Several state agencies, including the Governor’s Office, are holding tens of millions of dollars in cash reserves in excess of statutory limits as of June 30, 2023, and several have been put on spending restrictions until the dollars are spent down, the Colorado state auditor announced Monday. 

State agencies are allowed to keep no more than $200,000 in reserves, the result of legislation from 2015. But some agencies have been holding reserves in the millions. And at least three agencies have been out of compliance for a decade or more since 2001, although that noncompliance might not be for consecutive years, according to the auditor’s report.

The seven agencies out of compliance are:

• Department of Early Childhood

• Office of the Governor

• Judicial Department

• Department of Local Affairs

• Department of Public Health and Environment

• Department of Regulatory Agencies

• Department of Revenue

The total amount exceeding the state’s legal limits is $48.5 million, $32 million more than a year ago, according to the audit released Monday by the Legislative Audit Committee. 

“Since cash fund fees are considered part of TABOR revenue, excess cash reserves contribute to the State potentially exceeding TABOR limits in a given year,” said Gina Faulkner, an audit supervisor.

For Fiscal Year 2023, the state exceeded the TABOR cap by $3.6 billion, according to a Sept. 1 letter from the Office of the State Controller.

That’s the amount that will be available for TABOR refunds in 2024, paid out through three mechanisms: the homestead property tax exemption for seniors and veterans; a temporary reduction in the state income tax rate and a six-tiered sales tax refund based on income. For 2024, however, the sales tax refund will be replaced by a one-time equalized TABOR refund, through legislation adopted in the recent special legislative session. 

The Department of Public Health and Environment had its spending authority restricted in fiscal years 2022 and 2023 because it held excess reserves for three consecutive years or more for two cash funds, the audit reported.

The department’s medical marijuana cash fund has been out of compliance for five consecutive years, and it will be restricted again in fiscal year 2024. Meanwhile, the agency’s vital records cash fund has been out of compliance for three consecutive years, and it will also be restricted during the next fiscal year.

State law allows agencies to seek a waiver from the Joint Budget Committee for specific periods of time, and 14 funds in six state agencies have received such waivers: agriculture, education, labor and employment, personnel, public safety, and public health and environment. The amount waived is not listed for most of those funds.

Holding excess cash funds in reserve creates TABOR implications, the audit noted. Here’s why: funds in excess of the TABOR reserve, which could include those monies that state agencies have, must be refunded to taxpayers.

The audit made 18 recommendations for the affected departments.

The Judicial Department held the largest amount of uncommitted reserves  – $12.8 million for an information technology cash fund. The department told auditors it already wrote off and disposed of various IT assets, and did so as of July 2023. The funds were for a new case management system, the department said.

The fund in the governor’s office – about $300,000 – was for promoting Colorado as an international travel and tourism destination. It’s the fourth year the fund has been out of compliance. The governor’s office responded it will bring the fund into compliance by March 2024.

Three funds within the Department of Regulatory Agencies were out of compliance, and they had been out of compliance for six or more years out of the last 20.

The largest and oldest on the list is the Division of Professions and Occupations Cash Fund, which held nearly $8 million in reserves in the past year. While the agency reduced fees to spend down about $5 million of the reserves, it also put blame on two bills passed in 2022 for its most recent compliance problems. The agency said the measures said created a “moving target” for the agency.

Department of Regulatory Agencies intends to pursue a waiver with the JBC.

For its prescription drug monitoring fund, which had more than $410,000 in excess reserves, the agency said a “non-fee General Fund transfer” was responsible for the excess. The agency argued that that type of transfer should be exempt from the excess reserve calculation. A waiver with the JBC will also be sought for this fund, the agency said.  

In both cases, the auditors said the calculations were done correctly and recommended the agency pursue the waiver with the Joint Budget Committee.