With election season behind us, Colorado’s legislature — particularly the Joint Budget Committee (JBC) — faces the urgent task of solving a $1 billion budget deficit for the next fiscal year. As the JBC reconvenes, its members will be forced to make difficult choices that will define the state’s priorities in health care, education and infrastructure. A logical question many Coloradans have is why is the state facing such a steep deficit when it has a constitutional requirement to balance the budget?

The answer is more complex than it may seem and goes beyond simple politics, revealing structural challenges in how Colorado funds critical programs and adapts to changing economic conditions.

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One of the largest drivers of the state’s budget deficit is the end of the federal American Rescue Plan Act (ARPA). ARPA provided billions to states during the pandemic, allowing for expansions in Medicaid, support for local governments and expanded public health initiatives. With ARPA funds phased out, the state is now left to shoulder expenses temporarily covered by federal dollars. This transition back to pre-pandemic budget realities has exposed underlying financial strains.

The state’s budget is also affected by recent state tax cuts, including several rounds of property tax reductions and new tax credits, which have lowered state revenue. Though these cuts aimed to relieve taxpayers, they’ve increased the state’s financial responsibility in funding schools and other essential services.

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Additionally, Colorado’s Medicaid program, which expanded significantly during the pandemic, now consumes a substantial share of the budget as costs have increased in the aftermath of federal pandemic protections. This shift has left the state with much higher health care costs than anticipated, and without ARPA support, Colorado faces significant gaps in covering these expenses.

These budget challenges are not unique to Colorado; other states are also contending with similar shortfalls as federal pandemic support recedes. Rising costs in health care, education and social services strain budgets across the country, but the state’s particular tax restrictions and recent policy decisions have exacerbated the issue.

With this looming financial shortfall, the state legislature must prioritize “needs” over “wants.” By focusing on essential services like health care, education and infrastructure, lawmakers can prioritize resources to go to the core programs Coloradans rely on daily. This means putting aside special projects and focusing on the basics.

Lisa LaBriola is a principal at Husch Blackwell Strategies and was a Senate Democrat staffer for close to a decade. She served as chief of staff to former Senate Minority Leader Lucia Guzman and former Senate President Leroy Garcia. Opinions expressed here are her own and do not reflect the opinions of any other organizations.