Colorado lawmakers must immediately cut or find nearly $1 billion to fill a massive hole blown in the budget by the federal tax bill signed by President Donald Trump, state officials told legislative leadership Wednesday.

“It is significant, and every day we wait, the deeper the cuts we will have to make as we go through this,” said Mark Ferrandino, Gov. Jared Polis’ budget director.

Because of how Congress wrote the tax bill, the new projected $955 million shortfall is already being felt — meaning the annual state budget that came into effect on July 1 is now significantly out of balance, Ferrandino said. Trump signed the federal bill into law on July 4.

The shortfall is from the legislature’s general fund, which this year was roughly $16.7 billion in a total budget of $44 billion. Lawmakers had already been bracing to return to the Capitol in mid-August, and Wednesday morning’s leadership meeting at the Capitol appeared to erase any doubt that Polis will call legislators back for a special session to solve the budgetary sinkhole that’s opened beneath the state’s feet.

If lawmakers wait until their scheduled return in January, Ferrandino warned, the cuts will be steeper and may top $2 billion. Already, state officials have asked departments to stop any maintenance they’ve scheduled but haven’t yet paid for. Polis’ office earlier had told state agencies to prepare for 2.5% cuts next year, and his team has now asked how much of that savings they can realize immediately.

For taxpayers, the projections include that TABOR refunds expected for the 2026 tax year now won’t materialize, though 2025 tax year refunds are locked in. According to an analysis by legislative staff, $143.9 million in the state’s lost revenue comes from temporary deductions for taxes on tips and overtime for Coloradans, plus $243.2 million from changes to standard and itemized deductions and personal exemptions.

Assuming lawmakers gather next month, they will have few options to fill the hole, none of which are particularly easy or appealing.

Rebalancing the budget will require significant cuts, and it’ll also likely mean dipping into the state’s reserve fund. Lawmakers will also probably discuss raising revenue, too, though options on that front are limited by requirements for voter approval under the Taxpayer’s Bill of Rights.

Still, lawmakers could eliminate certain tax loopholes.

“Pain. What’s coming is pain,” Sen. Jeff Bridges, a Greenwood Village Democrat who chairs the powerful Joint Budget Committee, said outside the committee meeting room. “… Even my colleagues don’t realize how brutal it’ll be to cut a billion dollars from a budget that we already cut by a billion dollars.”

Backed by congressional Republicans — including all four of Colorado’s Republican U.S. House members — the tax bill slashed $4.5 trillion in taxes nationally, cut Medicaid funding and shifted new costs onto states. The changes will trickle down to state budgets, since state income taxes are influenced heavily by the federal tax code — and Colorado is one of four states that immediately implement federal tax changes, Ferrandino said.

$1.2 billion hit to revenue

In all, the moves are expected to strip $1.2 billion in revenue from Colorado in the current fiscal year, state budget officials said, followed in years to come by lesser amounts that still run into the hundreds of millions of dollars. According to the state economists’ analysis, much of that revenue loss — nearly $770 million — is because of corporation-related tax changes.

This year’s $955 million shortfall is slightly smaller than the total revenue loss because the state had expected to deliver taxpayer refunds under TABOR. Now the state will fall below the TABOR cap, which ate up some of the revenue loss. (Wednesday’s $1.2 billion revenue loss projection was worse than an initial estimate, issued earlier this month, that the hit could reach as high as $800 million.)

Two tax credits aimed at lower-income families — a higher state match of the Earned Income Tax Credit and the family affordability tax credit — won’t be available in the 2026 and 2027 tax years, Ferrandino said.

At the same time, the state will have to pay more than $237 million in property tax rebates to local governments in the 2026 tax year, too. Normally, that would be pulled from money that’s above the TABOR cap. Because the tax bill wiped out TABOR refunds for the 2026 tax year, though, it will have to come from the legislature’s primary spending account, the general fund.

What’s more, the immediate budgetary challenges described Wednesday don’t include other looming impacts on the state from the tax bill.

Colorado will have to shoulder hundreds of millions of dollars in new spending to cover Medicaid and food assistance because of the tax bill’s cuts, though those impacts generally won’t take effect until 2027. That’s a separate — but still thorny — issue that lawmakers will have to plan for and solve, likely starting in the next regular legislative term in January.

A difficult special session

The looming special session is likely to be bruising, given the depth of the budget hole facing lawmakers and the interplay of a legislature controlled by Democrats responding to a tax-cutting bill passed by the Republican Congress.

Conservative groups have already started criticizing Democrats for continuing to tax overtime starting next year — rather than adopting the tax bill’s changes — while Democrats have blasted Republicans for passing the tax bill in the first place.

“I am particularly shocked that our congressional delegation would have voted for a bill that has this kind of impact to us,” House Speaker Julie McCluskie said.

On Wednesday, the legislative leadership began laying the groundwork for the policy — and rhetorical — fights to come: The two top Republicans, minority leaders Rep. Rose Pugliese and Sen. Cleave Simpson, questioned why lawmakers needed to return now and referenced Republican complaints that the state has overspent its wallet.

“Is (the tax bill), overall, just compounding a structural deficit that this body has been aware of for several years — that Colorado is on a pattern of spending that could not be supported by revenue stream?” asked Simpson, of Alamosa. “And now we’re going to overlay, again, potentially a $1.2 billion impact in that structural deficit.”

But the executive committee’s Democrats, along with Ferrandino, said the tax bill was a separate and unrelated issue that had been levied upon the state by Congress.

“Right now, we don’t have the cash to pay our bills,” Ferrandino said. “That’s different than where we are long term within the structural issues. Just to be clear, those structural issues will get worse because of” the tax bill.

________

©2025 MediaNews Group, Inc. Visit at denverpost.com. Distributed by Tribune Content Agency, LLC.