Colorado’s Budget: Beyond the Revenue vs. Spending Debate
As Colorado lawmakers grapple with a budget shortfall, a familiar argument has resurfaced: Does the state have a "revenue problem" or a "spending problem"?
The answer typically depends on whom you ask and political leanings.
A closer look at 25 years of budget data reveals a more nuanced picture that challenges both narratives.
A new analysis by the Institute for Evidence-based Policymaking examines Colorado's budget through five key metrics. The findings suggest that neither the "starved government" nor "runaway spending" storylines fully capture what's happening in state finances.
Start with the basics:
Colorado's total appropriations have grown at an average annual rate of 5.6 percent since fiscal year 2000, but just 2.8 percent when adjusted for inflation. General Fund appropriations, the state's most flexible dollars, grew even more slowly at an inflation-adjusted 1.8 percent. That's not the exponential growth some critics suggest.
Compare Colorado to other states, and the picture grows clearer. In per capita spending, Colorado ranked 42nd among all states in 2000 and 41st in 2022, consistently below the national average. The state's annual per capita expenditure growth of 1.1 percent matched the average across all 50 states. Colorado is neither a big spender nor falling behind peers.
Total appropriations represented 6.5 percent of Colorado's GDP in 2000 and 7.7 percent in 2025, a 1.2 percentage point increase that represents an 18 percent growth in the state's claim on economic output. However, this share fluctuates with economic cycles, with a 25-year average of 7.4 percent and peaking at 8.7 percent during the pandemic before falling back closer to long-term averages.
Turning to state employment, Colorado employed 30,700 state workers, excluding those in education, in 2000 and 58,900 in 2024, an average annual growth rate of 3.8 percent. Over that same period, total employment across the private sector in Colorado grew just 1.5 percent per year on average. And notably, the state workforce hasn't experienced a single year of decline since the 2008 recession, even as the private sector absorbed multiple downturns.
Perhaps most consequential is where the money goes. Healthcare spending, primarily through the Colorado Department of Health Care Policy and Financing, which administers Medicaid, has almost doubled its share of total appropriations, growing from under 20 percent in 2000 to roughly 36 percent today. This growth, driven by expanding caseloads, medical inflation, and federal policy changes, has crowded out other priorities. Transportation's share dropped from 10 percent to under 6 percent, while K-12 education declined from the low-20s to about 18 percent.
On the revenue side, general fund revenue declined 0.4 percent last fiscal year, driven by a 1.7 percent drop in income tax collections. This year, revenue is expected to remain essentially flat: a 3.0 percent decline in income taxes offset by modest growth in sales taxes. Colorado's per capita collections have tracked closely with national averages over the past two decades.
Colorado faces additional headwinds. Federal changes through H.R. 1 are projected to reduce state revenue by $1.2 billion this fiscal year and $720 million next year. The state also must absorb costs previously covered by federal programs, with impacts expected to approach $1 billion annually by 2032.
These pressures are not hypothetical.
As the Legislature convened last week, lawmakers faced an $850 million gap between available revenue and the cost of maintaining existing programs. The state has taken steps to close it. A special session last August rolled back some business tax breaks, Governor Polis has proposed reducing the rainy-day fund and privatizing the state's workers' compensation insurer, and his budget calls for holding Medicaid spending growth to roughly half of projected needs.
The Taxpayer's Bill of Rights, which limits revenue growth to population plus inflation, constrains the state's options. This has driven the proliferation of "enterprises", legally separate entities operating outside TABOR limits, as an alternative for funding programs from transportation to healthcare affordability.
What does the evidence suggest? Colorado's overall spending growth has been moderate by national standards. But state employment has grown faster than private sector employment, and healthcare costs are consuming an increasing share of the budget at the expense of other essential services. Meanwhile, constitutional constraints and declining federal support are squeezing revenues from both ends.
Meredith Moon and Shepard Nevel are the Director of Research and CEO, respectively, of the Institute for Evidence-based Policymaking, which provides non-advocacy, evidence-based research to support executive decision makers.
