Gov. Jared Polis is hoping for a windfall from the privatization of Colorado’s quasi-public workers’ compensation insurance division to cover some of the anticipated deficits in next year’s operating budget.

The 2026-27 state budget, as proposed by the governor, amounts to $47.9 billion, which translates to a 5.2% increase over the current budget. That’s twice the rate of inflation.

He wants to set the general fund portion of the budget – that’s the part of the spending plan that lawmakers have the most discretion over – at $18.2 billion, or about 2.3% more than the previous fiscal year.

In a briefing with Republican legislative leaders on Friday morning, the governor said that privatizing Pinnacol, the insurer of “last resort” in workers’ compensation, should raise between $300 million and $500 million.

Polis said that would cover one-time expenses, such as the $193 million senior homestead exemption and controlled maintenance.

The governor, however, said that if Pinnacol were sold to the highest bidder, that could bring in as much as $800 million. He said he isn’t opposed to the idea, although he doesn’t intend to advocate for it. But the governor also said he does not think the legislature would go for a straight-up sale.

In response to questions on Pinnacol from Senate Minority Leader Cleave Simpson, R-Alamosa, and Assistant Minority Leader Lisa Frizell, R-Castle Rock, Polis said the details on privatization are “settling in.”

Under privatization, Pinnacol could remain as the insurer of last resort if it bid on it with the state, and he expects it would do that.

Pinnacol has sought privatization several times over the past 15 years, most recently in the 2025 session, but the deal never made it to the finish line.

The other big issue in the 2026-27 budget deals with Medicaid, which Polis said he would be “reining in.”

Over the past decade, Medicaid costs have gobbled up an increasing share of the general fund — the program has grown by an annual average of 8.8%, double the Taxpayer’s Bill of Rights’ cap on growth rate. That’s the amount of general fund lawmakers have each year to cover year-over-year increases in costs for existing and new programs.

Had Medicaid increased at the same rate as the TABOR cap growth, Polis said, there would be almost $2 billion more in the general fund available for roads and highways, education, transit, and public safety.

If recent growth trends for Medicaid, K-12 education and higher education continue at the same rate for the next 15 years, those three areas would almost completely crowd out all other general fund spending.

Medicaid, which the Department of Health Care Policy and Financing runs, is now the biggest portion of the general fund budget. K-12 education is second, followed by the spending on corrections.

Every other department, including public safety and human services, would have to be cut in half, according to the proposed budget’s presentation.

The 2026-27 budget proposal proposes allocating $197.7 million in general fund dollars, or about 5.6%, in the Medicaid program. The projected growth is at 11.9%, or $631.4 million.

While the increase won’t be as significant, “more work will need to be done to slow expenditure growth and preserve key services, including factoring in the impacts of H.R. 1,” according to the presentation.

The governor’s office has also brought in a national expert to review Medicaid trends, Polis noted.

What won’t change is the number of people covered under the program, although the governor indicated that what services are covered is up for discussion.

In a later media availability, Polis said his office intends to reduce services.

For example, dental coverage under Medicare, which had no cap in the previous year, will be capped at $3,000 per client.

The 2026-27 budget also plans to cap the general fund reserve at 13%, down from its required 15%. The reserve will go back to 15% when funds are available.

For K-12 education, the budget proposal shows an increase of $276 million and continues the commitment to implement the new school finance formula, now going into its second year.

Almost every executive department, except for the health care agency, will see reductions in general fund operating budgets. A chart shows a $25 million reduction, with the Department of Local Affairs taking the biggest hit at $11 million.

Of that $11 million, $10 million is from severance tax money that the department distributes to local governments.

Polis said there will be reductions in the state workforce, although most appear to be through vacancy savings, rather than layoffs.

The general fund reductions do not include total compensation (salary and hourly wage increases) or other standard policies, such as benefits for state employees.

The chart shows budget increases for several agencies, including the departments of Corrections and Revenue, with the largest at $10.8 million for the Department of Public Safety. About $7 million of that increase is tied to a loss of federal emergency management funds that the state will have to backfill, the governor said.