This story was produced as part of the Colorado Capitol News Alliance. It first appeared at cpr.org.
With Colorado lawmakers and officials still trying to get a handle on how big a hit the state’s finances will take from President Donald Trump’s new budget law, it’s unclear whether they’ll decide to act on it before their regular session next year.
Governor Jared Polis said his office is analyzing whether to call state lawmakers back to the Capitol for a special legislative session in response to its passage.
“There's still conversations about, do we need to do one? What would it need to have?” Polis told CPR News this week.
At almost a thousand pages, the ‘One Big Beautiful Bill’ fulfills a lot of Republican campaign promises, such as dramatically increasing funding for border security and immigration enforcement and making tax cuts from the president’s first term permanent. But it also stands to increase the national debt and deficit — by trillions of dollars and have a huge impact on state finances.
The biggest impacts lawmakers are bracing for — cuts to how much funding the federal government will provide for Medicaid and SNAP benefits — won’t hit for a while. But Polis said Colorado wants to be prepared.
“Some are two, three years out, but there will probably be some constellation of things, and that's what we're trying to analyze,” said Polis. “We're saying, ‘is there anything that the state would benefit from doing earlier rather than later?’”
State financial analysts predict the ‘One Big Beautiful Bill’ will cost Colorado about a billion dollars a year, once it’s fully implemented. That will be from a combination of reduced tax revenues and less federal funding for safety net programs. Colorado’s finances are already in a precarious situation and policymakers worry the next few years could push them into uncharted territory in areas like healthcare.
“We are not in a position to backfill, so it will be scaling back who can take advantage of Medicaid, just what the program can cover,” said Democratic Rep. Shannon Bird, who sits on the legislature’s powerful Joint Budget Committee. “The state simply won't have the resources to invest to make sure people get access to care the way they had expected in the past.”
At the same time lawmakers are anticipating less money from the federal government, they’re also trying to determine how much the federal law might cost the state in reduced tax collections.
New temporary federal tax breaks for certain types of income – no tax on tips, no tax on overtime — are retroactive to the start of this year.
Colorado typically follows the federal government on what is considered taxable income, but last legislative session Democrats changed the Colorado tax code so that people here will still be paying state income tax on their overtime starting in the 2026 tax year (because of how the timing works out, they will get a break on overtime for the current tax year). Lawmakers didn’t act on tips, so that federal tax break will be felt at the state level.
The idea that Colorado might not enact all of the tax breaks contained in the federal law has spurred a powerful conservative group to action.
“These are regressive taxes that primarily affect the working class and Democrats should reject them,” said a text message alert from Advance Colorado Action, helmed by Michael Fields. The group is urging Colorado Democrats not to push up the start date for the state overtime tax or to pass a law to allow the state to keep taxing tips. The group also launched a ballot initiative to permanently exempt tips and overtime from state income taxes.
Democratic state Sen. Judy Amabile, a budget committee member, complained that Advance Colorado’s message is misleading.
“We weren't going to do anything about tips. I don’t know where that came from. That's like a Republican talking point,” she said.
Amabile said it’s too late to move the state’s overtime tax to an earlier start date, but does think the state will look at extending some business taxes that were set to expire. She said Colorado’s tax collections could soon fall below the TABOR cap, a limit on how much the government can grow, so lawmakers may want to increase revenue to the maximum allowed.
“We would then be able to spend that money on things that people in Colorado have asked us to spend money on, infrastructure, healthcare, the safety net, those kinds of things,” she said.
Amabile does see other potential issues to deal with in a special session, including the need to tweak ballot language for a funding question the legislature will put to voters this fall on the Healthy School Meals for All Program, which provides school lunch at no cost to K-12 students.
Also likely on the agenda, should lawmakers have to come back early, an effort to push back the start date of Colorado’s groundbreaking AI anti-discrimination law. The law aims to prevent systemic algorithmic discrimination in areas like healthcare, banking and education. It’s set to go into effect in February, but the tech industry and business community said as written the law is unworkable and would have unintended consequences. Polis has said any special session would likely include some kind of delay for the start date, however consumer rights advocates are pushing for the implementation to stay on track.
And as the Governor considers whether to reconvene lawmakers early to tackle any of these issues, state lawmakers have one other fiscal reality to consider: as part of their budget balancing efforts this spring, they chose not to put any money aside for a special session.
