The inside of the gold dome at the Colorado Capitol in Denver on Monday. (Jesse Paul, The Colorado Sun)
If the state’s Taxpayer’s Bill of Rights surplus was a cookie jar, a lot of lawmakers at the Colorado Capitol would have their hands in it — Democrats and Republicans alike.
The money has been directed toward tax credits aimed at boosting affordable housing, reducing childhood poverty and increasing economic activity.
This year, lawmakers have introduced bills that would tap into the surplus further to offer a back-to-school sales tax holiday, offer an income tax credit for contributions to health savings accounts, and extend existing tax credits for businesses that create new jobs and for people who contribute to projects related to reducing homelessness.
So far, the legislature’s Democratic majority and Gov. Jared Polis have been able to ensure everyone gets at least a crumb. There’s generally been enough TABOR surplus in recent years to pay for all of the ideas that have become law without the legislature having to dig into its general fund and cut state programs and services.
(The one big asterisk is what happened after Congressional Republicans passed the One Big Beautiful Bill Act.)
But plans to ask voters for permission to tap into the surplus to boost funding for education and other budget priorities may force Democrats to start taking a harder look at whether using that money to bankroll tax credits is the best use of those dollars. If the legislature and then voters sign off on the plan, every dollar of the surplus used for a tax credit over the next decade or more would be a dollar that could have otherwise been used for the general fund.
"We're dealing with a limited amount of funds," said state Sen. Jeff Bridges, a Greenwood Village Democrat who is working with the Colorado Education Association on the surplus ballot measure. "In that situation, you have to choose. Do we want to choose to have a bunch of one-off tax credits? Or do we want smaller class sizes, better paid teachers and students that are ready for Colorado’s workforce?"
Bridge’s forthcoming bill, as of now, would raise the TABOR cap by the amount of money the state spends on K-12 education through the general fund. That’s currently about $4.5 billion.
The money would be prioritized to increase K-12 education spending by at least 2% each year — about $90 million in the first year. Any leftover dollars could be used to cover the cost of other state programs and services.
If the ballot measure passed, it wouldn’t mean the legislature would have $4.5 billion more to spend overnight. The existing TABOR cap is only expected to be exceeded in the next fiscal year by about $500 million and by about $800 million in the subsequent fiscal year. It would have been larger had lawmakers, mostly Democrats, not drawn it down for tax credits.
Bridges believes it would be harder for the legislature to pass tax credits if lawmakers had the option of instead growing the general fund. Right now, the money generally being used to fund the tax breaks would otherwise have to be refunded to Coloradans.
With the ballot measure still a long way from passage — and from making the ballot, for that matter — Democrats who are working on tax break bills this year say it’s too soon to have conversations about halting tax expenditures in anticipation of the initiative to direct more money to the general fund.
"We need to have a practical understanding of what's happening here" before making tax credit decisions based on the TABOR cap increasing, said state Rep. Andrew Boesenecker, a Fort Collins Democrat working on the bill to extend tax credits for businesses that create new jobs.
But Boesenecker acknowledged that it’s a conversation that should happen among Democrats.
State Rep. Emily Sirota, a Denver Democrat and chair of the legislature’s Joint Budget Committee, said Bridges and the Colorado Education Association haven’t revealed their measure to other lawmakers yet — and Bridges has cautioned that the details are in flux.
That makes it virtually impossible for lawmakers to start planning their tax credit work around it.
INCREASING THE SURPLUS
Some Democratic lawmakers plan to run bills this year that would increase the surplus by eliminating tax breaks, mostly the ones offered to businesses.
Democrats in the legislature did something similar during the special session in August in response to the passage of congressional Republicans’ tax and spending bill. Those moves generated about $150 million.
State Sen. Mike Weissman, an Aurora Democrat, is leading the efforts at the Capitol this year.
"The basic idea is the tax code needs to work for the large majority of people in our state," Weissman said.
More revenue would mean more money available for the kinds of tax credits Democrats have passed in recent years to try to address socioeconomic inequities. If a ballot measure increasing the TABOR cap passes, it would mean more money for the legislature’s general fund.
Democrats plan to decouple some areas of the state tax code from the federal tax code to reverse changes made through One Big Beautiful Bill Act. They also plan to take on some state tax breaks that have been eyed for elimination for years.
One of those is a state sales tax exemption on software that is delivered electronically. If you buy it in a store, the purchase is not exempt.
State Rep. Steven Woodrow, D-Denver, said the revenue generated by that change would be used to fund a tax credit incentivizing housing development near bus and train stops.
BEYOND THE TABOR CAP
The debate over how to use the surplus wouldn’t be necessary if liberal groups pushing a graduated income tax get their way. Their proposal — a change of the state constitution that would have to be approved by voters — would increase taxes on the state’s highest earners to generate billions of new revenue each year that wouldn’t be subject to the TABOR cap.
Last week, supporters of the idea got eight versions of their measure through the state’s Title Board. Barring appeals, they’ll now choose one to begin gathering signatures to make the November ballot.
Proponents had been struggling to get the Title Board to approve their initiatives because of the state’s requirement that ballot measures only deal with a single subject.
It remains unclear whether supporters have the millions of dollars needed to collect enough signatures to get their initiative on the November ballot.
