from HR1, but also includes, you know, a number of other economic impacts. And so it's not solely attributable to HR1. There are a number of impacts in that $800 million figure. Compared to our March forecast, if you go back and look, slide 20-something. Slide 29, that provides our total revisions compared to our March forecast for corporate. And in that, FY26 is revised down $160 million. Deputy Director Cook. Maybe to also just lay around a little bit more there. The actual impacts of HR1 that we've had from prior forecasts that were in the, you know, process of continuing to update as well are somewhere in between those two numbers. The issue, I think, though, with what we're talking about on the downside risk is if the impacts remain as elevated in FY27, the reason why we don't expect it to in our forecast is because of expensing and depreciation in some of these corporate categories where the JCT at the federal level in their fiscal notes have reduced negative impacts as time has progressed. And so we have applied that same approach to our forecast. so we're just assuming that some of those amounts of write-offs available to corporations will be reduced in the out years and that's baked into what our forecast is but if that does not happen and it remains on the same level as it was for the most recent tax year that would provide the downside risk in having lower estimates for next year. Okay. there's no more questions I will turn it over to director Ferrandino director Ferrandino thank you madam chair so what does this mean for the budget as we look at the budget we expect now under our forecast that we would be sitting on a 14 percent reserve at the end of next fiscal year but as you know significant challenges still remain for fiscal year 28 better than where we were in March but we still have a lot of both just normal pressures and impacts of H.R. 1 on the cost side that are driving, and I'll go through. So if you look at the current year, our current projection would be roughly $470 million above the 13% reserve. And then when you look at the following year, we'd be $207 million above the 13% reserve. That would get you to a 14% reserve. And as we know, between now and when we actually are in next fiscal year, we'll actually have actual revenue of where we will. We'll also know two big things. One, reversions from departments. We'll know that sometime in the fall as well as over or under expenditures for Medicaid as well which have driven significant challenges in the budget at that time as well when we get those usually in late August early September So a lot of information still to impact all of this. I did want to highlight, because we've talked a lot about the impacts of HR1 on the revenue side, this is we know there's a lot of cost side associated with the impacts of HR1, and those are really just starting to ramp up. For 27-28, the budget year that we will start to work on, it's roughly a $251 million cost shifted to the state, the majority of that being the SNAP match, as well as the impact on the hospital provider fee. And that will, once fully implemented, ramp up to a total of just over a billion dollar costs shift to the state, with the majority of that being the hospital provider fees. You remember, going to the next slide, you can see that the Chase fee drops by 0.5. Right now, it's a cap at 6% of net patient revenue. This will lower by 0.5% per year, which is about $105 million. And that grows each year. So as you get to the final, it'll be about $853 million of less revenue we can collect from the hospital provider fee, which then reduces the federal match. And remember, there are two sections that that pays for. One is payments to hospitals, which is about a 50-50 match. And then the expansion population, which is a nine-to-one match. So depending on policy decisions and how we deal with that, we don't necessarily have to backfill that. We could just let it be where it is. That will have impacts on both hospitals and on the expansion population, but that will have a significant loss in federal funds. So I think that's a policy conversation both. I know many people in the health care sector are having as well as I know you and your Medicaid commission hopefully will have some conversations as well on that because this will be a big conversation, I think, going into the next legislative session. Vice Chair Bridges. Thank you, Madam Chair. I just want to make sure I'm reading this right. It's a billion-dollar ongoing loss. It's not just that it adds up over the years to a billion. It's a billion-dollar ongoing loss because of the changes in H.R. 1. Director Ferrandino. Madam Chair, Mr. Vice Chair, yes, this would be then ongoing. It would go gross some each year, but not to the same extent once it's fully implemented to the 3.5%. And this is just the loss of the fee. You then lose the federal match, which is either that 50-50, which would double this, or the 90-10, which would significantly – where we have talked about $3 to $4 billion of lost revenue once – or lost between federal and this – of lost money into the state by this. So it's a given issue that we will need to address. The other piece of H.R. 1 is the state-directed payments, which is great that we did get that awarded. H.R. 1 impacts the ability of that to grow over time. So we were able to get it in. It is not going to be additional costs, but it's additional loss of upside we could have had with the state-directed payments of around $250 million in the out year once fully implemented. QUESTION? SENATOR KERKEMAYER. THANK YOU, MADAM CHAIR. BUT WITH THE REDUCTIONS IN THE HOSPITAL PROVIDER FEE COLLECTIONS, THAT 853 MILLION, THAT IS NOT A GENERAL FUND HIT BECAUSE WE DON MATCH THE FEDERAL REIMBURSEMENT OR THE FEDERAL DRAWDOWN WITH GENERAL FUND WE MATCH IT WITH THE PROVIDER RATE CORRECT DIRECTOR FARENDINO THANK YOU MADAM CHAIR SENATOR KERKEMAYER THAT IS CORRECT reimbursement or the federal drawdown with general fund we match it with the provider rate Correct Director Farandino Thank you Madam Chair Senator Kirkermeyer that is correct The question will be for the General Assembly and the next administration to decide if they want to do something different to address both the loss of revenue from the federal side whether it's payments to hospitals to deal with that loss or shifting the expansion population, changing the expansion population, because those costs won't be covered anymore. The Chase enterprise will be more constrained and won't be able to cover the same amount of things that it's covering today. And that will be a question. Does the General Assembly and the next administration want to backfill that partially or fully or not? That's where the general fund impact could be based on policy decisions. Senator Kirkman. Thank you. And the $200 million approximately for the SNAP benefits match, that is where the Healthy School Mills dollars would come in to help pay for that increased match. Correct? So we're not looking at general fund there either. Correct? Director Farandino. Thank you, Madam Chair. So on the next slide on slide 52, it does talk about it's up to $200 million we see by 2032. The HSMA money will help with that. I think the current estimate is that on top of – and I'd have to go back a few slides. It's about $103 million would be left after you use the HSMA money. So it would pay for about half of the revenue. Now, if you go in, as both I think Ledge Council and us showed, there's money above what was in the blue book. If the voters asked, kept to allow the legislature, if you refer to a question to retain that money, that would help as well. But we do think there will be some cost to the general fund for that backfill, but it will not be the full amount. It'll probably be somewhere, hopefully, half to less of that amount, given the HSMA amount. I will also say we've had – was just in a meeting yesterday talking about the PER and the work that's happening both with the counties and the department. And there is progress being made on bringing down the PER. There's a lot of attention to it, of course, because of this. You know, I think, as you know, if you remember, if you're below 6%, it's zero. If you're between 6% and 8%, you're at 5%. Between 8% and 10%, you're at 10%. And above 10%, you're at 15%. We're right now have been right at the cusp of between round 10%. I'm hopeful, given the work we've done, that we will not cross that 10%. And that's what we are factoring here is that 8% to 10%. I think it'll be difficult within the year to get to below 8%. There's a chance, but I don't think that's likely, but I hope the progress we've made in the work supported by this committee and by the General Assembly will get us down to below 8%, and that will then put us into a place where significantly more of this would be able to be covered by HSMA. um lastly there's also just the administrative costs of hr1 both for county administration and impacts on compliance with hr1 for hikpuf on redeterminations both six months and work requirements so those are going into effect um some starting this fall some starting next beginning of next year and those will have impacts and we are you know tracking those to see what the impact both on the individual as well as the state budget and the overall economy and with that I happy to take any questions Any questions from the committee I guess you answered them all Okay. Thank you very, very much. Thank you. All right. We have next on our agenda the 1331s to do. Is it the committee's preference that we just take five minutes to stretch your legs or do you want to take like 30 minutes to grab a bite and come back? No. I'm good with a five-minute break. Okay. All right. So five minutes. We will take a brief but meaningful recess, and we'll be back in five. We're at work. Thank you. Thank you. . Thank you. Thank you. Thank you. Thank you. Thank you Thank you. Thank you. The Joint Budget Committee will come back to order. We now have several 1331 requests to review. we are starting tab one in your binders folks with Ms. Ewell and capital construction. Ms. Ewell. Thank you Madam Chair Andrea Ewell, JBC staff. The first capital request you have is on page two and this one is from the Department of Corrections for the Denver Reception and Diagnostic Center Fire Protection System Replacement and the request is for $18 million sorry, $8 million from the general fund, capital construction fund, for an over budget project. So this project was appropriated in fiscal year 2526. You might remember when the CDC sent their list that year, this was the very bottom of their list, even though it was the DOC number one priority because of the life safety threats Right now the fire suppression system is like pretty much non and they have staff there doing 24 fire watch where every 30 minutes they have to check the whole building. And so that is why the JBC decided to move it up that year and kick a different DOC project off the list instead. During that time, CDC staff had gone through a couple year process of working with DOC because they had noticed that the inflation numbers they were using in some of their project estimates were way too high. This applied to many of their projects. CDC staff went through a long process where they did recalculate the cost of several DOC requests. They talked about this with DOC and the state architect and ultimately came up with a new set of calculations. And to my knowledge, no one really disputed the methodology which was used to revise the requested numbers. The result was that in fiscal year 2526, the CDC at their staff's recommendation lowered the amount from 21.3 million to 14.3 million. This project is now 8 million dollars more than what was appropriated and the OSPB letter kind of insinuates that it's because of the recalculations for inflation. However, there's no mathematical proof of that and after talking with DOC and hearing them present to the CDC on Monday. It sounds more like it's a combination of all of the regular things that typically cause projects to go over budget and that two years ago when they did the preliminary estimates they used a third party provider to do those estimates. Once the project was appropriated they officially did the design phase and hired a different contractor who specializes in fire suppression systems and after a more thorough and detailed estimate they found that it was eight million dollars more than what was appropriated due to just the components of the project costing more also because there were additional building and fire code requirements from the city and county of Denver that they found out about that weren't included in the first set of estimates. Inflation may have been also part of it but it's not solely because the General Assembly chose to give them the lower appropriation. It's more of an unfortunate coincidence that the cost of the project ended up back around near the amount it was originally requested at and it's now with this, if the $8 million is approved, the total project cost would be $22.3 million. During the presentation on Monday, DOC talked about, you know, they asked, they spent a few months like working with the firm asking if there's any way to cut costs. It sounds like there's absolutely not. They can't phase it because all of these fire suppression components work together and it really all needs to get done in one phase and phasing it wouldn't necessarily save money anyway as we know. So they did talk about all of that. The CDC actually voted 6-0 not to approve the project and I do appreciate them diving in and having skepticism about spending money. However, based on what DOC says and what we typically know about capital projects is, you know, I don't think that making them wait a few months for more CDC and JBC hearings, based on what the contractor they're working with is saying, there's probably no way we're getting out of spending this extra $8 million and making them wait would just push the project farther behind schedule. So I do recommend this because unfortunately I think we very much need to get this project done because it is a huge life safety risk. And I don't think we're going to get out of giving them the full cost that now the firm hired to do the design phase has estimated. Senator Amabile. How far behind schedule are we? Ms. Yule. Thank you, Madam Chair. Senator Amabile, I think right now just a few months. Maybe it typically takes, like they got the appropriation last July and then spend the year going through the design phase. but it will fall behind, I think, if there's another few-month gap. I think the CDC is not meeting again until August anyway. I feel challenged with this because I appreciate all of the time that the CDC puts into analyzing these projects, projects prioritizing the projects and they obviously dig in deep and they do a they do a deeper dive than we have the opportunity to do once we make a final decision and and I very much appreciate that the committee voted zero to six to you know they voted to deny this this request But given that I see no way around doing this project, that right now this is a severe life health safety risk, that there are, you know, every 30 minutes checks going on in this facility because we have a fire suppression alarm system that is 15 years past its life expectancy. it seems as though if we were to deny this and push this out and maybe ask them to phase it it's only going to cost more than the additional eight million that is already being requested so well it's not a cost saving to spend eight million more it does seem more expensive to push this decision out or even to phase the project. Senator Mobley. I don't disagree with you, but I am a little bit, like it's not just a little more as a percent of the total. It's a gigantic amount more. And I just wonder how we could have gotten it so wrong to begin with. Ms. Ewell, do you think the department could share? I DON'T, IS IT MAYBE NOT CUSTOMARY FOR US TO CALL THEM UP BUT THEY ARE HERE. YEAH, MADAM CHAIR, I'D RATHER, YEAH, IF YOU WANT TO CALL THEM UP I'D RATHER THEM BECAUSE I KNOW THEY EXPLAINED IT TO THE CDC ALREADY ON MONDAY. WHAT DO YOU THINK ABOUT THE $8 MILLION DISCREPANCE? GOOD AFTERNOON, MITCH CARSTENS, I'M THE DIRECTOR OF FINANCE AND ADMINISTRATION FOR THE DEPARTMENT. for the department. So I think as Ms. Ewell said, I think this is a number of things that happened. So one is a code change by the city and county of Denver. So that was not anticipated. You can't anticipate what the code change is going to be from them. The projects and the studies that happen, happen about two, two and a half years before the request happens because of the timing of budget requests and things like that. So in that timeframe, the AND COUNTY OF DENVER CHANGED THOSE. THERE WAS SOME INFLATION THAT HAPPENED INSIDE OF THAT AS WELL. AND I THINK THE FIRST STUDY THAT WAS DONE IN ORDER TO CREATE THE RECOMMENDATION THAT FIRST WENT FORWARD THAT THIRD PARTY CONTRACTOR DID MISS A FEW THINGS THROUGH THAT PROCESS I think the first study that was done in order to create the recommendation that first went forward that third contractor did miss a few things through that process Such as? The extent of the project itself, some of the notifications, some alarms that need to happen within a prison setting that's different than an office building per se. So there was just a little bit of a miss on some of those components that they needed. So I think it was a compounding of a couple of things. I don't think it is one thing in particular that happened there. And you're not going to use them again, right? That is correct, yes. Thank you, Madam Chair. Can you give us a flavor, Ms. Yule, of the conversation at CDC? Just because this one seems really obvious to me that we kind of have to do this and we don't really have a choice. I know that their vote isn't the final determining one, but they seem dedicated to this. So what was the conversation like? Thank you, Mr. Chair. I think it was partially, you know, asking, like, are you sure? Are you sure? Are you sure that you can't make this cost less? And I think, you know, because they did hire the design, you know, they did the design phase. Like, I think now, like, that is the cost. But they did, they asked about the vendor. Are you ever going to use that vendor again? All the things you just asked. I think they also, they did talk about the list and what happened that year. They did reference the deaf and the blind school being kicked off the list two years in a row. Even though, you know, that project was substantially more expensive, right? They also talked about how I think one member mentioned, you know, if we had known it was going to actually be $22 million, maybe we wouldn't have put it above the line at all that year. that year but this was DOC's highest priority project in a very you know severe situation so some of the things on the list that year were not capital renewal projects. This is a capital renewal project right which means it meets the same criteria as controlled maintenance. It's a life safety thing from failing systems. So yeah I think and then the CDC members also expressed concern about the budget. They were wondering does the JBC have, do we have eight million dollars? Where does it come from? And I kind of explained to them how, you know, we fall out of balance as soon as we balance the budget and when we do 1331s it just either the deficit carries forward or in this case next year it would, you would have to transfer $8 million from the general fund to the capital construction fund during fiscal year 26-27. So yes, they were, you know, concerned about the high cost, the budget, but also expressed some frustration at the JBC reordering the list in the past. Senator Kirkmeyer, did you have a question? No, I don't have a question. Did you want Mr. Carson's back? No. I've just kind of changed about where I was going as well. So the thing is, we can either do this now and shore it up in the 27 legislative session or we can wait until the 27 legislative session and shore it up then. So I think it is a life safety issue. We should just do it. But don't come in and ask for more. And I'm even more thankful about the occupational tax now that I see about the code changes costing us some 1.8 million bucks. Vice Chair Bridges, would you like to make a motion? Director Harper what do you want to specify what motion needs to be made Thank you Madam Chair Craig Harper JBC staff It would just be staff recommendation like your standard motions Sorry. Rep Taggart. Thank you, Madam Chair. Just before we do that, I'm concerned because we've got another 1331 coming in front of us. where we approved to expand beds by 788 additional beds, and we're now seeing a growth rate that has slowed dramatically from the decision we had to make earlier in the year. And I just wonder if there's an offset here. not that we've got to pay the jails in my humble estimation without question but do they need the total dollars for 788 beds given the fact that it says the growth rate slowed due to fewer new court commitments more discretionary paroles and more sentence discharges and so the growth there isn't what was said to us back. Well, let's ask Mr. Brackey about that offset possibility when we get to that request. Yeah, but if we approve this right now, can we put an offset against that? That's why I'm asking the question. But your offset is related to beds, which is part of the next. I understand that, but it is still capital. They're both capital. I don't think the, well, maybe there was some capital, but I think the beds are just funding of the beds. Ms. Ewell. Thank you, Madam Chair. Rep Taggart, all of the items Mr. Brackey deals with are, they may sound like capital, but they're actually paid out of the operating budget and not out of the capital construction fund. So in this case, you would have to replace the capital construction fund money with general fund. Okay. Okay. Thank you. All right, we'll discuss offset next. Vice Chair Bridges. Thank you, Madam Chair. I move staff rec for the Department of Corrections DRDC Fire Protection System replacement. Are there any objections? That motion passes on a vote of 6 to 0. All right, next, Ms. Ewell. Thank you, Madam Chair. The second one is pretty minor on page 5. This is basically just kind of an accounting problem for Fort Lewis College Health Science Center project, they basically did not realize the spending authority for their institutional cash appropriation was expiring. They, this project was funded initially by COPs from a bill in the 2020 session and then two years later in the long bill they added their cash appropriation to put up like two point, over two million dollars of their own money and then they, they thought that that appropriation expired at the same time as the COPs. It actually expired at the end of last fiscal year. And so I did have to ask the controller what can we even do about this because the fiscal year 25 closed. But the college actually spent all of the cash, they just can't book it like for accounting purposes. And the controller said we actually can't extend the appropriation but what you can do is just go in and add that cash amount to their cash appropriation and say they can spend it through fiscal year 25 and that should allow them to like record the expenditures and reclose the books I know it a bit of an accounting mystery but that is the guidance from the controller's office and they did find at least one example from 2019 where we did have to do that for institutional cash spending after the year had closed. I don't think mystery is the word I would use but Magic. Okay, any questions? Thank you, Madam Chair. I move staff recommendation for Fort Lewis College Health Science Center. Are there any objections? That passes on a vote of 6-0. Thank you, Ms. Ewell. All right, Mr. Brackey. Thank you, Madam Chair. Justin Brackey, Joint Budget Committee staff. I have three interim supplemental requests from the DOC to present to you today. I'm going to go ahead and launch right into it on page one. Payments to local jails. They're asking for an increase or an overexpenditure of about $4.5 million, which I'm recommending that you approve. Just to give you a little bit of situational context here, all of the requests that you have in front of you today are plus $13.2 million general fund, which would bring the total supplemental change for the fiscal year to about plus $48 or $49 million general fund. After all the supplementals and long bill add-ons and now this. I do agree that it meets criteria based on changes or increases in the jail ADP after the supplementals were adopted. So the 4.5 million they're asking for here is in addition to the 3.3 million that was added in HB 1151. So the 3.3 is what the department asked for and what you all approved. They're expecting to spend an amount that translates to an ADP of 540, ADP being average daily population whereas the appropriation can only support 381. So the data shows that the ADP is going to be much higher than what the appropriation can support. My recommendation on page two, I recommend that you approve it just because I think the data is what it is in terms of what the ADP was over the course of the fiscal year. The rest of it is essentially color commentary and context for your own purposes as you move forward with respect to both jail backlog and prison caseload. But I think I'll just leave off there in terms of the recommendation. Senator Mobley. I thought we did a couple of things. We paid more money for the jail backlog, but we also added beds. We opened some beds that had previously been closed. And we were told that that was going to alleviate the jail backlog, but it sounds like the jail backlog just got worse. So what would it be if we hadn't approved the beds, or what happened there? Mr. Bracky. Thank you, Madam Chair. Thank you for the question, Senator Mabale. Um, so I think first the beds did help in, in April and May in particular really helped them draw down, uh, the local jail backlog. I think that's true. Um, it continued to increase through supplementals and figure settings. So it peaked in, I think, February or March, um, So you're, from that point, trying to draw down on a much larger JLADP with the beds that you have. I think the second component of it is, or there's three components. The second component is the timing of when they open the beds. As you see in the write-up, from what I can tell from their monthly reports, they opened 396 of the 788 through May, which, again, the data shows that that helped. But there's still some beds left on the table there in terms of their ability to draw down. that population as well as capacity limits at the Denver Resruption Diagnostic Center, which is kind of the other component of that. So there are limits to what they can process in terms of weekly inmates at the DRDC for positioning at other facilities. I wasn't able to kind of like crunch those numbers, but that is another factor to consider. And then the third is the growth or the lack thereof in the male inmate population. And essentially what I found is if the male inmate population continued to grow as it had in the previous six months, you'd be looking at, and then you added the beds the way that they have, you'd be looking at an overexpenditure here of about 7.5 to 8 million. Whereas had there been flat growth as there was and no beds, you'd be looking at 5.9. So there'd still be an overexpenditure, just the scale of it would be different if the circumstances were different. Representative Brown. Thank you, Madam Chair. I wanted to ask you a little bit about on page two of your write-up here. You are indicating that in order to hit the appropriated ADP, the local JL ADP would have had to, one, stay flat from December through March, and two, decline to zero in the last three months of the fiscal year. Can you talk a little bit about kind of the, I read that as like DOC's assumptions were fundamentally flawed, and maybe you can expand a little bit upon my understanding of that. Mr. Brackett. Thank you, Madam Chair. Representative Brown, yeah, I think going back to the supplemental time frame, I think there was a brief discussion a little bit in the write-up I had in terms of a lot of things would have to, the jail backlog would have to decline at almost unbelievable rates in order for that request to be viable. And it turned out that it was. We just didn't know how unviable. And that's all I can say about that. Senator Kirkmayer. Thank you, Madam Chair. So between last year's supplemental And then what we did in the budget year, I thought it was a total of 933 beds, new beds coming online. And so how many beds actually came online? And why are we seeing, why do they, let me just back up. How do we have confidence in that the ADP is going to jump to 540? Mr. Bracke. Thank you, Madam Chair. Senator Kirchmeier, in terms of the ADP at 540, I think that's because that's already happened for the we have actual data on the ADP through I think it's the end of April. And then the request makes some assumptions about where the ADP was in or is going to be in May and June. So to extent the ADP increase over what the appropriation could support has already happened. That's that's one in terms of the beds that have been brought online in the fiscal year. There was 153 through the interim supplemental last September. and then from what I can tell from the monthly population and capacity reports there was 396 in the last couple of months which brings the total bed additions to about 509 And I think that leaves 200 beds at Buena Vista and 192 beds at Delta left which it my understanding that they are bringing those online or already have at this point in the year Rep. Taggart. Thank you, Madam Chair. I guess where I'm uncomfortable, and I understand the lag time of that the local jails have three months to submit their invoices, and then DOC has an additional 45 days. So, but there has to be data that is shared between DOC and our county jails long before they submit their expenditures. And if they had seen this, this should have been a part of the supplemental that we looked at in January. because you said they hit the high point in February. So there had to have been a trend, a very significant upward trend in the first six months of the year. And, again, I understand the lag of expenditures, but there has to be data that there's actually people that are backlogged that are waiting in those county jails, and I just don't understand how they didn't know that this was going like this. Because at the same time, they were asking us for 788 beds, and this was one of the reasons. Now it's June, and I don't want to do anything at the expense of the county jails, but I don't understand their data system if they can't predict this when they, in fact, did their supplemental in January. That fries me. Thank you, Madam Chair.

Senator Mobley?

Exactly. Exactly. So I think, I don't know, that seems like a worthy topic. So I'm just throwing it out there in case anybody is listening. Okay. Any other questions for Mr. Brackey on the jail backlog? Rep Taggart do you feel like you do you still have a question on offset in terms of beds paid for as they came online Oh my God, he does have 500 empty beds. Want me to ask him what it would cost? Great. I think he's got $200 tonight. Like this too. That's what he told me before. Perhaps it's at a different time, but it would appear that the beds that they have done so far have,

I don't know. I just, I just, I'm frustrated that these numbers go like this on a continual basis and we just don't seem to get better at forecasting them. Senator Mobley.

Mr. Bracky, thoughts?

Senator Weitzman.

He's still got a full head. No. Hold on a minute.

Are there any objections? That passes on a vote of 60-0. All right. Next. All right.

Any questions? Senator Kirkmeyer.

Well, Mr. Brack. Mr. Brackey, I mean, why do you think they can't get the overtime or the contract clinical staff parts right? Let's set aside the HLD question. But those two components, like we've known that this overtime is an issue. We know it keeps growing, and they know what family is. And they've known these numbers in the system about whatever cases out there for family cases. MAYBE SEEMS MUDDIER ON THE CONTRACT CLINICAL STAFF MAYBE. BUT I DON'T KNOW. WHY DO YOU THINK THAT WE'RE BACK HERE AND THE ESTIMATE FROM JUST A FEW MONTHS AGO IS WRONG? THANK YOU, MADAM CHAIR.

I'm sorry, Senator Mobley.

So I saw this in the data from Community Corrections back in FY 2018-19 where they had an overage and they spent like $1.8 million and submitted a supplemental request the next year in order to address that over expenditure. But that only goes up to $3 million across all of state government. So that's why I recommended the overtime, but not necessarily the Health Life and Dental, which the overtime made more sense to me, but the Health Life and Dental and clinical contract made a little bit less sense. But I felt more comfortable doing that in those amounts because it was still within that $3 million threshold that they could still overspend and then come back next year and kind of lift the restriction through a supplemental appropriation. It's a little bit complicated, but I think that $3 million over expenditure number is kind of what I was thinking about in terms of their ability to spend the money anyway and come back next year and fix it, if that makes sense. Once you get above $3 million, I guess I'm out of my depth in terms of what would actually happen on a practical level.

And again, I think I said to someone last night as I was reading your documents that I had forgotten how much I enjoy a good Justin Brackey. So thank you for that. It's been a hole in my life for the last couple of months. But I guess a more cynical person might look at this, might hear what Senator Kirkmeyer had said and said that, you know, we're sort of getting these dribs and drabs of overages over time. And a cynical person might look at that and say that this is some sort of way of managing political fallout or managing the legislature in a way that, like, if you only ask for $4 million at a time, then we're likely to approve it. But if you ask for $40 million at once, you won't get it. And so I guess my question to you is, do you have any indication that the department is purposefully withholding information from us at earlier times when they know it so that they can sort of piecemeal out information and ask for things in small amounts of money and manage the political fallout? So I'm not necessarily making an accusation. I'm just thinking about what a cynical person might look at and say.

Thank you, Madam Chair. Representative Brown, candidly, I don't know. I think, again, I'm thinking about the overtime piece of it where their supplemental request in January recognized that there would be about 3 to 3, I can't remember the exact number, but it was about 3 to 3.5 million in excess of what the appropriation was in the bill, in the long bill. But by doing some of the other stuff, by covering clinical contract staff and the supplemental true-up and HLD and some other things, they were able to cover the other stuff. So, like, when you think about this all as one big pot of money, it's more about the decisions in terms of what gets brought and what gets covered through the supplemental process in order to cover that lump sum overage, if that makes sense. So, I mean, the information they provided showed an overtime over expenditure. It's just that there were other things that could cover that and why they didn't focus on that in terms of the request, I couldn't tell you.

Senator Mobley?

Yeah, thanks.

Senator Kirkmeyer.

Mr. Brackey.

Rep. Taggart.

Question.

Senator Kirkmeyer?

Mr. Brackey.

I mean, do we need to ask somebody in LCS? Director Harper?

I mean, Director Carstens, it's not customary, but you are here. Do you want to tell us what bills you wouldn't pay or what would happen? We're just nowhere else they can go find money. You're at the closeout. Thank you, Madam Chair.

you know it being thrown out there that perhaps we in this situation because we are micromanaging you by restricting transfers but you telling us that there are no transfers to be made Is that what I'm hearing? So it's not really the micromanaging. You're saying you've spent it all.

ANY OTHER QUESTIONS FOR MR. CARSENS?

If we just did that, does that get you through the end of the fiscal year? Thank you, Madam Chair, Senator Armabile.

Okay. Well, Vice Chair Bridges.

That passes on a vote of 5 to 1 with Kirkmeyer objecting. Okay. All right.

I thought the calculations themselves and the related assumptions were reasonable. There was a slight difference in the inmate population, but that didn't really factor in too much in terms of the dollar amount. It was relatively minor. So I'm recommending that you approve the request as requested. All right. Vice Chair Bridges. Thank you, Madam Chair. I move staff recommendation for ES04 inmate phone calls. Are there any objections? That passes on a vote of 4 to 2 with Kirkmeyer and Taggart objecting. Thank you, Mr. Bracke and DOC. Okay. We next have our, I think, some severance to work through. but it recommended that we start with tab 4 and Ms mission before we do tab three Welcome, Ms. Shen. Thank you, Madam Chair. Kelly Shen, JBC staff. And today, talking about an interim supplemental budget request for severance tax, and I'll And I'll just be talking about the operational funds, so this impacts the Department of Natural Resources and higher education. And then Ms. You will be talking about the local affairs piece. So if you start on page one, basically this request is because of the sort of record high, near record high refunds that you all discussed during the forecast this morning. So in terms of the operational funds, so the DNR and higher ed piece, there is a request for essentially a very large refinance with a bunch of different moving pieces from the projected deficit, which is about $10.5 million, and refinancing that whole amount to general fund. That's the request. I think this meets internet and supplemental criteria as an unforeseen sort of contingency. And I'm also recommending approval of this request sort of in light of all the other balancing actions that have already been taken this year and then also in 26, 27 in regards to the operational fund. I do have an alternate option there if the committee is not comfortable with the full 10.5 million but I do recommend that full 10.5. If you turn to the analysis then on page three, the sort of, you know, realm of solutions that we have are a little bit limited due to the nature of the 1331 process so we're really just focused on over expenditures And another sort of tricky piece here when coming up with the solution, I think, is that we couldn't – so a lot of the lines in DNR that receive severance tax operational fund money don't receive any general funds. They couldn't be backfilled with general fund. But the only lines basically that also receive general fund are the Colorado Geological Survey, so that's in higher ed. and then most of the centrally appropriated line items in the DNR's executive director's office. In the middle of page three, you can see sort of the scale of the deficit. I think the big thing to point out here is that the operational fund is projected to only receive 10.9 million this fiscal year as compared to 34.8. That was forecasted in March, so that's a fairly large difference for the fund. The department is predicting that this will lead to a 10.5 million deficit, So hence the refinance. I will say that a large part of that deficit is made up of a $7.3 million transfer to the general fund. And this transfer is statutory and would occur on June 30th this year. I'm trying to follow this. So are they asking to take general fund and backfill the operational account? Or are we going to take more money out of the operational account and put it into the general fund? It should. Thank you, Manchur. Thank you, Senator Kirkmeyer. So we're going to be, since the severance tax revenue came so short, or they projecting that basically the obligations to be paid out from the operational fund are much higher than what coming in So the request is to backfill that amount with general funds So general fund going to support things that were intended to be funded by the operational fund Senator Kirkmeyer. And so did they go look at their cash funds? And why aren't we using their wildlife cash fund or their parks and wildlife cash fund, their parks fund or whatever it is, where they're pretty flush with money? I mean, we've had this discussion. So I don't know why they're asking us to put general fund money now into programs that were traditionally funded with severance tax when we were trying to basically not fund those programs anymore with severance tax and fund them out of other cash funds, like the ECMC cash fund, like the wildlife cash fund. So, and I didn't think we cut the geological survey one. So, I mean, there's plenty of money for that one. But I don't know why they think we should take general fund money and put it into programs in this department that literally could be funded out of cash funds in their department. They just need to prioritize and make it a priority. Thank you, Madam Chair. Senator Kirkmeyer, so I think something that might be helpful for this is actually just jumping to the end of the document on page six. At the second table, I have basically everywhere that severance tax goes and sort of what refinance options you might have right now. or the department might have right now that don't require passing legislation. So part of that is the Energy and Carbon Management Commission. So there are funds there. I sort of recommended approval of the request because the ECMC cash fund, I think as is with the large refinance that you all did starting in 26-27, that's an additional $5 million that will come out of that fund every year is one piece. So there's like already significant, basically if it weren't to be refinanced, then you're spending down that fund balance much faster than I think you anticipated when you had refinanced severance tax during session. So that's one piece. It certainly is a refinance option. The refinances are multiple tiers, but for whatever reason, you can certainly refinance it with just cash funds. The Colorado Geological Survey only really receives general funds, so they don't really have another good fund source for that. And then when you look at the CWCB Construction Fund, the Parks Cash Fund, Wildlife Cash Fund, all of these, the Agricultural Management Fund, like all of these were part of the restructure and refinance starting in 26, 27, and I think are anticipating significantly reduced fund balances as a result of that restructure. Like that restructure freed up $14.2 million in total, in total, which is, you know, smaller I think than this request. So I mean those I think are options but all of them do come with trade-offs. So like the CWCV construction fund, basically whatever reduction is coming there that's directly coming out of the money you have available for water projects or that the department has for water projects and to grant out. The Park Cash Fund has a lot of additional pressures on it already and sort of comes at the trade-off of them, you know, you might have to prioritize or reduce staffing in certain parks or reduce operations in certain areas. Yeah, they might. Senator Kirkmeyer. How much money is in the reserve in the operational account? Is there any money still left in the reserve or is it down to zero? Ms. Shen. Thank you, Madam Chair. So Senator Kirkmeyer, the deficit is basically projecting, utilizing all of the reserve and that's not enough to make up for that shortfall. And so they need $10.5 million to make up for their shortfall. Yes, Senator Kerr Reserve. Including and that's including the reserve drawing it all way down to zero. Great. I think they should go look at their cash funds and figure out where they can make up their 10.5. Unless, if the only one that we would have to fund out of the general fund is 1.8 million or basically 2 million bucks for the geological survey, I'm fine with that. But other than that, I think they need to use their other cash funds. If these are truly priorities, they should be funding them out of those cash funds, and those funds can be used for these things, including the Energy Commission Management cash fund and the other cash funds. Because I'm looking at this where we have, like in the aquatic nuisance species funds, 17 million in a fund balance. And yet they think we should put more money, general fund money into that? I don't think so. I think these departments need to go use their cash funds appropriately and understand that we were using this as a balancing mechanism for the 26-27. It doesn't mean come back at the end of the year and say, oh, by the way, now we want 10 million of your general fund monies. They need to go figure this out. That's essentially what I was saying to the Department of Corrections. They probably have vacancy savings over there. They should be going looking at their other funds instead of keep coming in here and asking for more general fund. So again, I'm a no on this unless the only thing we're going to fund out of the general fund is the geological survey. That would be fine. Ms. Shen, practically how does that work when there is an appropriation that we make for a fiscal year, whether it's cash fund or general fund, and where we sit now in the interim and this emergency supplemental question, which that's not what they ask for. If we wanted to do what it is Senator Kirkmeyer is suggesting, which is, you know, utilizing this table that you have on page six, go find funds to supplement it in these other cash funds. Thank you, Madam Chair. So I think you need to authorize over expending those cash funds since the long bill has basically the cash fund sources specified. You basically then authorize for whichever areas that you felt should use the cash fund or I suppose you could offer flexibility if you wanted but basically for whatever areas up to make up the deficit so you'd have to find enough and cobble it together to match 10.5 million and then basically it'd be authorizing the over expenditure for say like the ECMC cash fund or the CWCB construction fund in the particular line that it's spent in. And if I recall when we were looking at the refinancing that's supposed to be starting next fiscal year I mean maybe there was some cushion in some places but I feel like we took it to the you know whatever a comfortable line is so if we told them to do that does that impact are we gonna have to do more refinancing and adjusting or cutting appropriations and in supplemental for the 27 budget when we get back next year because we told them to go spend the dollars in those cash funds to support this current shortfall and then there's not enough to support ongoing expenses that we've already authorized. Do we run that risk? Thank you, Madam Chair. I think you could certainly run that risk. I mean, also severance tax revenue is so volatile and like, I mean, the forecast has changed so much from March when you made all those refinance decisions or restructure decisions till today I mean so like in the event they don get enough money next year like I think that also a real risk but then the trade is that you don't have I think there's like two trade-offs like some of the cash funds sure there might be some amount of reserve left that you could push set the severance tax funds on to I think it's really limited candidly but then after that at some point you're just basically going to reduce the operations and like services provided by those programs. Senator Kirkmeyer. Here's what I'm having difficulty understanding is, so we're talking in 2526 they're saying they have a $10.5 million shortfall. Even with the sweeps and such, I didn't think we touched the reserve amount where there was supposed to be enough to cover all of these things that were getting funded out of the operational account. So how is there a shortfall without, I mean, if you use up all of the reserve, I still don't understand how there is even a $10.5 million shortfall because we didn't – I don't recall us saying that we were cutting the reserve, even when we did the sweeps. Those sweeps were things that we were saying that were additional dollars that weren't going from the operational account essentially over into the perpetual account, not flowing over because there was leftover money. But we didn't change that reserve amount in 25-26. Yeah, that is a great question. And I know we went away from the 200% reserve, but there still was a reserve. I mean, they're essentially saying the reserve was only like, because if all these things come to $34 million, they're saying the reserve was like $24 million. And I don't recall us saying that the reserve would go down to less than 100%. That's what I thought too. So they should have had enough to cover all this in 25-26, even with the sweeps that we did for 25-26? I should. Thank you, Madam Chair. So I think one point here is that due to significant basically also refunds last March, they did not start the year with basically in 24-25, there were significant refunds that used a ton of that 200% reserve. So then in 24-25, the reserve ended at 34%, which is about $20 million. And then so if you are moving then into 25-26, the $10 million deficit is because the amount of money that they're projecting to have lost is much larger than $10 million. Like the reserve is making up for a part of that, but it can't make up for all of that. Senator Kirkman. Okay. I don't recall from 24-25 and 25-26 when we were setting the 25-26 budget that we said they could lower the reserve from less than 100%. I don't recall that. So I don't know when they did that or why they did that. So at the end of 24-25, if the reserve was down to something like 34%, they should have been replenished in 25-26. So we didn't say cut the reserve. That never happened. Director Harper. Director Harper. Thank you, Madam Chair. Senator Kirkmeyer, I think the challenge here is that you have multiple things going on. One, you had the huge impact of the refunds in March of 2025, which dramatically reduced the revenue that you were expecting when you set the 2526 budget. So the reserve was already depleted. Then you have this big refund again, refund dynamic again this year, which is dramatically reducing revenues that you were expecting in the current year. and I think Michelle can correct me but the only way to get that reserve back to 200 for the 26 budget probably would have been to not appropriate anything out of the operational fund And you probably still wouldn't have made it to 200%. So the reserve is, I think at this point, 200% is aspirational. Uh, neither, no party involved has, uh, including the general assembly has put a structure in place that would have allowed it to replenish because there simply hasn't been enough revenue coming in, in addition to the appropriations that you all have approved to actually refill it. It got hit hard enough between the refund dynamics in both of those months and the various sweeps and whatnot that the General Assembly and the executive branch have collaborated on that there was no way to actually refill it to the 200%. Senator Kerkmeyer. Okay, so we lowered the 200% to 100%. And the refund, according to the forecast models that we saw, only occurred in May. It didn't occur in March. I didn't see a refund amount in March. it just showed in May of that $50 million or $54 million approximately. So in March, they were fine. And then they had to have a refund of money that was coming in. But they still have more money coming into the fund. This is something that's continuously appropriated, and they spend it as it comes in, basically. So, again, I don't understand why they aren't either one, using their other cash funds to backfill this instead of coming in and asking for general fund. And two, I'm not understanding on how they didn't get to the 100% reserve requirement at the end of the budget year when they did their closeout in the previous year. Because that was statute. Thank you, Madam Chair. So I think, so that first piece first. So the reserve piece is sort of exactly what Director Harper is saying. There just wasn't enough money to put back into the reserve after funding all the appropriations for the different programs from the operational fund which I believe is appropriated by the General Assembly, the perpetual base fund is continuous. So that, but we're not talking about the perpetual base fund at all, we're just talking about the operational fund. So for the reserve piece there just was no money and I believe statute has like money going to programs where appropriations have been made first and then whatever is left then goes into the reserve. But we just didn't, I think some amount went to the reserve but absolutely not enough to reach that 200%. So, I don't have the exact number in front of me but we definitely started 25, 26 much lower than 100 percent and I believe the language and statute is like it is the General Assembly's intent that the reserve is 200 percent or something like that. So that's the reserve piece. I mean they just like don't have enough, I think it's just like a, they don't have enough revenue to make up for the appropriations that have been made. I think some could certainly be refinanced with cash funds, but then there's obviously trade-offs with all of those. So for example, if you were to refinance, so something you all did for the big restructure in 20, starting in 26, 27 is totally refinance all the sev tax that's going into the Colorado Water Conservation Board, take all of that sev tax and it's refinanced now to just the Colorado Water Conservation Board Construction Fund. But that means whatever amount that was in that fund before just now doesn't get spent on water projects, right? to get spend on these things that were originally funded by severance tax, which is I think up to you all, but that's like the trade-off there. So it would put less pressure on severance tax, more on what the CWCB does. Senator Kirkmeyer The trade is this If we use general fund money here it means we have to cut general fund money probably out of Medicaid or some other program over there or some other program like the local health department program So I think they should, again, use their cash funds for things that are appropriate here, which there are several here. And it looks like the only one, which they could probably actually still take out of the reserve amount, which must be around $24 million if they only need 10.5 to backfill the $34 million here that you have on page 6. So, I mean, I'm willing to say to backfill the general fund on the geological survey, but quite honestly, the tradeoff isn't about in their programs. The tradeoff is where we're not going to be able to have general fund to spend in other programs that are core government functions, that are health, life, and safety functions, that don't have a cash fund that they could go get money out of for, like the Energy and Carbon Management Commission where they can take it out of the ECMC cash fund, like the Colorado Water Conservation Board where they can take that out of the CWCB construction fund, or they can take it out of the Parks cash fund or the Wildlife cash fund or the Aquatic Nuisance cash funds, which is where hunters and fishermen put in their fees into to go into those funds for these things. So, again, I don't understand. And then the wildfire mitigation, I mean, my God, they have to fund that one for sure, given the drought we're in this year because nobody did any water storage over the last few years. So anyways, the only thing I can see here that I would be willing to even put some general fund towards is the geological survey. That's it. Otherwise, they need to go use their cash funds up. And we'll figure it out next year when we come back here. Director Harper. Thank you Madam Chair for the committee's purposes. I think the policy question in front of you is in March based on the March forecast that you all used for balancing severance tax looked to be in pretty good shape and could sustain the transfers that you made out of the various severance tax funds and still support the appropriations that you approved and the general fund was in much less good shape. So you made a lot of decisions to help the general fund through, in various ways, the use of severance tax money from both this department and local affairs, which is up next. Based on the revenue forecast that you just heard, I think the tables have turned on both of those, where now all of a sudden severance tax is in pretty dire straits as a result of the refunds that happened in May, and the general fund is in significantly better shape. The appropriations report that we'll be publishing in short order, which is based on the March forecast that you used for balancing, is going to show a projected general fund balance at the end of 26-27, which is, I mean, I love putting out a document that's out of date when you actually print it. But based on that March forecast, it's actually going to show a general fund balance of just above zero, above the 13% reserve requirement that you all set. That's how the General Assembly balanced the budget. At this point, you have both revenue forecasts showing the general fund well above that 13% reserve requirement at the end of 26-27. So as I said, I think what's happened here is you had one situation where you had some excess money in severance and you had a really bad general fund need. You took some of the severance tax money through a variety of mechanisms to help with the general fund. Now all of a sudden, because of the dynamics within severance and then general fund coming in higher than expected... Those two things have flipped. So I think what this proposal is kind of doing is through a 1331 authority, you can't reverse the transfers that you approved in statute. So they couldn't request that as a 1331 because that would require statute. this is effectively asking you to undo some of the balancing measures that you took and i would say that the argument for it i'm not necessarily making that argument but the argument for it is that when you made those decisions severance tax looked good and general fund looked really bad and now general fund is in a significantly better condition i think the to boil it down and i will stop talking in 30 seconds here the question before you i think is whether you would have made the sweeps to the general fund in March had you had this budget outlook in front of you. Would you have moved that money to the general fund? Because what they're effectively doing is asking you to undo some of the transfers that you've made and in one case, in this case, overshoot that transfer by a bit for the current year. So I think that's the policy question. You made decisions on one set of data. All of that data has changed. and is this a place that you would effectively, given that you've moved severance tax to the general fund, one could certainly argue that you're effectively using that severance tax again. It's just right now it looks like general fund because of the transfers that you've approved. Thank you. I do find that clarifying. Senator Kirkmeyer. So first of all, we didn't do any refinancing of the operational funds. these ones that are here listed on page 6 in 25-26. They were just straight sweeps across the board because I tried to do the refinancing and the department just kept arguing with us the whole time. And the general fund, I would argue with you that the general fund is not in good shape. We had to reduce the reserve from 15% to 13%. That doesn't mean the general fund got in better shape. That just means we reduced our reserve and if we have a recession, we'll be in worse shape. So it doesn't necessarily mean that we got in better shape there. So the other thing is again, we had to do some other things with the over refund stuff. That's what, another $300 million? So we reduced the reserve amount. That was about a $300 million reduction of general fund need. We reduced, we're doing the over refund thing, another $300 million. Those are one-time things that we did to try and balance the budget. So our general fund is not in good shape right now. It's better than what we thought it was going to be because it's at 13.2% instead of 13%. But it's not at 15%. We had to make substantial cuts across the board to some pretty core government services for life, health, and safety reasons in Medicaid, in the health department, in corrections, I mean, all these other places. And so we've got fund balances that are pretty healthy in the Parks Cash Fund, in the Wildlife Cash Fund, in the ECMC Cash Fund, apparently in the Aquatic Nuisance Species Fund. Those are some pretty hefty balances there for programs that their expenditures, for example, in the aquatic nuisance species fund, just looking at it, their expenditures are estimated at 11.2 million, yet we're going to have an ending funding balance of 18.7 million and you want us to refinance it for 4 million bucks. That doesn't make sense to me. They have the fund balances go use them in those cash funds for 25 26 The refinancing stuff that we did doesn even start until the next budget year So I don look at it as we got severance fund that we put into the general fund. I look at it as we were trying to figure how to balance the budget and we had to make some pretty substantial cuts that at one point every single one of us up here was extremely upset over. So I don't think we should be go funding 10.5 million dollars out of general fund in this current year to backfill the operational account when it was the governor who came in several times to sweep that fund. And that's what happened. They swept the fund. We agreed with it. And I didn't hear Director Harper say we're in a good general fund position. I heard him say it is improved from the March forecast to now. I don't know what thoughts the rest of the committee has on how to address this. I'm sort of of the mind that, you know, maybe there is some splitting of the baby to be done here. I don't know if it's just the geological survey funding because I do think it is a fair question to ask. Would we have swept? If we had known then what we know now, would we have swept the total amount of severance tax funds that we swept? Obviously not. So what do we do with that information? Maybe there is some general fund to make up for here, but others to be found in cash funds. And I don't know what the right balance of that is. Senator Mobley. So when we started, and I might have stopped listening just for a second, but you said there were some options if we didn't want to do the whole 10. So what were, did you already present those or what are those from your point of view? Thank you, Senator Mobley and Madam Chair. Basically, it's the alternate option on page two. And I mean, given the conversation, I'm not even sure if this would be palatable, but basically it was refinancing an amount that is about equal, so $7.3 million, about equal to the transfer to the general fund that would be made on June 30th this year, which is a large part of the deficit. And then basically having cash funds make up for whatever amount is not refinanced to the general fund. Senator Kirkmeyer. Thank you, Madam Chair.

Ms. Jen.

So what happened to that provision?

Senator Kirkmeyer, so right now in statute, there are like the main, let me see if it's in your document, Like the kind of, okay, here's the language. It's on page six. Basically, it says the General Assembly may appropriate the X distribution up to the following. It's that second table on page six. So those are kind of like the, I guess, historically the priority programs or core programs, I guess, is what they refer to. And then basically the second tier, which is the second half of the table, is that if the General Assembly appropriates less than 100% of the funds available to the above programs, then they may additionally appropriate the following. And those are the additional, which I guess may be previously referred to as discretionary programs.

Senator Kerkmeyer.

Rep Taggart.

We are at the end of the fiscal year.

I mean, that is a question, actually.

Michelle?

Madam Chair, I think that's right.

Senator Kirkmeyer.

VICE CHAIR BRIDGES.

SENATOR KIRKMAYER.

Vice Chair Bridges.

Thank you, Madam Chair.

Senator Kirkmeyer.

Ms. Shen.

back money basically. Rep Taggart. Might I propose a compromise is that we fund

What's the remaining amount for the geological survey?

Ms. Shed.

Senator Kirkmeyer, do you mean how much money is left for them?

We appropriated 1.9 million for the full year. So are we talking the last quarter?

The last three months of the year that they can't pay for all of these things? So all of these things have been paid for at least for the first three months. first three quarters of the year I see Ms Shawn Thank you Madam Chair Senator Kirkmeyer I don have the actual expenditures That be a higher education department question

Director Harper. That's not true.

Senator Kirkmeyer, I think the reason for the line items that you're seeing here is because of the mechanics of the 1331 statute. they're effectively offsetting the entire geological survey appropriation and replacing it with general fund through accounting magic i suppose i mean yes they've spent severance tax but then it would be replaced with general fund and then that severance tax would be swapped out because it's probably going to go to refunds as miss shen said the reason that you're seeing for example the entire amount of the geo survey appropriation is if that's the full amount is that the only place that you can authorize an overexpenditure and this came up in the wick and in the hr1 conversations last fall for the 1331s the only place you can authorize a general fund over expenditure is a line item with a current general fund appropriation that's a limited number of line items within this department. So there's all kinds of places within the ECMC, for example, where they're spending severance tax, but you actually can't put general fund there because there's no general fund appropriation to overexpend. So the places that you are going to be able, through the mechanism that they've proposed, they've identified the places that have appropriations of both severance tax and general fund because those are the only places that you can actually make this swap. You can't put the general fund in the line items that don't have the general fund. So that's why you're seeing this. It's not that they haven't been spending the money in the geo survey. It's that the available buckets to pour the general fund into to solve this problem as they've identified it are on page two.

they're trying to replace all of the general fund appropriation or all of the severance tax appropriation in the geological survey. So it's not a matter of what they've already spent. It's trying to actually change the color of what they've already spent in those line items. Vice Chair Bridges, did you have a question or a thought?

One, I'd say I definitely want to make sure that we keep the geological survey whole. Love those guys. But two, I also think that we have the ability here to just say yes to this now and note that there's money in these cash funds and just sweep the heck out of it next year, given the balances that we're seeing in these things. I mean, that is an alternative.

which is, you know, and it's a little bit of cash. I'm okay with the mix. And then whatever we are able to take a deeper look at next year. Some cash fund spending. No, I'm sure. So some mix of cash fund spending authority, and I think it was a 4.8 million. So if the total need, 4.4. The total need to make up is 10.5, that 4.4 of it would be general fund,

That is not what I said I said the alternate option that Ms Shen listed which was consider only refinancing the million of general fund which would give and then give them the ability to like go find cash funds for the rest of it What your proposal Okay

Thank you, Madam Chair. So the alternate option is not 4.4. The alternate option is 7.3, with the department still trying to find how to cover the gap between the 10.5 and the 7.3 with their own cash funds. I'm seeing a nod from Ms. Shen. I'm okay with that as an alternative recommendation.

Well, that wasn't what Representative Taggart was suggesting. His alternative was the 1.9 for the geological survey and 2.5 million on the century appropriate, which is 4.4. And then they can go make up the rest with cash funds, which is what they should have been doing in the first place.

I am very nervous if we don't fund a quadrants nuisance work. I am very, very worried about that not being paid for because that's big, big, bad, bad, bad, very bad. Like we should have stopped people from being in boats to stop this.

Vice Chair.

Rep Taggart.

And I appreciate what you're saying, Senator Bridges. the aquatic nuisance is a real problem right now in western Colorado because zebra mussels have come roaring back. By the way, just having come through Montana, Idaho, and Wyoming, of our three of our neighboring states, they check every single watercraft before it goes into the water. And why we're not doing that is a little bit beyond me, and they charge for that. But be that as it may, they have a balance before that $1.3 million of $17.3 million. So they can absorb the $1.3 million and still fund that program. It takes it down to $16 million, but it's not as if we're bankrupting that fund by any stretch. and their ongoing revenues are about $12 million on average and their expenditures are around $11 million. So I don't think we're hurting that fund at all by saying, guys, go take that from your balance. And that just leaves the $4.8 million. that leaves the $4.8 million for ECMC that they need to figure out.

Thank you, Madam Chair. Also, yes, every single boat going into any waterway anywhere east of the Continental Divide should be being inspected, and I am just – East of the Continental?

Zebra mussels have invaded the Western Slope. Yeah, but we didn't create it. You did not, and I don't want it to spread, but this is, at some point, it's so far upriver, since it's starting an eagle, that, like, it's a problem. The professionals are messing this up if the professionals are not investigating every boat, and I think they're underestimating the threat that Zebra Messles calls, but I've been saying that for 10 years. So I'm okay with then the four.

I think, does that motion have consensus on the committee?

Okay, make your motion.

So that's the 7.3?

All right. Is there any objection to staff rec alternate option? That passes on a vote of 4 to 2. But that alternate option, does that include their ability to figure out the rest with their cash funds?

Yeah.

Thank you, Madam Chair.

Ms. Shen, I have no idea.

There is no refinance.

Here's general fund money.

That's what you said. So we're done. They have the ability to do what they need to do and move money around in those cash funds. They're continuously appropriated for the most part. As money comes in, they spend it. Vice Chair Bridges.

Thank you, Madam Chair. I think we'll need to request some flexibility because the 1331 letters actually specify fund source and line item for which you're authorizing the overexpenditure. So I would ask for permission for Ms. Shen to work directly with the executive branch and identify the line items that would total up to the amount of general fund that you've approved and the line items with the cash funds that require the overexpenditure authority. That means that this letter will not be available upon gavel at the end of this meeting because it going to take some time We have to figure out a process to get it signed But I think we need clear on the record that that the authority because the 1331 letter will have to be more specific than the committee discussion thus far

However, Ms. Shen needs to draft the letter.

Okay. Thank you, Ms. Shen. All right, I know everyone's wilting here, but we have one more. Rep Taggart. Rep Taggart wants to have a conversation about rural NEMT, EMT, but not yet. First, Ms. Ewell.

Okay, Vice Chair Bridges. Thank you, Madam Chair. I move staff rec for local government severance tax fund deficit.

Yes.

and to give you a little bit of background. And there have been conversations going on here for about two or three weeks. And the issue emerged to me when I got an email from our transportation folks in western Colorado that they could no longer effectively on July 1st transport medical patients to our hospitals and clinics because of the fact that we did not address and you did bring it to our attention that the department had not addressed rural and just so you know how it affects us in rural colorado is that these transportation companies are not just going two or three miles to pick somebody up and bring them to a clinic dialysis clinic is is one of the most significant ones or hospitals. They in many cases are going 20 to 30 to 40 miles in my neck of the woods because we're the medical center for basically Western Colorado. And they are not compensated for the trip out. So the $2.80 does not go to them for the trip out. It's what's referred to as a deadhead. They are compensated to come once they pick up their patient and bring that patient to the hospital or clinic. And because of the fact that our department did not give us a rural situation, I HAVE AND OTHER RURAL AREAS OF THE STATE HAVE THIS ISSUE THAT THE COLORADO TRANSPORTATION ALLIANCE IS LETTING US KNOW THAT WE ARE GOING TO LOSE TRANSPORTATION COMPANIES AND I realize I'm different from everybody else in this sense, but it's not as if I have four or five that are servicing my neck of the woods. I have one fairly significant one, and they have already notified patients and obviously me that they're out of the business effectively July 1st. And so initially, when I talked to Director Ferrandino, he indicated to me, Rick, we'll hold a 1331 for it. The problem is we can't do a 1331 because we are not in the 2627 fiscal year. So we can't do one, according to Director Ferrandino, what he said to me. And the first time I found out about it was this morning. HE SAID, RICK, WE CAN'T DO A 1331. BUT WHAT YOU CAN DO IS ALLOW THEM TO OVEREXPEND AND FIGURE OUT SOMETHING ON THE RURAL SIDE OF IT AND THEN DO A 1331 LATER. I'M A BIT UNCOMFORTABLE WITH THAT APPROACH, BUT I DON'T KNOW THAT I CAN CHANGE, MR. KURTS, THE FACT THAT WE CAN'T DO A 1331 WHEN WE'RE NOT IN THAT FISCAL YEAR. BUT, FOLKS, I PLEAD WITH YOU, I CAN'T LOSE MY MEDICAL TRANSPORTATION COMPANY FOR RURAL WESTERN COLORADO. AND THEY HAVE MADE THE DECISION BASED ON THE FACT THAT THE DEPARTMENT did not give us a rural approach, they can't survive on what our new rates are. And it's largely because of the deadhead situation.

The 1331 process is set up in a way that either the governor or an elected official on the executive branch side has to initiate the request and then the budget committee can approve it in whole or in part And when that approval is provided it allows the department to overexpend the appropriation and then there's an obligation for the budget committee to introduce a supplemental the next year. I've never heard the argument that Taggart was talking about where you have to be in the fiscal year in question to initiate a 1331. Mr. Harper is talking with legal services right now about whether that is actually a barrier or not. But setting that aside, because you have not yet received a request from the executive branch, there's not a 1331 for you all to act on.

Health care policy and financing, the statutes already delegate to the department the rate-setting authority, but they set those rates within the appropriations that you all provide. An argument could be made that the department could just set the rates higher, and if the budget committee gave some indication to the department that you planned to do some kind of supplemental to fund that, maybe the department would be comfortable with doing that. It's not the standard accepted process for that, but I think it probably could work. if that's the direction you all wanted to go.

No.

So we could ask the department to just come back in July and with a 1331 that we can approve to change the rates starting for that year.

Brett Brown. I mean yeah thank you thank you madam chair and I think I'm not wedded to any one particular option but it does seem like the department has the authority to change the rate while we sort of budgeted to a particular rate we didn't actually specify what the rate had to be necessarily it seems like they could within their flexibility do that without us they may have to come back to us with TRUOP right to say that like we had to change the rate because otherwise we were going to lose providers and therefore and I think in all of our all the cuts that we unfortunately had to make there was always this understanding of like if we're going to lose a ton of providers and we're going to have to reevaluate some of the stuff so I don't I don't know what the best solution is but I it's it is it is interesting the way that we do this given that the the department has this authority anyway.

Senator Mobley.

Yeah, I would agree with the vice chair that I would like to see the department do something to try and mitigate this problem that, you know, will start in two weeks. And so I don't know what that means for them. They can bring us a 1331 at any time. We really only get them at the quarterly forecast, but we would have to have a meeting to consider it, yes?

They can bring 1331 at any point in time. Do you have this commission on Medicaid? Yeah, I was about to say we've got a meeting that will happen in another few weeks that might be a reasonable time for us to meet just before that starts to consider something, and that seems reasonably timely because what I don't want to have, I don't want to just give the department some sort of carte blanche, like, okay, just do something and then us get a request in September and then we all are like, why would you have done that? I would. They don't want that either. No. So I don't know how that makes, you know, your providers feel reptile to have to wait until the fiscal year has already started. But I just I think I would feel more comfortable trying to approve something in the beginning of July than just giving them an open ended do whatever. And then we'll decide.

Yeah. Yeah.

And I think I'm willing to send a letter to Director Hammer, But what I do want to caution is that I'm not – that doesn't necessarily mean that whatever it is, the department then says, okay, this is actually what's reasonable and this is what we should do is what those providers then are going to necessarily agree is the right thing or that – I mean, I just – it's hard to make a guarantee. But I think that everybody is coming to the table in good faith. I've been clear with them that I think they are willing to do the analysis, but be that as it may, I've been clear with them. I can't tell you what exactly this outcome is going to be. I said I would throw two things out on the table, and one of them I think everybody's uncomfortable is just pause and leave the rates alone until this is done, until an evaluation is done. Or in this particular case, you're asking for 1331 to look specifically at the rural side. and I'm comfortable delivering that so long as I have a document that I can say we are doing this. But I don't know what the outcome is going to be.

So I think we are coalescing around July 6th as the next meeting, and so I think, yeah, I mean, I don't know what the mechanism is for sending a letter, but just sending a letter saying we are expecting a 1331 on July 6th that addresses this issue. And they could come back and say, well, we don't think that we did set the rate wrong AND WE DON'T WANT ANY ADDITIONAL FUNDING FOR THAT. I DON'T KNOW, BUT WE HAVE THAT DATE THAT'S OUT THERE, PENDING, AND THAT SEEMS LIKE THE WAY TO GO FORWARD. YES, AND THERE MAY BE SOMETHING TEMPORARY TO BE DONE WHILE DEEPER ANALYSIS IS DONE. I DON'T KNOW WHAT THE ANSWER IS, BUT I THINK A LETTER DIRECTING THE DEPARTMENT TO BRING US SOMETHING TO CONSIDER WOULD BE ACCEPTABLE FROM THE COMMITTEE, I THINK.

Usually when the committee sends a letter, you have a motion.