JBC is back from a very long recess for a very interesting series of conversations, two of which have already been had, by this legislature, by the Executive Committee. And, it is high time for that conversation to be had here at the JBC as well. Bad news coming out from both you all and OSPB. Can't wait to hear it all again because it wasn't sad enough the first time. With that, why don't you go ahead, introduce yourselves and tell us what you can tell us about? Thank you, Mr. Chair. Elizabeth Ramey,
Economist, Legislative Council Staff. So I am here to start off our June 2025 forecast update with a discussion of the expected impacts of HR one on state revenue. And so I will refer to HR one as the OBAA from here on out. After I talk about the OBAA impacts to state Yes, the One Big Beautiful Bill Act, the OBAA, as a consistent with how we referred to the TCJA, which was the TCJA or TCJA.
OBAA? Yes. Great. Okay. It's OBAA now. So I will talk about the expected impacts of the OBAA on state revenue and how we compiled those estimates. And then my colleague, Ms. Doorman, will give you an update in light of those impacts to our forecast and the budget situation. And just to clarify, this is the basic presentation that we gave last week. So, we didn't add anything new. So if you Did you identify any changes that need to be made? We did not identify any. This is just a total rehash? Yes. Okay, great.
Feel free to speed through so we have more time for questions because I think all of us paid close attention. All right. So as we discussed last week, we expect the OVA to have about a $1,200,000,000 impact in reducing revenue in the current fiscal year. As we discussed, this is eighteen months of revenue impacts. So normally, the provisions that start in tax year 2025, half of those impact about half of those impacts would be accrued back to fiscal year 2024, 2025 and half would then accrue to fiscal year twenty twenty five,
twenty twenty six. But because the bill was signed on July 4, it was after the close of the state fiscal year, eighteen months, both tax year 2025 and half of tax year 2026 approximately, is accrued to the current fiscal year. You can also see in this slide that the impacts of the OVA are expected to decline over time and that there is a jump down after the first four years and that's reflecting some of the expiration of some At the time, our office had expected the TCJA to have positive impacts on state revenue and that
was mainly because it broadened the base for the broadened the tax base. And that broadening outweighed some of the other impacts in the bill. The OBAA, on the other hand, it does extend and continue some of those base broadening measures from the TCJA, TCJA. But the addition of We're pronouncing them now? TCJA, OBA? Okay, great. That's our internal the way we refer to it. Your internal conversations must be fascinating. Yes. If you only knew. So the base broadening impacts from extending the TCJA
provisions are more than outweighed by some of the new provisions in the OBAA that are reducing revenue. So also, finally, on this slide, just to note, this does not take these impacts that I've shown here, they do not account for any change in state tax credits that might be triggered off as a result of these impacts. They do not account for diversions changes in diversions to the State Education Fund, for example, as a result of these impacts. And these impacts will also be partially offset by some increases to the Healthy School
Meals for All cash fund. And Ms. Dorman will talk more about those first two things. And then I'll just talk a little bit about HS Healthy School Meals for All at the end of this presentation. We have a couple of questions, Senator Kirk Meyer and then Senator Motley. Thank you, Mr. Chair, and thanks for having the meeting. I really appreciate it. So the $1,200,000,000 doesn't happen all in the month of August or July. So when how does it, compute throughout the year? Like when do we get to $1,200,000,000 Is that June '6?
Or is that sooner than that? Ms. Ramey? Doctor. Ramey. Thank you, Mr. Chair. Senator Kirk Meyer, I think that this is a subject of ongoing conversations among the team, But I would expect us to see some significant impacts when people file their tax returns for tax year 2025. So, for cash with returns being reduced and an increase in refunds expected when starting in March and April of next year. Senator Mabile? Thank you, Mr. Chair. So you said you had predicted TCJA would actually increase our revenue.
And were you accurate in that assessment? Doctor. Amie. Thank you, Mr. Chair. Senator Amabile, that is an excellent question. So one of the problems with estimating impacts of changes in legislation like this is that a lot of things happen in between the time when the legislation is passed and the revenue collections are start to come in as a result of that. So it's not really something we can confirm or deny. We did see an increase in state income tax revenue, in conjunction with a lot of other things that happened like the pandemic.
There were some income tax rate cuts also. So it's hard to sort out. It's pretty much impossible to sort out what was the impact of TCJA and what was just economic conditions or other changes in policy. Sarah Madeleine. Thank you. I guess, I asked that question because I'm just wondering how confident you feel in this projection of this $1,000,000,000 $2,200,000,000 And we have heard there's a range. And, so we want to try to address this with some certainty that we're moving that
we have the right goal that we're shooting for. Doctor. Ramey? Thank you, Mr. Chair. Senator Amabile, I would say that I would emphasize that these estimates are preliminary. We do expect our knowledge and expectations to evolve as we learn more over time and that they do carry a higher degree of risk. But I think, as always, when we prepare a forecast, we do try to balance the risks to the upside and the downside. And that's how we prepared these estimates as well. Daphoremi, my recollection during the tick to you,
during the first of the Trump administration's tax cuts the first time was that state revenue actually went up about $1,000,000,000 We directed about $100,000,000 of that to schools, dollars 150,000,000 after I got very mad at the speaker and the education community for not fighting for more. So $150,000,000 of that $1,000,000,000 went to schools and then we sort of piecemealed the rest, some for transportation, things like that. But it was about 1,000,000,000 more in state revenue at that time, right? I mean, that's my recollection that we had a whole lot of unexpected revenue in that past
last time. Doctor. Raymay? Thank you for the question. I would have to go back and check the numbers, but it is the case that we did see an increase in corporate and individual income tax revenue after the TCJA. And is that because the base was expanded? Is it even though the rate was lowered or was it was there something else with the way that the Form calculated various different ways to lower your taxes, like whether that's in the standard deduction or things like that. It just moved it around in the form because I know Colorado just takes particular
line on federal income taxes and says, start there and apply our flat rate. Doctor. Ritman? Thank you, Mr. Chair. So the TCJA broadened the base by closing off or limiting many of the itemized deductions that are taken, in particular, by higher income taxpayers and also repealing the personal independent exemptions. And so those have the impact of broadening the tax base and offsetting the increased standard deduction that was enacted with TCJA and is continuing with OVA.
So why are we seeing such a loss in OVA? What else happened in this one that didn't happen on the last one? Doctor. Ramey. Thank you, Mr. Chair. So there are several new provisions in the OVA. For example, the exemption for overtime pay up to a certain limit or the exemption for a certain amount of tips. That's a new provision that is reducing federal taxable income and therefore flowing through into Colorado taxable income. There are also several more aggressive measures for business depreciation and allowing immediate business immediate depreciation 100% for many types of
business assets and in a broader way than the TCJA had allowed. Great. Thank you. Senator Weisman? Thank you, Mr. Chair. Thanks for letting me visit this morning. Two questions building on Senator Kirk Myers' line of questioning. When do we start to really have to account for this? Backing up to the scoring point and answer to the prior question, I think and maybe you're going to get to this later in the deck or maybe it's in a longer document. JACT, the Joint Committee on Taxation, puts out a bunch of nationwide scores when stuff like this moves through Congress. Best we can do right now is to try to have an accurate reckoning of
the total share of taxpayers in our state and we apply that factor to the JCT scores. I would assume, we've got the September quarterly, we've got the December quarterly and then we've got March before we have to do the fiscal twenty twenty seven budget. As your office becomes aware either of updated JCT scores or if there is a more accurate correction factor or maybe I don't know if you ever look at credible state specific scores from sources like the Tax Foundation or non profits like Brookings
or whatever that are sort of neutral and that we can trust. Would we it strikes me that we might potentially see updates in any of those three quarterly estimates. I mean, you've you're in the duress situation of having to do this pretty quickly. I'll stop there and then there's one other question, Mr. Chair. Doctor. Raimi? Thank you, Mr. Chair. Senator Weissman, yes. If I understood your question correctly, I would expect that our estimates will be updated as we gather more information and have the chance to maybe refine some of those more general ways that we've used
to take the federal Joint Committee on Taxation Scores and make them Colorado specific. So I do expect that we will refine those estimates. Senator Weisman? Okay. Usually, this stuff is sort of accrual basis. But over at DOR, I mean, they have the ability to sort of track things in what we might call more of a cash accounting way. And I think in your quarterly forecast, you as we come closer to the end of a fiscal year, you have more certainty because there's more way of actually tax owed flowing in.
If I'm a sophisticated taxpayer who's going to benefit from the aggressive, although I might use another word, tax breaks stuffed into HR1. Possibly on the advice of my tax lawyers and accountants, I'm going to be able to start adjusting my quarterly payments. And then maybe that's going to be another source of data. We don't have it now. But going toward the end of the year and into next March, maybe we're going to get that sort of thing from DOR and we can use that to also inform our estimates. True or false? Doctor. Ramey? Thank you, Mr. Chair and Senator Weissman. I would agree with that assessment. Yes.
Looking forward to more data as we go. Usually, this is a very nerdy committee, Senator Weissman. Thank you for leveling us up even further. And Rep Taggart, I'm sorry I didn't see your hand. The policy here is that I will call on nonmembers of the JBC once JBC questions have been answered and assuming that we have time. So that is standard practice here. Just want to remind everyone of that. Again, sorry, I didn't see your hand, Repetech. Thank you, Mr. Chair, and thank you, Doctor. Ramey. Do I make the assumption or did you make the assumption that the deductions and tax credits are for the entire fiscal year of 2025 or tax year of 2025?
Or do they kick in, in some cases, on a very specific date? Doctor. Rainey? Thank you, Senator Mr. Chair, Representative Taggart, yes. Many of the provisions are started at the 2024, so starting in January 2025. But there are over 100 tax provisions in the OBA. So there are many different specific start dates and some of them don't start until the next tax year or different times, yes. Anything else? All right. On to Page two of your presentation,
Doctor. Riddick. Okay. All right. So the what we have included in these estimates are direct impacts that we are expecting on individual income tax revenue and corporate income tax revenue. There may be other revenue streams that are indirectly impacted, for example, premium tax revenue, but we have not included that in these estimates. These are just direct impacts. Individual income tax revenue impacts in our analysis include both individual impacts to individuals and to non corporate
businesses that might file as individuals. So, for example, pass through entities like sole proprietorships or partnerships are being captured in the individual income tax stream to the extent that we think they are filing as individuals. And like I mentioned before, the business provisions of the OBA are a source of the significant revenue reductions. And so in our analysis, the business impacts are divided between non corporate businesses and corporate businesses according to their share of each business type and
business taxable income. So the way that we have allocated the impacts, as you can see, the individual side is getting the majority of impacts because of those business provision. But just to note, the allocation across corporate and individual, they both have the same tax rate in the state. So this is one way of looking at those impacts, and that's how we've organized it. It. Senator Mavalley? Thank you. So my understanding is that the difference between the two forecasts in terms of this split between business and individual has to do with these pass throughs like S corps and
LLCs. And so it feels I don't want to use the word misleading, but it just feels a little bit hard to tease that out when we are trying to assess whether this is mostly an impact from what happened with businesses and what happens to individuals. So I wonder if you know what is the share under individual income tax that is actually passed through to individual tax returns. Like I used to have a S corp.
And so all of our profit, whether we took the money out or not, flowed through to our personal tax returns. And then we paid the tax on that. So do you have that number? Doctor. Ramey. You, Mr. Chair, Senator Wabble. Can you repeat your question just so I Yeah. Certainly. I want thank you, Mr. Chair. So I want to understand in the individual income tax bucket that you have here, how much of that is actually passed through from a business entity like a subchapter S corp or LLC?
Doctor. Ami? Thank you, Mr. Chair. Senator Majobile, so I can give you the numbers. So for tax year 2020 for fiscal twenty twenty five, which is lumped here in with 2026, The total we have estimated for individual income tax is about $300,000,000 reduction and $200,000,000 of that is for the pass through provision in the individual side, So about two thirds. Is business? This is business, yes. Okay. So two thirds of the $8.43 is business. Doctor.
Rinkley? Yes. Thank you, Mr. Chair. Senator Amabile, just with a quick like, examination of my numbers here, yes. Okay. But I am happy to pin that down more precisely for you. Okay. And that I mean, that would be great to have going forward, but thank you for that. Please continue. Doctor. Amabile. And just to add that our estimate for business provisions, both corporate and non corporate, is around $900,000,000 in fiscal twenty twenty six. Okay. All right. So we've talked about this a little bit already.
And understanding how we compile our estimates of the OBA, It's based on the way that Colorado income tax is calculated. And so the key thing is that Colorado's income tax begins with federal taxable income, which is in the gold in the middle of the chart there. And so anything that changes federal taxable income is going to flow through into Colorado income tax revenue. So for many of the OBAS provisions that have a large federal impact, like the change in the tax rates or the change in federal tax credits,
those do not flow through to impact state revenue. But things like changes in the standard deduction or changes in depreciation allowance, like we've talked about, those do impact Colorado State income tax. And the impacts of the OVA in Colorado, as we heard from OSPB last week, might be magnified compared to other states because of the way that it is tied to federal taxable income. And the OBA provisions are having a much larger impact on federal taxable income than
they are with to adjusted gross income. So the OBAA does have some changes to above the line deductions there, but the ones that change taxable income are much greater than those other things. So for other states where the tax system is tied to federal adjustable gross income, they would have a less magnified impact than Colorado. Senator Mabelle? So since this came up a week ago, a lot of my colleagues are saying, well, can we change that? Can we change what we tie to?
And I think that's an interesting question. I don't imagine we can do that for 2025. But also, does it actually help us given the constraints of Tabor if we take in more revenue and we just have to refund it? I don't know if somebody could explain that to me. Maybe that's a dumb question, but Not at all. Doctor. Ramey? Thank you, Mr. Chair. Senator Mobley. No, it's a really good question. And the Tax Policy Committee Oversight Committee for Tax Policy has examined that question in the past. So our office does have some research on that question and happy to follow-up with
you about that if you're interested. I'd be interested in that too. Yes. Okay. I mean, we're one of only four states that chooses that federal taxable income piece to base our taxes off of. So, would be interested to know what the rationale is and what the benefitdrawbacks would be putting it somewhere else? And also, does your examination look at difficulty for the Colorado taxpayer to file? In other words, like does it make it like much more difficult for Colorado taxpayers to file their Colorado return if we pick a different place? Doctor.
Ramey. Thank you, Mr. Chair, for the question. I think that would be something to ask Department of Revenue. Okay. Also, I think the Office of the State Auditor has been doing some work on the AGI versus taxable income question as well. Getting nods from the audience that, that is indeed the case. So thank you to the peanut gallery. We'll go with Sarah Kirkmeyer and then Rep Taggart. Sorry. Or Rep Taggart and then Sarah Kirkmeyer? Sarah Kirkmeyer. Thank you. Thank you, Mr. Chair. So but I'd be more interested in what the impact is to the individual taxpayer
and how much their taxes would increase if we went from the federal taxable income to the adjusted gross income. Doctor. Ramey? Is that just an I'd be more interested in this or is there a Doctor. Ramey? Thank you, Mr. Chairman. Yes, Senator Kirkmeyer. So as part of our follow-up to that question, that could be something that we have a look at. That would be great. Thank you. Yes. Results of that change would be good to know. Rep Taggart. Got it. All right. Senator Weitzman. Thanks. Mr. Chair, great question. Do we move to an AGI base? My time with the Oversight Committee on Tax Policy started basically after the task force
had mostly wrapped up its work on this AGI, FTI question. What I just want to sort of toss out for colleagues here is there's not really a pat answer because the 31 or so states that are an AGI base have then proceeded to make their own decisions and in some cases built up over decades about what deductions they allow. They have in a way that we don't have what I call tax sovereignty. They're not dynamically linked to things that just happen of a big nature federally. But I'd be surprised if any AGI state doesn't allow something like,
the standard deduction, you know, that it was expanded in TCJA when the personal exemptions went away. So, if we were to simply move to an AGI base that would be one thing. In practical fact, I don't think that's what we would do. You can move to an AGI base in a way that is revenue positive or negative to the state in a way that, advantages or disadvantages taxpayers of different natures. I think that we'd also have to grapple with significant administrative burden increase to DoR based on my conversations in the past. It's easier for them to administrate in FTI state,
although as we see here, there are consequences to that. So it's I think it's an apt question for us all to be grappling with right now and my exposure to it thus far indicates it's not a simple one. Not a simple question. I would say it's in some ways beyond the scope of what we're talking about here, but I feel like everything is on the table now given what we're facing. So appreciate the discussion. And noted what I'm taking from you what you're saying, Senator Weitzman, is that if we did become an AGI state, we could choose which federal standard or item what federal deductions we allow both on
the business side and the individual side. And we could end up we could choose to start with AGI and then accept all of the federal deductions and end up right at FTI as our base anyway. So lots of decisions to be made if we did move to AGI. All right. Doctor. Ramey, please continue. All right. Okay. So this is just a brief picture of our overall methodology that we used for compiling these estimates for the OBA. LCS estimates begin with the Joint Committee on Taxation, the JCT, scoring of the current policy baseline.
So they have for this OBA, they had two different scoring types that they scoring methodologies. So one of them is the current policy baseline, one is the current law or present law baseline. So the current policy baseline measures the OBA's impacts relative to the current policy, which is the TCJA, even for those provisions that are expiring in the TCJA. So the impacts of the TCJA are currently incorporated into state corporate and individual income tax revenue. So we use changes from that current policy as the basis for our estimates.
And so what that means, for example, I mentioned that the TCJA had repealed personal independent exemptions in after 2017. And so the repeal of the personal exemptions was expected to increase Colorado state income tax revenue because it reduces an exemption from federal taxable income. And so the OVA also extends, permanently repeals personal exemptions. So that increase in Colorado income tax revenue is contained within the OBAA as well. But in relation to what was the TCJA change,
the OBAA also expands personal exemptions, allowing a temporary increase for seniors for the first few years. So from the current policy baseline, that provision is a negative impact to state revenue. From the Elevated level of state revenue from the repeal of personal exemptions. Now the OBA has added a senior deduction that reduces Colorado state revenue from the current policy perspective. And some of us are very thankful for that. Thank you, Senator Kirk Meyer. Doctor. Ramey? Thank you. So then from that current policy baseline,
we estimate total federal taxable income for all U. S. Taxpayers. So using our estimates of the effective individual and corporate tax rates, we kind of back out then to total taxable income. Then we find the share of taxable income that is attributable to Colorado filers. Then we apply the state tax rate. And then we make any adjustments for specific state specific tax provisions. So an example of a state specific tax provision is one of our a state
tax credit, the Child and Dependent Care Credit is tied to the amount of the federal tax credit. So we made adjustments for that. So even though most federal tax credit changes in the OBA don't flow through to the state, when we have a tax credit in the state level that's tied to the federal tax credit, it does flow through those states. So we made adjustments for those things. Okay. This is one way of looking of grouping the provisions from the OBAA. Like I mentioned, there were over 100 different tax provisions. So I've presented them here in a way that I think is useful.
This is compiling about 20 of the provisions that account for the majority of the impacts in our estimate. And as I've said before, if you have interest in seeing them organized a different way or individual provisions specifically, please reach out to our office. We can compile them in many different ways. Sarah Mabile. Thank you, Mr. Chair, and thank you for that. I guess I would be curious because I keep asking about this and getting the same answer. Maybe that's insanity. But the business depreciation and interest category is so big.
And I understand it would be very complicated to change for Colorado the depreciation treatments. But I wonder what else is in that bucket because it does say end interest. And so if there are other things besides just the accelerated depreciation taking it all in one year, I'd be interested in knowing about that. Rep. Tacker? Thank you, Mr. Chair. I'm just trying to compare Slide four to Slide seven and perhaps I shouldn't be doing that. But do I make the assumption under business depreciation and interest that LLCs and subchapter
Ss and limited partnerships are also included? Because four indicates individual far exceeds corporate, yet this slide indicates just the opposite. So is my assumption correct there? Doctor. Raimi. Thank you, Mr. Sherritt. Representative Tiger, yes. This is the business provisions that impact both corporate and non corporate businesses. Okay. Thank you. And just to also maybe address Senator Mable's question. I did group seven provisions within this category. So there are changes to business depreciation for different categories of businesses and different categories
of assets and then an expanded deduction for interest expenses as well. But I'm happy to parse that out further in response to your question. So as you can see, those provisions are significant, but they are expected to decline over time because they are, for the most part, pulling forward depreciation that would be taken over time anyway and, therefore, have revenue impacts in the future. Instead, they're just happening more immediately. Then the second category there is basically the expansion
of the TCJA provisions for the standard deductions, itemized deductions and personal exemptions. And those impacts will mostly decline over time. The expanded senior exemption expires. And also significantly in this category is the state and local tax deduction cap, which went from $10,000 in TCJA to $40,000 in the OBAA. And so that expanded SALT cap also expires in 02/1930. Third on the list there,
I mentioned this is a new provision in the OVA. It wasn't in TCJA. No tax on tips and overtime. Just to mention there, the exemption for overtime is only available in Colorado for tax year 2025. It was decoupled from the federal provision from by HB251296. So starting in tax year 2026, that exemption is not available for Colorado taxpayers. And finally, the qualified business income deduction. The TCJA allowed up to 20% of certain business expenses for pass through entities to
be deducted. And the OBA extends that provision. This is another one where the state has partly decoupled from that exemption. And that decoupling expires after 2025. So, that negative impact is a little bit magnified for the state because of the expiration of that decoupling. Okay. Now I think I've already covered the high degree of risk that these estimates carry with them. So the JCT estimates do account for dynamic changes in taxpayer behavior. So shifting between itemized deductions and standardized deductions,
for example, standard deduction. But there might be some other unanticipated shifts that we haven't considered. Also the JCT does not provide a margin of error for those estimates. Therefore, we don't have a margin of error. As Senator Amabile mentioned, we don't have we haven't made a range of estimates in this case because we don't have a margin of error estimate. And third, our data at this point are based on the JCT estimates. So, they're based on federal analysis at the federal level.
That was done by a different group of economists for a different reason and we've tried to adjust them and adapt them for our state. And then as we've already mentioned, other things can happen in between the time when the legislation is passed and then we see the revenue impacts. So it becomes pretty much impossible to entangle disentangle the impacts of the legislation from other policy changes or economic changes that might happen in the meantime. And finally, there might be unanticipated interactions at the state level that we haven't accounted for,
for the state specifically. And so just finally to wrap up on the OBA estimates for the OBA is expected to increase proposition FF revenue. Just to remind you, this is revenue from taxpayers with adjusted gross incomes of $300,000 or more in Colorado are required to add back a certain portion of their itemized deductions or their standard deductions for the purposes of Colorado tax. And that revenue is used for the Healthy School Meals for All program and sent
to the Healthy School Meals for All cash fund. And so the OBAs increased standard deductions and itemized deductions, particularly the increased SALT state and local tax deduction, are expected to increase proposition FF revenue. And you can see our estimates there by about $28,000,000 in the current fiscal year and $46,000,000 in twenty twenty six-twenty twenty seven. And so with that, that concludes the first part of our presentation. Senator Kirk Meyer? Thank you, Mr. Chair. I'm just curious, has there been any demographic analysis done on who's impacted the most,
like which income level when we start talking about taxing over time and taxing tips? Doctor. Reedy? Thank you, Mr. Chair. Senator Kirkmeyer, we haven't done we have not looked at that, but we are happy to do that. There is a distributional analysis that the JCT prepares as well. Senator Kirkland? That would be great. And I would just offer this. Regardless of which one of us asks for information, if I'm sure you're going to send it to all of us, but that would be phenomenal because I'd like to know the answers to Senator Mobley's questions as well.
Thank you. Ditto. I do think some folks have looked at that. I don't know if you all have looked at it. I would like to take to get your take on it as well. But I do know that there are some folks out there that have already looked at that income spread. All right. Next. All right. Thank you, Mr. Chair, members of the committee. I'm Emily Dorman, economist with Legislative Council staff. So I'm going to walk through how the revenue impacts that Doctor. Ramey just outlined will impact your budget for fiscal year 'twenty five, 'twenty six and 'twenty seven. So to start out, I'll walk through what exactly we updated compared to our June forecast. So the biggest is that we incorporated the fiscal impacts of OBA,
reduced revenue in fiscal year twenty twenty five, twenty twenty six, which is an eighteen month impact and in fiscal year twenty twenty seven as well. We also added an additional expenditure to scenario B for fiscal year twenty twenty seven as a result of, expenditures from the OVA. Secondly, we updated our tax credit revenue triggers. So because we have certain tax credits that are tied to revenue conditions and the OVA reduced our revenue conditions, this adjusted the family affordability tax credit and the expanded earned income tax credit to be unavailable in tax years 2026 and 2027,
which is a change from our June forecast. Lastly, we also updated fiscal year twenty twenty five with new data that we received since the June forecast. We did not update any of our revenue forecasts for anything besides these factors. So no changes in economic conditions or tracking data that changes our expectations for the future. Senator Mobley. Thank you, Mr. Chair. So I wonder if these I wonder what the impact on the no tax on overtime, no tax on tips on our treatment here, how that intersects with this family affordability tax credit and the earned income tax credit?
Like how will that impact those people? Ms. Dorman. Thank you, Mr. Chair and Senator Mabile. It sounds like, you're asking a little bit also about the distributional effects of those provisions. Yes, I just want to factor this into that as well as sorry. Ms. Dorman. Thank you, Mr. Chair and Senator Mavalley. We can add that to our analysis when we follow-up as well. Thank you. Lots of great analysis to come. Ms. Dorman, back to you. Thank you, Mr. Chair. So I'm gonna walk through the tax credit, that each each of the tax credits that have revenue triggers.
So the first is the electric vehicle, e bike and heat pump heat pump tax credits from HB twenty three twelve seventy two and the workforce shortage tax credit from HB twenty four thirteen sixty five. In this analysis, they're expected to all be reduced by 50 in tax year 2026 but be fully available in tax year 2027. That assumption is unchanged from our June forecast. What has changed since the June forecast is the family affordability and expanded earned income tax credit, as we've just discussed, which are expected to be unavailable in '26 and '27,
but those actual credit amounts will be determined by the preceding December forecast. So for tax year 2026, these will be determined by OSBP's December forecast for fiscal year 2027. What's the dollar amount still left for electric vehicle and workforce shortage tax credits here? For the workforce shortage tax credit, the cap is $15,000,000 in total. Under normal circumstances, it's reduced to $7,500,000 in tax year 2026. So that's a $7,500,000 impact. And I'm not sure about the aggregate impact of December off the top of my
head. Okay. Oh. Okay. So if it's reduced by 50%, we don't know what what that means in terms of tax impact on that, Ms. Norman? Not off the top of my head, but we will follow-up. Okay. We'd love to know that. Thank you. Okay. So this table shows all of their changes to general fund revenue. Sorry. We've got Rep Tagger. Thank you, Mr. Chair. Could we come back to tax credits 20 and 4? Because with this significant drop in revenue, I understand because we spent a lot of time on 'twenty six,
'twenty seven and the triggers at the end of the JBC. Where are those dollars going to come from? Because we're not going to have with this anything above the table cap 4.25 So am I to make the assumption this is going to come from the General Fund? Ms. Dorman, those credits turn off, right? Ms. Dorman? Thank you, Mr. Chair. And Representative Tiger, yes. So these credits, turn off, we're we're expecting, for tax year 2026 and 2027, which increases general fund revenue. I understand that.
My question is in relationship to 2025. Ms. Dorman? Thank you, Mr. Chair. Yes, these credits are expected to be available for tax year 2025, which reduces revenue for fiscal year 2025 and fiscal year 2026. I come back to my question then. We're going to have a deduction in revenue, albeit eighteen months of one point between $1,100,000,000 and $1,200,000,000 dollars That will mean we don't have revenue above the TABOR cap. That's why I'm asking the question,
what's it due to these tax credits, for just fiscal taxable year 2025, does it turn those off as well? And if it doesn't, where are those funds coming from because they're significant? Ms. Dorman. Thank you, Mr. Chair and Representative Tupper. I think I understand your question now. So these tax credits will still be available in tax year 2025, which reduces general fund revenue regardless of the taper. Ms. Dorman, I know we'll have OLLS up later to go into this, but my understanding is it's unconstitutional for us to turn those tax credits off in
the current year. Not getting maybe. Senator Kirk Myers. Thank you. So what was the amount of that tax credit for $13.11 And what portion of that amount was essentially what was being refunded? So it's my understanding that in 1311, the Family Affordability Tax Credit, that there was a tax credit based on the number of children that you have, that type of thing. If you weren't paying any income taxes, you actually received a refund. I mean, we essentially turned this tax credit into a TABOR refund mechanism. And do we know,
first of all, what portion? And has it all been already done? I mean, we're in August now, basically. So could you answer those questions, please? Doctor. Raimi. Thank you, Mr. Chair, Senator Kirkmeyer. I would have to go back and look at what the final amounts that we had for the just for the $13.11 tax credit. And I'm not sure if we have information about what proportion was refundable, but we can get back to you. Okay. Do we have Second, Mike. But is there any roundabout estimate of how much this tax credit essentially
limited revenue to the state? And then yes, I would like to know the information between how much of it is actual tax credit and actually how much was actually refunded as a TAVR refund essentially. Doctor. Ramey? Thank you, Mr. Chair. Senator Kirkmeyer. So for both the let's see. I have an estimate of $800,000,000 to $900,000,000 per tax year. But I would have to go I do have like the data from DOR that I would go back and check for you to pinpoint that more precisely.
Senator Mabile? Thank you, Mr. Chair. But we when we closed the budget, this was all in there, and we were still in balance because we were because we expected that tax credit to be on because the trigger so the point is we were in balance when we closed the books and when we finalized our budget and when we all voted on our budget with these tax credits in place for 2025. And the thing that's changed now is not that these tax credits grew or changed in any way. It's just that we lost a bunch of revenue as a result of Oba.
Is that correct? Doctor. Ramey. Or Ms. Dorman? Thank you, Mr. Chair. Senator Amabile. I think that that's an accurate assessment that the tax year 2025 tax credits didn't change. What changed is that we've now we're now expecting revenue to be lower. Yes. Ms. Dorman, yes. That was a yes. Doctor. Ramey? Oh, you're turning off. Okay, it looked like you were jumping in. I'll just add, I think we will have a robust conversation about tax credits in what almost certainly a special session will almost certainly be called I can't imagine it won't be at
this point. And look forward to that conversation, robust conversation. And I'll also add, I think tax credits look different when they're coming out of general fund's ability to support programs like education and health. So I think that is a different conversation and I think tax credits look a lot differently in that case. And we will have a robust conversation about that very, very soon. I don't know exactly how soon yet, but I think soon we'll know how soon. Doctor. Raim, sorry, Ms. Doorman, back to you. Thank you, Mr. Chair. So this table summarizes all of the changes that we made to General Fund revenue
compared to the prior forecast in June. So we increased our revenue forecast for general fund for fiscal year twenty twenty five by $138,000,000 And then this the second two lines show what Doctor. Ramey showed early in her presentation with $815,000,000 revenue impact to individual and $336,000,000 to corporate revenue reduction. The next four lines are diversions out of the general fund. So the first is the diversion to the State Education Fund. The constitution requires that onethree of 1% of taxable income be diverted from the general
fund to the state education fund each year because the OBA reduces taxable income and also reduces the amount of this diversion. So that makes the state education fund 100 and and $1,000,000 worse off, the General Fund $101,000,000 better off relatively. And then the next two lines have a similar mechanism where these diversions are based off of a percentage of taxable income, and those are reduced in the same manner. The last is the diversion for the Healthy School Meals for All program, which is increased under OBAA as Doctor.
Rimi presented in her presentation. And then the last line shows the change from the June forecast from the tax credit revenue triggers. So that's showing that change in shutting off those tax credits for tax year 2026 and 'twenty seven when they had previously just been reduced in tax year 'twenty six but still available. So in aggregate, that's an upward revision for fiscal year 'twenty five by $138,000,000 a downward revision of $745,000,000 and then actually an upward revision in fiscal year 'twenty seven of $234,700,000
This is what our general fund revenue forecast looks like after taking all of those changes into account. So we expect that fiscal year 'twenty five revenue general fund revenue was reduced by 0.4% relative to the prior year. We expect it to fall by another 2% in fiscal year twenty twenty six and then rebound by 10% in fiscal year twenty twenty seven as a result of those tax credit triggers and as well as the OVA having a smaller negative impact in fiscal year 'twenty seven relative to fiscal year 'twenty six. This chart shows revenue under the referendum CCAP or total TABOR revenue where the gold
bars represent TABOR surpluses. You'll see that we are expecting a small TABOR surplus in fiscal year twenty twenty five, expecting to fall below the Referendum CCAP in fiscal year twenty twenty six and then rebound in fiscal year twenty twenty seven. So those numbers are we're expecting $311,000,000 above the cap in 2025, dollars $662,000,000 below the cap in 2026 and $759,000,000 above the cap in fiscal year 'twenty seven. Senator Mabile. So but just to clarify, this going above the cap in 2027 is largely driven by the turning off of
the two tax credits? Ms. Doorman. Thank you, Mr. Chair, and Senator Amabile. That's right. So we actually revised up our fiscal year twenty twenty seven forecast relative to June because those tax credits increased revenue by $867,700,000 for fiscal year twenty twenty seven, which is actually larger than the open impact. So just to make sure I'm clear, the reason that we're showing a TABOR surplus that year is because we've turned off VATC and and CDC. Ms. Dorman? Thank you, Mr. Chair. That's correct. So if we were to keep those tax credits for those low income folks, we would not be above the TABOR cap?
Yes. Ms. Dorman. Great. Thank you. Senator Kumar? And we would probably have difficulty funding Homestead Exemption fact if we kept those tax credits. We'd have to find out of the General Fund. And all of the other tax credits. Ms. Dorma? Great. Thank you, Mr. Chair. Senator Kirkmeyer, that's correct. Okay. So moving to those table surpluses. This chart is just showing the property tax reimbursements as well as the gray bars are both the six year sales tax refund and the income tax rate reduction. So showing the general fund obligation for these property tax reimbursements,
We had an upward revision to our Tabor forecast for fiscal year twenty twenty five. So we're now expecting the Tabor surplus to be large enough to fully fund these property tax reimbursements, such that there is no general fund obligation in fiscal year twenty twenty six. That's a change from June reducing that general fund obligation by $72,000,000 in fiscal year twenty twenty six, we're expecting no TABOR refund, which means this entire property tax reimbursement is a general fund obligation. So that's an upward revision of $83,000,000 for the general fund general fund expenditure.
Okay. So now I'm gonna walk through what the general fund reserve looks like relative to the June forecast. There were just small changes in fiscal year twenty twenty five as a result of new data. In June, we had expected the reserve would fall $8,600,000 below the requirement. We're now expecting that to be $27,000,000 So that's a net change of $18,400,000 in the general fund reserve relative to the requirement. That's mostly due to increased cash fund revenue because it is a TABOR surplus environment. Increased cash fund revenue reduces the amount of general fund revenue available to Fender Save. Then we are also increased our expectations for general fund exempt revenue by $17,000,000
and had reduced rebates and expenditures primarily to the old age pension fund, which frees up general fund revenue. The much larger changes are in fiscal year 2026 and 2027. So this is showing our June forecast tab for fiscal year twenty twenty six, an expected reserve of $83,600,000 below the requirement. We're now expecting that to fall to $691,900,000 That's a downward revision of $6.00 $8,000,000 The vast majority of that is the downward revision to general fund revenue, which was revised down by $745,000,000
Then we also have a reduced beginning balance of $18,000,000 carried forward from what I showed you on the prior slide. And then we also have reduced general fund obligation for property tax reimbursements as a result of an increase in our expectations for fiscal year twenty five revenue. And then we have a reduced TABOR refund obligation because in June, we had expected $83,000,000 to need to be refunded from the general fund for TABOR refunds. We're now expecting no obligation for the TABOR refund. Senator Mabile. Thank you, Mr. Chair. So the OBA has wiped out any TABOR refunds that our people in Colorado would
have expected to get in the current tax year. Is that right? Ms. Dorman? Thank you, Mr. Chair and Senator Mabile. In June, we had expected an $83,000,000 TABOR refund, although that would have been refunded via those property tax reimbursements to local governments. And we are now expecting that there would be no obligation for that. But those will still be paid from the general fund. Okay. Thank you. Thank you. Please continue. So moving to fiscal year twenty twenty seven. So this is showing our general fund reserve for under scenario A for fiscal year
twenty twenty seven because there is no budget passed for fiscal year twenty seven at this point. Under scenario A in June, we had expected $148,200,000 above the reserve requirement. Under this update, we're expecting 5 30 to fall short by $532,100,000 below the 15% reserve requirement. That's a downward revision of $680,300,000 compared to June. The vast majority of that is just being carried through from the downward revision to the general fund reserve in fiscal year twenty twenty six. So that's $6.00 $8,000,000 from the prior slide.
Then we also have an increased general fund obligation for property tax reimbursements of 83,000,000 as a result of having no Tabor surplus in fiscal year twenty twenty six. Then we are expecting a reduced diversion to the Kids Matter account. That's counted as cash fund revenue because it's diverted away from the general fund into the cash fund. So a downward revision in cash fund revenue opens up slightly more budget space in the general fund and a Tabor refund year. This slide is showing scenario A again, but instead of showing the full general fund reserve, it's showing the reserve relative to the requirement.
And next, I'm gonna walk through scenario B. So all of these bars shown in gray are the same scenario B assumptions that we showed you in June. These are meant to be illustrative of typical budget decisions that the General Assembly has made in prior years. They are, as always, not meant to be recommendations. So this all of these highlighted in gray are the same as June. They have not changed. The one new expenditure that we've added is, for SNAP administration and the associated increase in the reserve requirement. So this is in federal fiscal year 2027.
The federal government is expected to reduce its share in the cost sharing for SNAP administration, which is expected to increase the state share by $10,700,000 plus the increase corresponding increase in the reserve requirement. So after taking into account all of these factors under scenario B, the excess reserve or the reserve is expected to be $1,390,000,000 below the reserve requirement in fiscal year twenty twenty seven, which corresponds to a 6.6% reserve. Senator Kirkmeyer? Thank you, Mr. Chair. I'm sorry, the Community Provider at 52.6%, what did you say that was based on?
I missed it. Ms. Dooren? Thank you, Mr. Chair, and Senator Kirkmeyer. Community Providers, this is assuming the same amount as fiscal year 'twenty six, the same increase. So it's actually it would be an increase or it's just the same exact amount? Ms. Doorman. Thank you, Mr. Chair. Do you we get these numbers from JBC, so I'm going to pass it over to him. Director Harper. Thank you, Mr. Chair. Craig Harper, JBC staff, Senator Kirkmayer. It is an increase assumed for 2627. Again, this is an exercise that we try to help legislative council staff with each year
to make some baseline assumptions for based on recent experience for what the committee and the General Assembly are likely to do. So this year, we took the same community provider rate increase that you provided in twenty twenty five, twenty twenty six and then assumed that you would provide a similar increase in twenty twenty six, twenty twenty seven. So it is an increase on top of what you've done this year. So these are just assumptions based on things that we did this year that we may be undoing some of during the special session or during supplementals, but based on what we did this last year. Director Harper? Mr. Chair, that's correct.
Our it's our attempt to help LCS climb into a crystal ball to predict some highly unpredictable things. But we try to tie it to recent experience so that there's a way to so that we can justify what we've assumed. And that one is a that's our baseline assumption for next year. Senator Kirkland? Thank you, Mr. Chair. So it's a 1.6% increase for Medicaid providers only, not all community providers. Is that correct? That's what 52.6% equals? Director Harper? Another phone a friend. Ms. Bickel? Senator Cook Meyer,
that's my memory that I think all that we did was take what the increase that was provided for HICPUF last time. So that's all that's in there. Okay. Thank you. Ms. Dorman, back to you, looks like. Thank you, Mr. Chair. Forecast takeaways. The major takeaways are that the OVA is expected to have a large negative revenue impact, particularly for fiscal year 2026. The family affordability tax credit and expanded earned income tax credit are expected to be unavailable in tax year 2026, which increases state revenue and tax year 2027. And the fiscal year twenty twenty six general fund reserve is expected to end the
reserve end the year $692,000,000 below the 15% reserve requirement and having a lower general fund reserve in fiscal year 'twenty six carries forward into fiscal year 'twenty seven. Rob Taggart? Stormont, could I ask you to go back to your Slide 18 for a second? And I apologize, but I didn't pick up on the $72,000,000 plus, for property tax reimbursements. That's not the senior exemption, is it, the Homestead exemption? Ms. Dormley. Thank you, Mr. Chair and Representative Tabakuret. That is, the Senior Homestead reimbursement.
So we're now expecting that fiscal year because we revised up our expectations for fiscal year twenty twenty five revenue, we're now expecting, that, that can be fully paid for from the Tabor surplus. And so it's a reduced general fund obligation of $72,000,000 because in June, we had expected $72,000,000 to come from the general fund. Thank you. I appreciate that. Sarah Wiseman. Thank you. On that point, is that just the constitutionalized mechanism? Or is that also the portability test from, I think, it was SB 20 four-one 111, is that rolled in the same math? Ms. Dormant.
Thank you, Mr. Chair. And Senator Weissman, it's both components. Thanks. Senator Kirkmeyer. Thank you. And what year does the portability go off roll off? It was only for two years. So which tax year? Fiscal year 2025 or 2026. Ms. Doorman. Thank you, Mr. Chair and Senator Kirkmayer. It was on for fiscal year 2025 '26. So it was off for fiscal year 'twenty seven. But what about property tax? Tax year. Okay. Senator Kirk Meyer, tax years versus fiscal year 'twenty four and 'twenty five that are paid in 2025 and 2026?
We are confirming. Or phone a friend. Come on down. Go ahead, introduce yourself and help us answer the question. Hi, David Hanson, Legislative Council staff. So portability is for property tax year 2025 and property tax year 2026. And, yes, I am not quite caught up on this conversation right now, but I will let you know exactly what the when it does not impact portability does not impact our TABOR refunds or general fund obligation.
Just give me a minute or two. That's okay. We'll come back to that. Ms. Dorman, anything else? All for me. All right. We'll get that minute or two later then. Any other questions for these folks? Senator Amabile. Thank you. I just want to say the second time was just so much better than the first time. So really looking forward to the third time. That'll be the charm where I get it all. So nice. We did it twice. Hopefully not so nice we do it thrice. Thank you very much for the presentation. Thank you very much for digging into all this. I know that trying to figure out the impacts of a very big,
beautiful, debatable bill in just one month, is a lot. And so just want to say recognize the work, really appreciate it. And I think there's a lot of work that we need to do on our side as a result. So thank you so much for your time. All right. Thank you. And we will stand in a brief recess while we reset. JBC is back for part two of today's series repeat. Right. Who wants to start? Speaker Ferrendino. Thank you, Mr. Chair. I'm not sure that sound. Thank you, Mr. Chair. For the record, Mark Ferrendino, Director of the Office of State Planning and Budgeting with me Bryce Cook, our Deputy Director and Chief Economist.
I will present similar to what we presented in last week, I think it was, seems like it was longer ago, and very similar numbers to LCS. There is one update I'll go through on this. But overall, Chane, HR1 has as the ledge counsel said has a significant impact on state revenue especially in the first year with a loss of $1,200,000,000 and has an increase in expenses expected for the state that starts small, but grows over time to getting up to by the time it's fully implemented nearly
$1,000,000,000 so as you look at the reduction in revenue as Legislative Council said, this is a the first year is an eighteen month impact. We estimate $1,200,000,000 and then $700,000,000 in the out years and then eventually slowing, as let's counsel showed again in the out years that shrinking over time. On the expense side, I will say this bill really, while looking at the impacts, did talk about reductions at the federal government. Really what it does is shifts significant costs to states,
who for the most part have balanced budget requirements. And so what we will see over this time is significant increase in SNAP cost and increases in Medicaid costs or decisions we would have to make to reduce the Medicaid program because of the change in the provider fee that will impact either payments to hospitals or the expansion population, which depending on decisions policymakers make in the future could lose up to $3,000,000,000 of revenue to the state from the federal government due to the changes in the
Medicaid section. Going on to the impact of HR1, as we show on the bottom of the slide, we are showing a range in each of these years based on these assumptions. As time goes on, those ranges will narrow as we get a better sense of where we are with the assumptions. But we did use the midpoint for where we are assuming in our forecast on this. I will say, we do expect a lot of these impacts will show up as to the questions earlier, will show up in the April tax filing.
We may see some indication prior to that as businesses especially adjust some of their withholdings and others. But we don't expect great data really until or at least reliable enough data until April filing deadlines, because that's really when people will make the adjustments, especially given the timing of the tax implications. Executive committee, we showed a shortfall of that $950,000,000 We are now estimating $783,000,000 And I will go through why in the next slide.
We are still holding that the total estimate impact is $1,200,000,000 in total loss of revenue. However, as legislative counsel pointed out and I think we after looking at the ledge counsel as they were presenting, we were like, oh, yes, we didn't do that. The FTV changes in FTI changes the allocations of different funding formulas. So while the $1,200,000,000 of lost revenue is what we are losing, some of it goes into other places as ledge counsel shows. So we are seeing just over $1,000,000,000
general fund loss, about $132,000,000 in state education fund, which as we know is already in a tough spot. This makes that worse. And really as we think about general fund versus state ed fund, it's really the same thing and so does have an impact on the overall budget and then a reduction of almost $40,000,000 on the $123,000,000 diversion as well. So still 1,200,000 but now a little better at the $783,000,000 but still a significant problem in terms of a shortfall from the budget caused by
HR1. Yes. I don't know if I consider $138,000,000 not going into the State Ed Fund less of a problem. But yes, less of a problem, less of a hit to the general fund, still a $1,200,000,000 hit overall. And Director, speaker for India. Mister chair, that is exactly correct. And also, it's a it allows us to deal with the problem in the future more, because the state of education fund does have a balance, but that balance is quickly drawing down. So it spreads the pain instead of having as big of a pain in the this year,
but still $783,000,000 is a significant. And just in context, and then I know I said this at the Executive Committee, dollars 1,200,000,000.0 loss in revenue in a year is more than we lost in the first year of the Great Recession when I was sitting on that side of the table, and we were dealing with the budget shortfall during the Great Recession. So granted the general fund is about two to 2.5 times larger. So as a percentage, it's smaller. But these are real dollars with real impacts, that we must address. Senator Mabile. Thank you, Mr. Chair. So just back to the State Education Fund.
So I know there's a lot of concern about the negative factor and how we are going to balance the budget this year and where the cuts are going to come from. And having this 132,000,000 reduction to the state education fund. Does that change the likelihood of us bringing back the budget stabilization factor, maybe not this year but next year? Or would it tell me more about what that does to K-twelve education funding? Speaker Ferndino. Thank you, Mr. Chair, Senator Mable. It definitely as we look at the forecast for the State Education Funding,
we'll get updated assessed values in the December forecast as well as student counts, which will play a big impact on that as well. We will see a tightening of it. We knew and we had some, I think, worry last year when we did the education formula and implementation of that. However, I think we are okay for right now given the balance of state education fund. It just puts more pressure in two to three years from now that we will need more general fund to be able to fulfill the obligations that as the State
Education Fund, draws down. If you remember the forecast in the State Education Fund, it really kind of drops and then it starts to pick up again as kind of stabilize. So the dip is in the end of this decade before we go into the next decade and really are in a stable position. That just means that dip is either going to be a little earlier or a little deeper when we do it and that means the general fund is going to have to pick up more of those obligations if we don't policymakers don't decide and we would not I think we won't be
here at that time or the administration decide to put on a budget stabilization factor. I'll just say that's not on the table for me while I'm still here and breathing. Speaker Ferrendino. Thank you, Mr. Chair. Thanks. Thanks, Judy. And Me either. This slide, Mr. Chair, the next slide, slide six, really was to help make sure for the general public and the Executive Committee, the kind of the difference of the impact of the budget from last year that we talked about and all the work that you on this committee did to balance the state budget,
which we were balanced when we started the fiscal year. But, and you guys you all know that the demands and all the growth is going to be greater as always than the available resources under the spending cap. And so as we do that, we are going to have to shrink things, over time to make sure we can stay within the spending cap. This was really to show that that is a different thing than what we're talking now. What we're talking now is a loss of revenue, so we don't have the cash to pay our bills. And so we need to reduce spending because we are below the spending cap and
we're below the revenue in the available revenue to pay the obligations that this General Assembly passed and the governor signed just a few months ago. As we look at next year and as the ledge counsel pointed out, we know we still have demands that are going to outpace the resources available. As I said to the Executive Committee, we have, asked all departments to do a 2.5% operating reduction as their target, outside of caseload and mandatory contractual increases. And we are just starting that process to get you your balanced budget on November
1 as we do through this. But this was really just you know this better than 94 other individuals, and so We'll spend three. Yes. Mike's here. Okay. True. Yes. Moving on to Slide seven, and we'll go federal tax policy change. We are more impacted than a lot of other states as you heard from legislative counsel. And let's counsel walk through this and we'll just talk really quickly that we do start from FTI, not adjusted gross income. So as you do that into the conversation and as,
senator Weissman talked about the tax policy, which I was on when I was in Department of Revenue, we had lots of robust conversations about that. You can do it in a way that you switch from AGI to FTI revenue neutral, because you adopt, as you said, I think, mister Share all the deductions and credits that are there, but that complicates the tax system and tax code for individuals. Because we don't do that right now, we are more susceptible. There are conformity means that as soon as federal law passes, it takes effect in the state. Several states have what they call a static conformity as they adopt a certain tax
code as of a certain year and then decide actively if they want to adopt the future tax code or provisions of that tax code each year. So it is static conformity, which allows a little more control than it automatically hitting the impact on revenue in the state. The next slide really is Senator Madeleine. Thank you, Mr. Chairman. Thank you, Director Ferrendino. I'm just I had a lot of questions. People ask me a lot of questions about this rolling conformity. And again, I have no idea what is our ability to change that,
in what tax year would we be able to change that, and what would that look like if we tried to update that policy? Speaker Fernandinho. Thank you, Mr. Chair. Senator Mable. It is definitely something that could be done to change that. I think it is not something that can be done quickly. Significant amount of programming into the Gentax system itself plus updating significant amount of rules, forms and other things that DOR would have to implement. We have my old job, DOR is pretty streamlined in terms of staffing.
If you look at similar sized states who don't have necessarily rolling conformity and do FTI, they have about two thirds to double the staff level that we have because of the requirements of reviews, audits and other things that right now we rely on the federal government to do because we have that conformity. And so that's going to take some time if that the decision was to change that. So it is definitely something can happen. We have decoupled in certain areas where you can and like one offs things where
you have add backs, how we do it usually in Colorado. So you say you start at FTI, you get the deductions, but for state taxes you have to add back X x or add back y. That is easier to do than a full just we're going to start AGI and then come down. Both you can get to the exact same result and everyone pays the exact same thing either way. It's just a matter of the complexities and the system changes you would need to do that. And that's what Healthy School Meals for All did, right? Mr. Chair, yes, Healthy School Meals said you can take up to the once you're at this income,
you can take up to this deduction and after that, you have to add back. You can't take that deduction so you have to add it back as revenue that's taxable and that money then goes into the Prop FF fund. Why does Oregon have an asterisk? Because they're the ducks. I mean, you know. Mr. Chair, it's Oregon. On this particular page, in this particular I know it has an asterisk. I defer to maybe Mr. Cook if he remembers why we did. No, I don't have it. And I remember, and we can get back to you why there's an asterisk on that one. It it was interesting because we had our National Association of Budget Officers meeting in
Boulder right after this passed. And I was playing mini golf with the budget director from Oregon, of course. We are. It's what we do. It's a lot of topic. And she was not as concerned, about this because of some of the changes that they've made. So that might be they've done some of the changes in their conformity or FTI. So I am not sure. We will look into that. Next slide, Mr. Chair. Methods of calculating tax policy. This is It was more of a curiosity than anything. Please keep going. Thank you. Okay. Methods of calculating tax policy. This is very similar to what,
let's say, counsel did showing for any of the nerds who really want to dig in, Senator Weisman, to get into how we got these calculations, this just walks through how we adjusted and did use JTC to then develop where our calculations are. Slide 10 Just real quick on that, I just I want to point out this is a slightly different approach than was taken by LCS, yet arrived at almost exactly the same number, correct? Mister chair, yes. We assumed so I'm gonna I keep getting this backwards. Rolled off. We rolled off TCJA and then, rolled it back on and it and did it from assuming TCJA had expired.
Ledge counsel assumed TCJA continued and then did it from that basis. So there were different numbers, different assumptions and got to relatively the same impact on it, which I think as as I said to the Executive Committee, I think both sides were hoping we were both going to be off and found errors in each others, but unfortunately we were both pretty close to each other given this variability. I think we were shocked how close the two forecasts were from each other. Slide 10 just walks through the chapters of the bill. That's how they the title and chapters is how the federal government does their bills
and what are the main areas of those. Slide 11 walks you through the different impacts on those different chapters. And as you can see, we kind of combined twenty four-twenty five and twenty five-twenty six. That's the eighteen months of impact. I will say, we closed the books June 30. We have a lot of work after June 30 to get the final ACTFAR done in the Comptroller's Office with accounts all over the state, are working through that within the audit. That comes out December, January timeline. We are working with the auditors and legal on how we deal with that six
months from 2024, 2025 and what the impact is from both the revenue side and a Tabor side. But that is still right now what we are assuming is that all hits within the twenty twenty five, twenty twenty six budget year. As you look at and what the ledge council showed, it does shrink over time. Similar to the ledge council, our numbers are different as we look at this, but similar to that second slide they showed and the numbers they talked about on the corporate side, we're expecting somewhere in that $900,000,000
to $700,000,000 loss of revenue. That continues at $800,000,000 to $500,000,000 where the individual side moves from that $465,000,000 to $900,000,000 area to basically flat for the impact. That's both from the impacts on overtime being decoupled as well as some of the ways that TCJA and other roll offs happened within that area. So those are those. And if you were to look, some of this is in that individual because of how individuals file.
Corporations don't always file in the corporate side, they file on the individual side depending on the type and structure of the corporation. Just real quick to flag on this. Part of the reason for the difference in this slide compared to the similar slide in LCS is the way that LCS attributed individual, which included some of the questions that Senator Madele asked, regarding pass throughs as Corps, things like that. Mr. Chair, exactly. That is correct. And also the fact that we assume TCJA rolled off and they assume TCJA was stayed on, that does have an impact on the numbers and where you allocate those numbers.
But the bigger part is we took as you look at the code of what it is, we looked at regardless of who you file as an individual or corporate who's benefiting from that. And so that's where we got to very similar impacts on their second slide to our slide of the vast majority of this does go to corporations. Great. Thank you. Moving on to kind of the budget picture, Slide 14, we had in our June forecast roughly we would be $40,000,000 out of balance based on increased cash funds and other factors that impact our June forecast.
Of course, we will have more forecast before we finish this fiscal year and that will move. But we on average have about $80,000,000 of reversion over the last decade when you take out the COVID years because that kind of that if you looked at COVID years, we'd be about $130,000,000 on average. But those were unique years. So you factor those out, we're about $80,000,000 of annual reversions. So this is about I think this is within the tolerance that we always see in a typical year, dollars 40,000,000
goes plus or minus in this whole budget. We were balanced as of June. And then come July 4, this bill is signed and we're not. Moving on to when we look at the budget impacts and where we are, we estimate that the '25, we will be certifying somewhere in the order of $283,000,000 of TABOR surplus, enough to cover Senior Homestead and then move into payments above that. For twenty fivetwenty six, we had assumed a $289,000,000
surplus. With the impact on the general fund of a $1,000,000,000 loss, we are now assuming $742,000,000 below the TABOR surplus. And if you factor in that $40,900,000 that's how you get to the $783,000,000 in terms of net position where we are as a state. Moving into twenty twenty five-twenty six, we were forecasting a $536,000,000 TABOR surplus. The HR1 impact is $600,000,000 to the negative. So we would be below the TABOR forecast TABOR surplus if it was just the
impact of HR1. But as you remember, June, we had turned off our forecast had turned off FATS and EITC for tax year '25 sorry, tax year '26. We now assume it's turned off for 2027 based on the lower forecast. So that helps by $487,000,000 to get you to a TABOR surplus forecast at that time of $411,000,000 where we end that fiscal year. So in terms of if we do nothing, we are now forecasting we'd be at a 10% reserve.
So we'd use one third of the entire reserve in this year or roughly seven eighty three million dollars And if you factor that into then the next and remember with the reserve, I mean, we can change statute, but under without changes in statute that reserve then is the first thing we go back to 15%, and then that 15% is then that goes into the next year's budget and that we would have to solve that in next year's budget. And if we use some of the reserve, we are going to have to pay it back. We want to get I think your staff has always in their memos talked about
$15,000,000 as a minimum, really $18,000,000 or higher, I think is the number usually you see in the numbers that would get us through an economic downturn. And remember, we in our June forecast did look at we have a 25% chance of a moderate recession. And so if you look at HR if you look at HR1, we had with a moderate recession worried about the reserve. With HR1 that makes it much harder. We show basically no reserve if we get to a moderate recession. This year we would eat all of it between HR1 and the recession and then
we would be around 5% or 6% below the reserve requirement in the out year. That's assuming we do nothing, take the hands off the wheel and let things just continue, which is not what we will do, but that is where we would look at that. And I will say and remember as we did as we look at this, there's $500,000,000 of this that is in PERA that is not as easy to get back. So that makes this also more risky if we're going down this far in the reserve and if we have a recession.
So as we look at options to solve this problem, the reserve may be a part of the solution, but a significant portion of the reserve would have significant risk to the state given both the impact on the out years and paying it back and the impacts from the more likely of a recession. Especially, I mean, we have the economic data is in line with where our kind of forecast is of a 50%, 50% chance that we hit a recession. And when I say the 25%,
it's a moderate recession, which is more significant reduction in revenue and higher unemployment. But the jobs numbers on Friday just didn't line with seeing less job growth impacting revenue to the state. Moving on and this is new information. I just if I was in front of you, I felt it was important to give you just some updates on some of the supplementals and things that may be coming in front of you. These are all I would say very preliminary just to be clear. And we and this is what we know. We don't know what we don't know.
We are departments are still working. We are very early in the fiscal year. So we are working on that. So as we project, we see somewhere in the order of $37,000,000 to $76,000,000 costs. Administrative costs, which is HR1 is about $0 to $5,000,000 in this first year and we'll walk through that. And then we have potential supplementals between $39,000,000 and $83,000,000 and I'll talk about those as well. I just realized that projected cost is needs to be updated. So that should be $85,000,000 to $39,000,000 on that projected cost.
And on typical we have an $80,000,000 reversion, so that will cover some of that in typical ebb and flow of a typical year. Supplementals that we know of that are potential is DOC caseload. DCJ updated their forecast by four ninety bed increase in July. We expect that will drive both higher medical food services and increased caseload of somewhere in the $5,000,000 to $15,000,000 AI implementation, we have gained information from departments and judicial
for the implementation of Senate Bill 20 four-two zero five. We expect to need supplementals of $2,500,000 to $5,000,000 you paid for the implementation of that legislation. HICPUF over expenditure, we will know this number that gets to you I think around September 1, but they're still working on that of somewhere between $30,000,000 and $60,000,000 of over expenditure from last fiscal year which will carry into this year that we need to address. And then CDPHE public lab costs of about 1,500,000
to $3,000,000 to deal with some issues within the lab about quality and shut down and make sure that we can actually reopen the lab and do the work we need to do. Senator Mavalley? Thank you, Mr. Chair. So this AI implementation, that seems new. How does that compare to the fiscal note for that bill? And what why what can you just talk about what that difference is a little bit? Because I don't think it had that big of a fiscal note. Mr. Chair, Sarah Mable. I believe it was there was either a departmental difference or there was information in
that bill that we had not did not it was indeterminate what the impact was. A decent portion of this, probably about half is judicial for legal costs that they assume are going to come. And then departments have looked through and looked at what are their costs for systems that they already have to use AI that they contract with or other systems to monitor and make sure they can do the work to make sure it's compliance with that. So a lot of this was when it was passed was indeterminate and then we
have worked to continue to find and refine those estimates. Senator Mabile. Thank you, Mr. Chair. So these would be impacts in 'twenty six when the bill goes because the bill goes into effect in February. And so these departments will start need to start making these changes, presumably sooner than that, in order to be ready for February implementation. So when did the when does this this is something we need to correct when? Mr. Chair, Senator Mabble, we assume we would submit a supplemental on the normal January timeline as departments already
will need to start probably in the fall to start implementing this. Some of the costs on the judicial side won't come till after the law is implemented. So those wouldn't start till February because they're a reaction of if people file cases and things like that. So that's that side of things. But on the department side, which is about half the cost, those would start sooner within the fall and then we'd have to come and ask for a supplemental during the normal supplemental process. I have two questions related to this. But first, what are the ongoing costs for this?
Is this is it $2,500,000 to $5,000,000 ongoing? Do those costs increase? Do they go down? What's that look like in the long term? Speak for Indira. Mr. Chair, so these are the ongoing costs we assume. Some of it is, as I said, judicial. And if there are cases coming through in their workload, that is assumed to continue. For departments, what I think we'll see is this is based on the assumption of what is currently in the pipeline and what people are using in this space that they need to make sure they're monitoring. I assume as we get additional IT requests and we use more AI becomes more
and more part of what we're doing, that those costs will increase and we'll have to factor those costs into submissions for IT capital requests that then factor in those AI costs. And then this is I hesitate to ask this question because I'm afraid that I know the answer, but thirteen thirty one has to be because we didn't see something coming. This bill has been on the books for two years now. Gov decided not to veto it. I think he indicated a strong preference to perhaps do that,
but there was a letter that came along with that that signing. In some ways, this seems not to meet the criteria for thirteen thirty one. Speaker Ferndino. Mister chair, I I don't wanna opine that is really for your staff to decide what meets the criteria. I think it is a valid point, mister chair. I would say, because it is a known it was a known issue. We have gotten more information on what the impacts are. So I think there could be an argument for that. But I do think it's more likely we would submit this through the normal supplemental process in the January timeline.
Senator Kirkmeyer. Thank you, Mr. Chair. So you said it a few times now and I heard it last week as well that we can't pay our bills. And you're talking about supplementals that will increase spending. So why isn't the governor paying attention to Section 20 four-two-one 102 of the Colorado Revised Statutes, which says that if there are not sufficient revenues, which you have said a couple of times now that we can't pay our bills, available for expenditure during such period to carry on the functions of state government and to support its agencies and institutions, the governor can exercise his discretion by executive order and he may suspend or discontinue
in whole or in part the functions or services of any department. I think you are jumping ahead to our OLS conversation. Well, I asked this question, I asked this question. So I just want to know not of Mr. Ferrendino Director Ferrendino. I asked this question about why the governor wasn't coming in with a plan to cut spending. Speaker Ferrendino. Thank you, Mr. Chair, Senator Kirk Meyer. We are actively looking at all options of how we address the budget shortfall. Remember, this bill has not what is today? Are we a month now today?
No, today is the fourth, fifth. So just over a month that this bill was passed. We're just about, I would say, two weeks from really having our hands around and understanding of the financial impact. As you remember in June, we came in front of you and we looked at this to be about $600,000,000 of a impact. In the first year that doubled given that the Senate added significant amount of provisions to that. I think that was very unexpected. I didn't expect Congress to put I think the current CBAO estimate is $4,100,000,000
additional addition to the deficit and the debt of the country. And so I don't think we expected that to happen. And so this is we are still wrapping our hands around what that means. So we are actively looking at, as I said to the executive committee, looking with departments and others of where we can through executive action take action, also the possibility of a potential for a special session. Those are all things the governor is actively considering to deal with the impacts of
H. R. One. So I think that's important. We've heard some folks say we should have seen this coming, we should have budgeted for it, we shouldn't be surprised by this. But what I'm hearing you saying is that even like worst case scenario, even what we may maybe should have seen coming or thought might be coming changed dramatically when this bill hit the Senate, which was, I think, after we had already adjourned, but certainly after we had passed the budget. Speaker Farandino. Mr. Chair, yes, it was after actually even after the June forecast, that we had presented. And as we talked, TCJA was the original
bill was pretty much revenue neutral to slightly revenue positive. We had estimated roughly with the roll off about $100,000,000 of lost revenue with the roll off of TCJA and some of that was front loaded, so it had a more impact in the when it originally passed. But that was relatively neutral. And when you looked at the deficit and the debt, it was relatively neutral at the federal level. I would say I did not think we would see Congress pass a bill, this Congress at least, pass a bill with a $4,100,000,000
increase of the debt, especially with the conversations we were hearing from senators and representatives saying we weren't going to see this type of thing and they were fighting to try and keep it at a $1,500,000,000,000 impact to the debt. And so that impact really I think, ballooned in the Senate and made this double what we thought the impact of the state would be. You'd keep saying $4,100,000,000,000 or $1,000,000,000 impact? $1,000,000,000,000 Yes, I'm sorry. Dollars 4,100,000,000,000.0 impact. Yes.
Sorry. I'm still in stateside if Yes. Senator Kirkmeyer? Well, thank you, Mr. Chairman. So I'm just back to my question again. Given that you've said several times we can't pay our bills and the statute says when there's not sufficient revenues, the governor can exercise their discretion to suspend or discontinue in whole or part the functions of services of any department, board, bureau, agency except, of course, you can't do capital construction, which actually an e mail was sent out last week about capital construction and controlled maintenance. So instead of coming in and talking about supplementals,
especially ones related to Senate Bill 20 four-two zero five and even the public health laboratory, why isn't the governor looking at Ferndino. Thank you, Mr. Chair. Senator Kirk Meyer, we are looking at all options. You had asked us to come today and to the committee. We are still in the process of looking at those options. As I said, we've had these numbers for two weeks. Things don't turn on a dime. We need to do our due diligence to understand what options there are, look at all the legal ramifications. You, I know, will hear from ledge counsel and ledge legal or JBC and ledge legal on how
this has been addressed in the past and how we've done this in the past. We are also, as we're looking at this, open to suggestions from all of you. If you have ideas of places you think reductions could take place, we're happy to take those as we look at what we can do both through executive action action and potentially a special session to balance, this budget. And I do think on the controlled maintenance, one of the things we are, we are we're asking departments what are the impact. The e mail that was the clarifying e mail was really out to departments and
to higher ed to say, let's let us know what's not obligated, and please don't obligate anything more until we know what we are going to propose and move forward with. Because as you as I think most people know, as soon as you say, hey, I'd like to, understand what's unobligated. Five minutes later, when you get the email back, everything is obligated. And so that's why we were clear, we want people to pause while we take the time to assess and that is what we are doing. We are doing our due diligence to assess the impacts, and want to work in partnership with the JBC and the legislature as we address
the impacts of H. R. One on our budget. And let me just add, this really is jumping to the conversation that we're going to have later. In my conversations with OLLS and JBC staff about what authority the legislature has, what authority the governor has, particularly in response to some of my colleagues' comments about the letter that was sent out regarding capital construction. It is it seems to me and I don't want to put words in OLS's mouth, but it seems to me rather unclear about exactly what authority the governor has in situations like this given the reserve,
given all these different factors. We haven't been in a situation exactly like this before. And so that is what the entire conversation, after this one is about with OLS, and with our JBC staff. Rep Tagger, it looked like you wanted to jump in on this? Thank you, Mr. Chair, and thank you, Director Ferrendino. I guess I'd like some clarification. Again, from a business standpoint, we would not make a suggestion not to commit further funds that are not obligated. We would state as CEOs, stop. No suggestion whatsoever. Stop. And I'd like to hear which way it went,
whether it was a suggestion or whether the governor, in fact, stepped in and said, stop. No more future obligations until we get this cleared. Speaker for Adena. Thank you, Mr. Chair. And Rob Taggart, just to clarify, are you talking specifically about the controlled maintenance or just in general? No. Thank you, Mr. Chair. You had made this suggestion on if I heard you correctly, that whenever you ask people what is not committed, people come back and say, well, it's all committed, which isn't a true statement. And that's not I'm not saying that to you.
I'm saying that to department chairs. You can never just make that statement. There's nothing that's not committed. But then you went on to say there was potentially a suggestion from either yourself or the governor, stop, pause. Did I miss that? Did I mishear what you said? Speaker for Indira. So, Mr. Chair, Representative Taggart, so around the controlled maintenance, there was a letter there was an e mail I'm talking broader. Right. I know. But I think this is what I was talking about was there was an e mail sent out by the State Architect that I think was maybe a little stronger
than what we had intended. That's why there was a clarification of let's wait right now on obligating more funds and give us the ability to be able to assess, see what is essential, what's not, so we know what options we have as an executive and what you, if legislature, can or would want to do in this area. We are doing that all over the state. We have asked so for example, all departments, as I said earlier, we had a 2.5% target for their operating budget. I went out pretty soon after this passed and went to departments and said,
please let us know of the cuts that you are proposing that you need to submit in a couple of weeks to us, what you could pull forward to this year and what could you implement now to help try to save money in the current year versus waiting till next year. And so departments have indicated that to us. We are reviewing those. Departments who are giving up those funds through that process are looking at, okay, we're not going to start spending that money because we might have to actually give it up this year.
So they felt comfortable putting those forwards. That's I would just be clear that's not enough to get us to where we need to solve this hole, not even close, but it is a step in the right direction. So we are being very clear with departments and with where we control how can we slow down some of the spending so that we have more options on how we move through things. But it also I think both the legal like what is the legal ability, what is the ability for control between legislature and us?
What's the executive order if we need to do an executive order? We're also trying to understand all of the clarity around those legal powers and what we can and can't do in all these different areas to make sure that we are doing it in a process that is sensible because ultimately, let's say we take action, ultimately it's going to come to all of you as a joint budget committee through negative supplementals. Because ultimately, it's going to have to be trued up into the budget to show. And so we want to hear, like, if you have ideas,
we want to partner with you. I don't want to do a bunch of things. It's going to make your jobs a lot harder if we do a bunch of things and four months later you say all of these things you did are wrong and we want to do different things. Well, all that money has been spent and we can't change it. That's why we've been clear of and I've said to anyone who will listen, if we wait till January sorry, till February when the supplemental process happens and really those past February, so we're really talking implementation March,
you're talking to deal with $785,000,000 or $800,000,000 of a shortfall if we do it all through cuts. If you deal with that, you are cutting the equivalent of $2,400,000,000 because there's one third of the year left. To get $800,000,000 savings, you have to do that. That's why we need to and as Senator Kirkmeyer said move quickly to make reductions to stop spending to make sure we're really looking at if it's all through cuts $800,000,000 roughly of cuts not or $900,000,000 because we're already one month into the year of doing that.
So that is I think what we are actively working on to try and figure out what that plan is and looking at all options that are on the table and all of our legal authority to be able to stop and pause spending, because like for I'll give an example, like a cash fund. Cash fund, we can't I don't think we'll see what lawyer other lawyer says, I don't think we can sweep necessary cash funds. But what we can do likely is say stop spending out of that cash fund
so that the JBC and us can propose to sweep some of that money out of a cash fund in the future. And so those are all the different things we are looking at are can we do that, does that work and that takes some time. And so that's why we are diligently working through that process, but we don't have something to present today to you on that. Senator? Rep Taggart. Thank you, Mr. Chairman. Please, this is not intended to be a criticism of you. You were quoted to say every day that goes by and you just said it
again, this situation gets worse. Yet we as a General Assembly and the JVC sitting here today, as of this morning, still have not been told definitively that we're coming back for a special session. And if we are coming back from a special session, does the JBC need to come back in advance of that, to do some preliminary work? And I'm just puzzled by that because this discussion has been going on for five weeks, since it passed on July 3.
And here we still are and it's not definitive if and when we're coming back. And again, it's not meant at you, but it leadership is critical at a time like this, and I'm just bamboozled with what's going on. Speaker Farandino. Thank you, Mr. Chair. Representative Tiger, I totally understand your frustration and your point. As I said earlier, we really I think it's it's been two weeks that we have understood the size and scope of the impacts of H. R. One on the state budget. We're still refining those as we get more data.
We the governor just we are actively working on what we are looking at doing. The governor is considering all options as we move through this. We are not just waiting to see what happens. This is a lot of work being done, but we also the choices and decisions that are made have impacts on people. And so we need to make sure that departments, we need to make sure that others have like we're doing the due diligence. So we're making tough choices,
but wise choices, as wise as like as I used to say when I was on your side of the table and we were during the Great Recession, our job at that time was make least bad decisions because they all have impacts and they're all tough. And that's what we're trying to do here is try to take the time to understand what the reality is, what the options are and make that decision so that we have certainty moving forward. And that, I think, will come more into focus in the relative future, but that we are still in that process.
I was asked by the Executive Committee to come last week. I was asked by Mr. Chair and the Committee to come today. I am always happy to come and present, but it doesn't always align with the time line we are working through to get, certain things done. And we are working through those. Just know my staff and the governor's office and departments are actively working, to make sure we have a plan that we can whether it's through executive action or the potential of a special session that we would be able to have a clear understanding of what we are trying to do.
And let me just add, it is my strong preference that any cuts that are made, any plan the governor comes up with to address the shortfall, any of that is done in conversation with the legislature, the JBC. I do not want this just to be the gov has sent out an order and the departments must now cut 1% and we're sort of informed afterwards that all these things have happened. And we have our say in February, which we always do, but again and I think this is a preview of the conversation we're about to have. I think there needs to be a process in place where those cuts are at
least presented and that we can give our feedback and let you know if come February we're going to trash the whole plan, or we think that that's a decent way forward. So again, in collaboration with this committee and the legislature would be my strong preference for these. And as far as the special goes, that is not in my hands. Senator Kirk Meyer? Thank you, Mr. Chair. So at least one of us in this room was here back in 02/2001, 2002 and 02/2003. And I will tell you that after nineeleven happened and the horrendous fire season that we had that year, it took the governor all about two weeks to put it on to a special
session and take care of it at that time. He also passed executive orders and did tell his departments to start making cuts. I mean, I was there, had to cut at the Department of Local Affairs when I was helping with the budget. So it was there. It also happened again in September 2008 through March 2010, where the governor did a lot of things via executive order when you were here. So I think everybody understands that and I think certainly, people in the Executive Admit branch along with the Legislative branch understand that there are
laws that are passed and there are things in statute because I know when we're having the discussion with regard to the reserve amount with PERA, we had a whole lot of discussions about governor's authority, governor's powers, how we want to make sure that the state was protected, everything of that nature. So I'm pretty sure everybody understands what's in statute. At least I know I understood what was in statute. That's why I kept asking what's the governor's plan and why I've kept asking why we haven't done a hiring freeze and why I was just shocked actually shocked to see last week that Hicpuff put out an announcement for about,
I don't know, dollars 160,000 state employee that they want to hire. So we knew back in March very clearly when Director Harper and Chief Sabinski gave us a document that told us we were on an unsustainable path. It was made very clear to the Joint Budget Committee. I think I did my best to try and make it very clear to every senator in the building that we were looking at having to fund Homestead Exemption out of the general fund. It was made very clear in at the June forecast that we were $700 we're going to be about $700,000,000 short for the twenty twenty six-twenty twenty seven budget year to start.
I don't know how anyone thinks that means we were balanced, but I know we're balanced on the day the bill is signed and goes into effect. We talked about release of the trigger or not or making sure that the trigger happened. We talked about all sorts of everything. We have a law here that says when sufficient funds, sufficient revenues aren't available, the governor has the ability, exercises discretion of executive orders. We know for sure that the governor understands what an executive order is because during COVID, he had an executive order every day, if not one or two. And here we are. Instead of coming in with a plan for how we're going to cut spending and
look at those things that were nice to have that got funded instead of the things that we have to have and that are core critical functions, Here we are with supplementals for potential spending. So that's my question. Why do we have supplementals for potential spending instead of supplementals that are negative in nature and saying this is where the governor is looking at to cut. But quite frankly, I understand the difference between the legislative branch and the executive branch, and the governor has a responsibility when there are not sufficient funds available. And again, you've said it I don't know how many times,
we can't pay our bills to exercise his discretion. I want to know where his plan is. I want to know what he wants to cut. I want to know what you're doing. I was in worked for a governor that told us you will cut 4%. You will cut 10%. That was the plan. So I want to know what the plan is and what we're actually doing. And the other thing that I'm just going to say this, and this has nothing to do with you, So it's not you personally. But I am deeply offended by the way we were circumventing the JVC process. I asked if there was ever a time that we've done an update to a
forecast, and I was told no, not even during COVID, where we did an update in between JBC forecast periods. So it really ticks me off that our legislative leadership decided it was a good idea to try and circumvent the joint budget committee, and we had to ask and I had to ask for this meeting. And I appreciate that we have this meeting, and I sincerely appreciate that you're here. But again, I'm fairly frustrated along with everybody else because what I've heard at the legislative committee was we are going to get tax relief from the federal government.
And at the meantime, we're going to figure out how to raise taxes here at the state level. That upsets me. And so, again, I want to know, instead of supplementals for potential more spending, what is the plan to actually start addressing this from the governor's side of things? Thank you. Speaker Ferndino. Thank you, Mr. Chair, Senator Kirk Meyer. I do think and we have talked a lot over the last couple of years on the impacts and the long term trajectory of state and that we need to address. This is different than that. This is a loss of revenue that's a shock to the system.
On the structural deficit, we proposed a lot of things that would have reduced the structural deficit that this committee denied and did not do whether it's increasing the prior authorization within Medicaid or other decisions that we felt would slow spending growth. We will continue to bring those back. We will look at executive action that will continue to look at how we slow growth. For example, as I said and on the supplemental, that the biggest part of the supplemental is over expenditure from last year, dollars 30,000,000 to 60,000,000 is things that you have noted like they are already spent those dollars and we're
going to need to account for those. I was coming in front of the committee to try and if I'm going to be here in front of you, I don't want in three weeks to come back and tell you, hey, we now have these numbers. If I know them, I want to share them with you so that you, as we looked at the whole budget picture, had transparency on what we're trying to deal with. And that was the goal of this is trying to make sure you understand where are the demands. And as it says on the slide before, we will look at both reversions and negative supplementals to offset these items.
So very clearly, we know these need to be balanced. We know the budget needs to be balanced. We will take action on that. In the June forecast, I will say, I was not we said it could be $600,000,000 That was the House version. My assumption from all the conversations with the Senate was going to make it less bad. And so we thought, okay, it's not going to be that bad. We also didn't think that they would go back to 25% and we thought that they would move from 26% on, which would have only met a half a year impact in this year,
not eighteen month impact in this year. So yes, did we know there were possibilities? Yes. Did we think those were likely? No. And what we thought was unlikely got even worse. And so we are actively working to try and come up with a plan to understand all of our authorities. I think you'll hear from Ledge Council and Ledge Legal and your staff about options, I think we are doing that same thing. We've literally had this estimate for about two weeks,
two point five at most and we are working actively. And in short order, we will have actions and ideas that we will bring forward, but we are doing our due diligence to take into consideration where we want to go, how we want to engage the legislature, how we want to engage other stakeholders to do this. I remember very clearly, I would speak I was on as I said during the Great Recession when Governor Ritter we had a 4% reserve. Governor Ritter came with a plan and then Director Solomon
was we were before that plan was done, we were talking. He was reaching out to JBC members. He was talking about what's in it and what's not. We don't have that plan yet. We are working with that. We are trying to put that together with and we will work with the JBC, as the Chair said, and the legislature and leadership to understand what are the options because the worst thing to happen is we get to a place, we come up with an idea, we come up with a plan and not that you're going to no one's going to like what's in those plans,
but then come February, you guys say that plan is not something that is acceptable and try and do something else. And then it is really difficult to try and move forward with that. And so we are moving quickly, but with deliberation to come up with both what are the options and what is the plan and then working with this committee and legislative leadership on how we do that. Thank you, Speaker Ferrendino. Any follow ups? We're almost done with the presentation. Thank you, Mr. Chair. And I will be quick on this one. I'll just deal with slide 21 more details are in the specifics.
But as we look at H. R. One and the implications of H. R. One, you'll see there are increased costs due to H. R. One. This year, it is not significant. Dollars 5,000,000 the first $5,000,000 is cash funded from UI. This is capping the benefits for UI. So there needs to be system changes and process changes. And if you make over $1,000,000 you don't get UI benefits that was part of HR1. So this is the implementation of that. We know that with work requirements and others we have some programming and things we need to do. In the out years,
not significant cost in the next in the budget year, but you'll see that where the significant cost is in the Snap County administration. And really what that is, is if you remember, it moved from a fifty-fifty administration cost to a 75 state, 25 federal. And this is just here's the administration, now we have to pick up 25% more. That is what this is showing. It's basically October 1 that goes into effect of next year. So it's only about a three quarter, two thirds of a year and then the next is $50,000,000
which is a full year impact on that. And then after that you start to see the implementation of the SNAP cost share which we're estimating to be about $130,000,000 to $150,000,000 in terms of SNAP cost share that we will have under the current rules, which would be about 10% SNAP share. And then we will have work requirements or redetermination of their eligibility within the Medicaid side, growing costs as well. So that's and the hospital provider fee changes don't take effect starts to take effect
till '28, and those are phased in over a five year period. So those are the cost side of this. And with that, I'm happy to answer any other questions. I'll just say this has been, I think, an excellent prep, an excellent, preview of the conversation we are about to have, where our own legislative legal experts will dive into exactly what authority they think you have and what authority they think we have and maybe where some clarity, might be helpful. At least I hope that's what they're about to talk about. So we did ask them to talk about.
So that should be what's coming up next. Again, I think these the questions that we had here in this conversation is extremely important. I think this is really about the separation of powers and the roles and responsibilities of the Budget Committee, the legislature and the Executive Branch in situations like this. Thank you very much for the time and the presentation. We will take an extremely brief recess to reset. We're back. Mister Lively, keep it lively for us. Thank you, mister chair. Pierce Lively, Office of Legislative Legal Services.
I'll do my best. Unfortunately, mister Immel is here with me and doesn't have the same last name, so I can't make any promises for his portion of the presentation. Keep it Immel? I always do. That's good. Thank you. Alright. Mister Lively. So Do you wanna introduce yourself, please? I know. Sorry. So, we did not prepare paper copies of our slides. There is nothing in the slides beyond excerpts from the statutory text. I wish there was something more exciting to share, but don't quite have anything like that. So as Mr. Chair has alluded to a handful of times,
we're here to present primarily on what is the governor's statutory authority to reduce spending when there's a revenue shortfall. And we're going to go through the three primary statutes. That touch on that. That's 20 four-seventy five-2.5, which is as we'll discuss at length, the statute that's triggered when the reserve falls below a certain percentage or dollar amount, 20 four-two-one 102, which Senator Kirkmayer discussed just a minute ago, and then 2,400 and fifty-one 109.5, which requires a joint resolution to trigger.
But before we do that, just to kind of lay some very quick groundwork and Ms. Bickel will go into more depth on this later. Of these three statutes, there's really two paths that we have knowledge of being taken historically when there's a revenue shortfall. The first, which Mr. Dimond will discuss, is using 24, 75, 201.5, which is triggered when the reserve falls below a certain percentage. Obviously, in the past, when we had a lower reserve than 15%, that was triggered at a different amount of the reserve,
but nonetheless, it's been triggered. And that statute is relatively speaking somewhat clear. The other statute, which is far less clear and has been used in the more recent past, is 20 four-two-one 102, which Senator Kirkmeyer discussed. Again, Ms. Bickel will go in-depth on how these were actually used in the past. But 20 four-two-one 102 was used in 2002 and 2009 executive orders and then a few that extended into future years. And then twenty four-seventy five-2.01.5 was used as the basis back in 1991.
So with that, Mr. Immel is going to discuss 20 four-seventy five-2.01.5. Mr. Immel? Thank Thank you, Mr. Chair. Conrad Emble with the Office of Legislative Legal Services. So again, I'm talking about twenty four thousand seven hundred and fifty two point zero one point five. And this statute, says that when the general fund revenue estimate for the current fiscal year indicates that under the appropriations that are in effect, the reserve will be reduced by one half of its amount or that it's reduced to an amount less than $1,000,000,000 that the governor is required to formulate a plan for reducing the expenditures so that
the reserve will either be at least one half of its required amount or over $1,000,000,000 whichever is implicated there. The The governor is required to notify the General Assembly of his plan and promptly implement it using the procedures listed in two other statutes, the 20 four-two-one 102 or 20 four-fifty-109.5 that we'll talk about later or any other lawful means. So the triggering event here is fairly clear. The governor's authority is triggered by an indication in an OSPB
quarterly revenue estimate the General Fund expenditures exist excuse me, General Fund expenditures based on existing appropriations result in using one half of the reserve or the reserve is reduced below $1,000,000,000 The $1,000,000,000 threshold was just added last year in Senate Bill 20 five-three 10, but the one half reserve requirement has existed for quite some time. By statutory reference that you can see there to $201,300,000 this is referencing the OSPV revenue estimates provided in June,
September, December and March. So the presentations that you saw today or that the Executive Committee received last week don't serve as a revenue estimate under this statute. This statute has not been triggered. And absent any changes before September, this statute cannot be triggered before September when you receive the revenue estimates from OSPB. If it is triggered in September, then the governor would make a plan, it would notify the General Assembly, it's not directly to this committee, but the General Assembly as a whole, and then promptly implement that plan.
Two little provisions of note here. Subsection two of this section states how the governor should work with governing boards of institutions of higher education related to reductions there. And Subsection four has a special provision for reducing capital construction costs, essentially that the governor needs to reduce in a reverse order of the Capital Development Committee's priority list, but can deviate from that after consultation with the CDC and with this committee. So this statute is relatively clear on its own about both how it is triggered
and what the governor's responsibilities are. It's silent other than a few, like the provisions about capital construction, silent to any action that the General Assembly would take. All right. So real quick on that. I see will be at least one half of the amount required by said section. I don't see the or $1,000,000 The $1,000,000,000 is in subsection H, 1H. So it's just below that. Got it. Yes, less than $1,000,000,000 Yes. And other than that threshold, the language is identical. And Mr. Imel mentioned this,
but as a point of reference Too lively. Sorry, Mr. Chair. That was added in Senate Bill 20 five-three 10, which is the Proposition 130 bill last year. And this was basically addressing like, well, what do we want to do with the fact that some portion of the reserve is sort of in the reserve. All right. So now we'll move to the next section, which you probably got some ominous hints about, is far less clear. This is 20 four-two-one 102. 20 four-seventy five to 1.5, which Mr. Immel just presented on was enacted in 1988. 20 four-two-one 102 was enacted at least in pretty much its current form in 1941.
I'm pretty sure some form of it preexisted that based on the fact that we have cases before 1941 about a similar provision, but that was hard to track down. So this language is less clear. So let me walk through our high level understanding of it and then get into where I think there's some ambiguity and some lack of clarity. So this is the triggering event for twenty two-one hundred and two-four. The triggering event is that the governor determines for any fiscal period, which is undefined, that there are not sufficient revenue available is not sufficient revenue available to carry on
the functions of state government and to support its agencies and institutions. That is not as clear, obviously, as the reserve dropping below a certain dollar amount or a corresponding percentage. Then, assuming that governor is made aware of that fact, is the language used in statute, in the exercise of his discretion by executive order, he may discontinue, on whole or in part, the functions or services of the departments, boards, bureaus, or agencies of the state government. So again, after he has made this discretionary determination,
he then needs to issue or she needs to issue an executive order. That executive or or the result of that executive order goes into effect, as you can see in the second bullet point here, on the first day of the calendar month following the entry of such executive order. And then the impacts of that executive order continue for a period not to exceed three months as maybe determined in executive order. In other words, the governor could say this is only extending for two months or something like that. However, at the end of that three months period or it would actually be right before
the end of that three month period, the governor could choose to extend that executive order. And you can see that back in 2002 and 02/2009, there's a first executive order that comes around and then for a number of periods after that, those executive orders are extended and sometimes expanded upon. For instance, in 02/2002, the first executive order was extremely broad without really any detail whatsoever on what was going to be done to make the necessary reductions. And then as further executive orders came along, it became a bit clearer what actions were taken and were going to be taken.
So the the real the main things I wanna high highlight here are that this is based on a determination by the governor, and that determination is a subjective one. And we have an old case from the nineteen thirties that were so referred so quite old at this point that says that that determination by the governor is not a question that can be resolved by the courts. The courts can resolve whether the governor's corresponding reductions are allowed under statute and constitution. But that initial determination that there's not sufficient revenue,
at least as the court held it almost a hundred years ago, so it's hard to say, but as of a hundred years ago, was was not judicial. We also don't have case law, perhaps because of that, on what basis the governor uses to make that determination. As you may recall, mister Immo pointed out that 2475 to a 1.5 pointed to specific forecast that must be used. It's also interesting that not only are those specific forecasts, they are forecast. In twenty four-two-one hundred and two,
it's unclear if this is even supposed to be the governor forecasting that revenue will be insufficient in the future in, you know, that fiscal period or if the governor is supposed to be saying, as of right now, we literally do not have the money to pay for these expenses. That interpretation doesn't seem to make much sense because of the way this is implemented where the governor issues an executive order and then at the beginning of the next calendar month, the reductions happen. And it wouldn't seem to be logical that we would say, we don't have any money for the rest of this calendar month, let's wait for the executive order.
But statute is silent on whether this is prospect you know, estimates or actuals for how much money we have and whether that is sufficient. There's it's also unclear on how this interacts with the reserve requirement. I, you know, I think perhaps the the immediate reading of this section would be that the state does not have sufficient revenue to fund these things without dipping into the reserve, but statute doesn't say that. So it is possible that a governor could say, well, this is what the reserve is for. I'm gonna dip into this to continue operations as normal.
And it's not immediately clear how that interacts with this this section. So basically, where we're left is that the procedure, once the governor has made this determination, is relatively clear. The governor issues an executive order, that executive order lists the various cuts that he or she wants to make. Those are implemented at the beginning of the calendar month and last for up to three months. What's really not clear is what triggers this section. And that trigger is important because, as you may recall from Mr. Emil's section pull up the language here.
The plan that is required in that section and needs to be shared with the General Assembly is meant to be implemented under the authority in the section I just discussed. So the section I just discussed, 20 four-two-one-zero-two-four, is where the governor's actual authority to make these reductions is found in statute. Twenty four seventy five to 1.5, which mister Immel presented on, is the triggering act to use this section, arguably. But it's not clear if that is the only way or just one of what the ways these two sections interact.
And I may Yes, Mr. Immel. Certainly, governors in the past have exercised their authority under twenty four-two-ten twenty four independent of February. So I don't know that they are necessarily tied together, but governors have also invoked the reserve requirement statute, 2,470 five-two 101.5, section Mr. Lively discussed. Right. And it is worth noting that there are some limits on the power in '24 to 102.4 that the governor may executive by executive order, discontinue in whole or in part the functions or services of departments, boards, bureaus or agencies of state government.
That is exceedingly broad and I don't mean to say it's not. However, we know there are some limits on that. That is the restrictions are on essentially ceasing funding, not creating a new division or moving the powers of one division and department to another or something along that line. This is really primarily focused on saying for the Executive branch ceasing with money. And this is also important when it comes into questions for expenditures that are not made by the Executive Branch and how that would impossibly interact with the limit on
the Governor's powers here. I think capital development would be one of those areas where there's some tension between the power that is given to the governor in this section and what he is allowed to do, which is why we do have the explicit call out in this section that the authority of the governor to restrict the expenditure of monies appropriated from the Capital Construction Fund shall be determined by the provisions of Section 2,470 five-two 101.5, which Mr. Immel presented on earlier,
where it basically says that he goes in reverse order. So I'm not a lawyer. I play one for 120 a year. Is the fact that CDC has called out specifically an indication that, that is the only limit on the governor's authority across all of state government, the implication being that if there were other limits, they would have been explicitly called out? Or is this just like to be really clear, there are limits and this one we just is the most important one and we wanted to put it in here, but yes, there are other limits.
And the first would be what's indicated to me, but Mr. Immel? Thank you, Mr. Hehir. I think you're right in that statutorily, the only limit on the what the governor can do is related to capital projects. It's listed here. And also later on in the section, there are a few limitations on how who can be furloughed, and how that's applied. However, there is there would also be constitutional restrictions. Obviously, the statute cannot violate the constitution. So there are things like civil service protections, that maybe at play depending on what the governor can do,
and we have some case law about that as well. But as far as in statute, no, just what's listed there would be the limit. Otherwise, it's a fairly broad grant of authority there to suspend or discontinue the functions of agencies of state government. And Mr. Emerl. Sorry, Mr. Lively. Thank you, Mr. Chair. And as Mr. Emil alluded to, there are some there have been questions, I believe, every time that this has been relied on about how this interacts with the Civil Service Amendment in particular. So I always feel uncomfortable saying all of the litigation,
but let's certainly say the vast majority of the litigation has come about from employees saying that they were improperly either furloughed or their positions were terminated or some other personal grievance that came about from the governor making personnel cost restrictions as opposed to, say, the general assembly filing a lawsuit and arguing that there is an impermissible restriction on, I don't know, the administration of a grant program or or something like that that was not personnel related. Not to say that couldn't be argued, but that's where the arguments have been.
So it sounds to me then that if the only sort of other protections in this, are constitutional with a few listed later in this in this provision here, that that would mean that this provision trumps, no pun intended given the circumstances, anything else in state law that the legislature may have passed. So if the legislature says, Governor, you will stand up this program and you will transfer these dollars into this account on this date, that this this the triggering of this particular, abilities of the the governor says that actually
he or she can say, as part of my cut, I will not be implementing the bills that you legislature told me to implement. Is that your read of this? I mean, I I know we all hesitate to put this on the mic that, yes, the legislature thinks it doesn't have the authority in this case, but that's what it seems to me. Yeah. Mr. Lively. Mr. Chair, I think that broadly that may be the case, but it's obviously gonna have to be a fact specific determination because of the number of downstream requirements that attach to certain statutory programs. For instance, I am by no means a school finance expert,
but obviously we have school finance constitutional requirements and then things we do in statute. And that would be a more there's a more complicated interaction there. Whereas, I think if we set up the easiest example I always imagine for these things is a grant program. If we set up a grant program and said that DOLA shall administer this grant program in the next fiscal year and give these kinds of grants and then the governor comes along and says, issues the executive order, follows the procedures correctly and then restricts that grant program, that is possibly permissible.
Yes. I think in Mr. Lively's example there, that would be the governor, suspending or discontinuing in whole or in part the function of that particular department. But not in violation of the Constitution? Right. So long as it's That would be Yeah. And I think Mister Ladley. And I think, mister chair, it's important that this statute exists because this statute is arguably a delegation of power. If this statute did not exist and the question were purely one of constitutional interpretation, I think things would be different. I think that it Git would be even more fact specific,
but this is something that the General Assembly enacted. Likewise, 20 four-seventy five-2.5 and 20 four-fifty-109.5, which we're just about to discuss. But in both cases, this is not the governor's executive order limiting himself. This is something where the General Assembly has said, this is what you can do, which is important, I think, in light of you all considering whether you want to make any changes to these sections. Sections. Very helpful. Thank you. I think that's it. I want to all move to the next one. Mr. Rimmel. Thank you, Mr. Chair. The final section we're going to discuss today is 2,400
109.5. This section is limited to personnel decisions and the associated cost savings. We haven't found evidence of this being used, but we weren't able to look too diligently. The triggering event in this statute is that the General Assembly adopts and the governor approves a joint resolution declaring a fiscal emergency. And if that happens, then the governor, with the advice and consent from the state personnel director, shall take such actions as necessary to reduce state personnel expenditures. So again, on this one, the triggering event is clear. It requires action by the General Assembly.
You have to pass a joint resolution the governor can then sign. The governor can't independently invoke this section on its own. Senator Mabile. Thank you, Mr. Chair. And Mr. Emil, so this one hasn't been used because, in fact, he could do all these things without us having to do this. And so therefore, why would we bother with that? Is that a good explanation for that? Mr. Immel. Thank you, Mr. Chair. Senator Amabile, that's certainly a very good possibility. Everybody is a better politician than me.
I've we have not found any joint resolutions that declare fiscal emergencies, so that's why we can say we're fairly confident that this hasn't been used. But again, we might have missed something. Just to clarify, so anything that this would allow is already covered in these other two things. So there's nothing special that the governor gets by having this thing happen over and above the first two. This also seems pretty limited just to personnel. Mr. Hamill? Mr. Chair and Senator Majella, yes, that's correct. So where I was going with that was that both 2,470
five-2.01.5, which is the reserve section, references the procedures through here. So the governor, again, that requires a joint resolution to independently invoke this section, but the governor, if there is a revenue estimate that's low, could work into this section through twenty four point seven five to a 1.5. Similarly or not similarly, a little differently, the section that Mr. Lively just discussed, 24.2102, we think would grant the governor the authority to make a number of the decisions that would be granted in this statute. So there's not a reason to have the General Assembly pass a joint resolution first.
Plus, we'd have to be in session. You have to be in session. Right. Mr. Lively. Mr. Bridges or Mr. Bridges. Mr. Chair, I just kind of completed it all. I think you've alluded to this and this is a point we want to be very clear about and so I'm going to repeat it even though Mr. Emil has already said it. We cannot have satisfied the trigger in $24,750,000,000 to a $1,500,000,000 yet, which is the one that triggers based on a reserve production, because that is based on a specified list of forecast. And it won't be until, I believe, September 20 that you have the next one of those.
And, you know, I don't know what that forecast will say. But, you know, you are limited in that case in time. Whereas the governor is not limited in time in twenty four-one hundred and two. He could make that there's the limitation on the effect not going happening until the beginning of the calendar month, but he could determine at any point, absent a specified revenue forecast, that there was insufficient revenue. And then Mr. Chair, to your point, obviously, for a joint resolution, we need the General Assembly to be in session. So that likewise cannot be could not have been triggered at this point because the
General Assembly has not passed such a joint resolution. So there is only one of these that could be used. I mean, it wouldn't be immediately because of the delay attached to the executive order, but that could be at least started right away. Yes, it could be invoked now. Mr. Emil. Yes, sorry. Yes. So just to just to recap, 2,475.2015, which is the revenue shortfall, where the governor has to notify the General Assembly of his or her plans, that requires a quarterly forecast to say that we will spend more than half of
the reserve or we will be under $1,000,000,000 in the reserve. And so that cannot have been triggered because we have not had a quarterly forecast the next time that will come would be September. That's correct. Thank you, Mr. Emil. The one on the back page, 2,450,109.5, which is primarily about personnel, can't have been triggered because it requires a resolution from the General Assembly and we are not in session and cannot pass resolutions. The only one that could potentially be triggered is twenty four-two-one hundred and two and that is according to subsection four,
when the governor determines there are not sufficient revenues available for expenditure during such period to carry on the functions of the state government and to support its agencies and institutions. And I think what you pointed out in this is that it's kind of unclear in the statute given that it was written in 1941, what that's based on. We know that the February does trigger this, but potentially the governor just saying, I don't think there's enough money could trigger this. But case law what I heard you say is the case law says, kind of the Governor gets to decide whenever the Governor wants to trigger this sort
of no matter the circumstances. Is that right? Mr. Hillman? Yes, Mr. Chair. Yes, I think that's correct. A couple of small points of clarification on the revenue reduction section that is an OSPB quarterly revenue estimate. It is solely OSPB. It's not because we chose OSPB. It is because it is solely OSPB. So even if the JBC had chosen LCS to balance our budget on, it would still be the OSPB forecast that triggers twenty fourseventy five-two thousand and fifteen. The statute that's referenced there, 201.3 is specifically mentions the Governor's Office of State Planning budget.
Got it. And then, just Senator Mavalley. Yes. Yes, Mr. Mavalley. Yes, Mr. Mavalley. The while the revenue reduction section is the only one that requires notice to the General Assembly, keep in mind that twenty four-two-one hundred and two requires an executive order that doesn't can't go into effect until the first day of the next month. So while it's not noticed to the General Assembly, you will have some sort of public notice that these changes are coming. Presumably, we can read executive orders as well as anyone else in the world. Exactly. Mr. Lively. Sorry, Senator. However, I think it is worth noting though that it's not really clear what has to
be in that executive order. And you can tell if you look back through the executive orders from 2002 and 2009 that they were relatively different in approach. And so 24.75% to a 1.5% requires a plan. Again, it's a little vague what needs to be in a plan, but there is a plan, whereas 24.2102% just says that there needs to be this executive order and it's it is not clear the level of detail that would have to be encompassed in that order. Again, I apologize. No, no, you're good. So I'm I somebody is asking me and in this it says that it goes
for three months. So can that three months keep getting extended and that's all baked into this or? Yes. Mr. Lively? Thank you, Mr. Chair. Yes, that can and that is how this has worked historically is that in the period like before it ends, because again these executive orders take first place or go into effect on the first day of the next month, so you'd want to do it before you actually get to that period. You see executive orders and you saw a lot of executive orders that most recently worked like this during COVID, where the governor would sort of stack executive orders.
You would reference a prior executive order and say, I'm extending this. And that's what has happened in the past, is that the governor has essentially said, we still don't have enough money, we're still going to make these cuts. Sarah Mobley. And all of the stuff that happened during COVID was under twenty four-two-one hundred and two or were there other statutes invoked for all of those executive orders? Mr. Lively. Thank you, Mr. Chair. Well, COVID was unique. Well, I guess that's obvious. So there were the majority of the executive orders there were not restricting government in
this way to save money and so we're not under this section. And again, we also had the unique situation, which Mr. Harper kind of or Director Harper could speak to better than I can. I'm sure where this was starting while we were in session. We temporarily left and then came back, but nonetheless, we were here and we were in the middle of the broad budget process. So there were not the same series of executive orders that came about. Like in 02/2002, I believe the first one was in July, and in 02/2009, I think it was in November. Again, I don't remember for sure,
but either way was in the interim, Whereas COVID played out along a different timeline. So during COVID, we had to balance the budget according to the forecast, which took COVID into account. And that means that we, the legislature, through the normal budget process, normal air quotes, cut to what we were forecast to lose under the COVID predictions. Mr. Amel? That's correct, Mr. Chair. And again, Director Harper can speak better to this, but I believe even while the General Assembly was not in session at that time that the JVC continued to meet and continued to work on writing budgets as it
received new information. I'm curious about and getting a nod from Director Harper that is indeed what happened. I'm curious about twenty four-one hundred and two, the section that says the state shall not be liable for payment of any claim and the Controller should not issue or the State Treasurer honor any warrant. How does that impact our ability come February with the supplemental process where we now balance the budget? How does that interact with our ability to say, Governor, we didn't like the things that you cut. We're going to defund some other things instead and put funding back into some of the things that you cut.
Does that change our ability here or do we as the legislature always ultimately have the final say on the budget? Mr. Lively. Thank you, Mr. Chair. I think your final question was a bit broader than what was leading up to it. So I'll answer the slightly narrower question, which is I don't think that ultimately this is a restriction on what you can do when you come back in the regular session. You all are going to craft a budget this session and there sounds like are going to be supplementals, maybe positive, maybe negative that come about as well. And so during that process, yes, you can get involved in this.
I think this is more of a question during the interim and related to litigation. Okay. But if you were to say, yes, we think we disagree with the personnel service choices that the governor made, we're actually we feel differently about this, that is a conversation that could be had and a process that could be gone through. I Just want to confirm again, the legislature maintains its authority on any cuts that the governor may make under this section when we come back and rebalance the budget in the supplemental process. Mr. Emil? Mr. Chair, there's nothing in this section or statute that would change General Assembly's constitutional,
authority to appropriate money. Right. So you can make your changes to appropriations under your constitutional authority. Right. A perfectly lawyerly answer. Appreciate it. Rep Taggart. Thank you, Mr. Chair. This is a question on 102. And where I get confused and almost conflicted, in one statement it says, he may suspend or discontinue in whole or in part the functions or services, but then we come down to that section that not to exceed three months.
If you discontinue something, in my humble estimation, it's over. But yet we have this three month clause. I understand that it works well with the word suspend, but I don't understand how it works with discontinued. Mr. Emil? Thank you, Mr. Chair. Representative Taggart, I agree that, that does seem to be inconsistent. I think it's a fair read to say that to look at this and say that this grants the authority to the governor to discontinue something for six months or
suspend it for less time within that period. That's the best I can do off the top of my head to reconcile that right now. But the under the authority granted by this statute, the governor can only take these actions and have them have the effect for a period of time of three months. So I think that if he discontinued something for the full three month period and then that executive order expired, the law that he the responsibility of the agency would then start up again because the executive order will have expired. Rep.
Zaggart? So do I interpret then that 102, the words not in here, he can't just eliminate, let's say, for perpetuity or for years. Mr. Imel. Thank you, Mr. Chairman. Representative Taggart, yes, I would agree with that. The governor the statute or the law or the authority that is in the law for an agency to do a thing would still exist and the governor cannot undo that. There is no while this does need to be this has a three month limitation, it can be renewed, presumably indefinitely by this,
but I suspect that what would happen is the governor could renew the executive orders until the General Assembly is in session and could act. Keeping in mind that anything that you do in a regular session or a special session may affect the determination of whether there is sufficient money to carry out the, what's the phrase here, to carry on the functions of stakeholder. Mr. Lively? Thank you, Mr. Chairman. Representative Taggart, I mean, perhaps to frame it slightly differently and to take a big step back, I mean, the Governor's constitutional obligation is to administer the law and not to set the law. So this is giving him permission to this is defining his scope of administering the
law. But as Mr. Immel said, I mean, even if the governor were to come along and say, we are not going to run this program during this period of budget shortfall, the underlying statute, which it is the General Assembly's role to pass, would remain in place. And so once his administrative this explanation of his administrative powers lapsed, then we go back to the regular state affairs where the legislature passes the law and the governor enacts them and the law would still be the law. Thank you very much for, this very enlightening conversation. I really appreciate it.
It has been a question for me what the governor can do without the legislature, what the legislature can do when we come back in February. And I think I now have my answer on this. I hesitate to sum it up. Could one of you perhaps sum it up? Or is that not a thing that lawyers feel comfortable doing? Mr. Immel? Turn off the mic. Yes, that's not a thing that Thank you, Mr. Chair. I guess, I think that what the presentation today shows and what we discovered in our preparation for this is broadly I mean, there are these kind of three
independent sections, and that do lay out a process for what should happen when there is a revenue shortfall or lay out a process for what could happen when there's a revenue shortfall, where it's certainly seemed less clear to us as how these interact as a coherent scheme or if it's kind of three if they're just kind of three independent things that then reference each other almost offhand, yes. Great. Mr. Lively? Thank you, Mr. Chairman. And I would like to, absent or separate from that presentation, make two quick comments.
The first of which is there was you all alluded to the possibility of a bill request for a special session. And I just wanted to quickly remind you all of how that could work as a JBC or as members individually. Obviously, or at least unless something has happened while we were up at the table, a special session has not been called. And so special session bills I think we all would have had our phones light up. We're pretty captivating. I can imagine you looking not looking. But either way, a special session since a special session has not been called, you cannot request bills for the special session.
That's just technically and procedurally that's how this works. So, however, what you could do is request a bill and then as a regular session bill, a bill for the upcoming regular session And then our office would begin drafting it, legislative council staff would do forecasting, etcetera. The whole process would begin. And then if or when a special session is called, you could say, take that draft in its current format and port it over and then we can do so, which gives you time before a call is issued. It is more complicated when it comes to the committee's ability to do this,
because that will come down to exactly how the call is well, exactly what the Executive Committee's letter says after the call goes out. So I'm a little hesitant to speak to that now. But I think it is safe to say that any of you could request a bill either individually or in some combination together, share drafting privileges with each other and our office could begin working on such a bill now. And then if there is a special session called, we can port it over at that point. Good to know. Thank you. At risk of giving that overview, I think it's similar to what I said before.
There are three statutes. One of them is mostly personnel. I'm going to leave that out. There's two thousand four hundred and seventy five-two thousand and fifteen. Essentially, there's the statute that says the governor has to come to the legislature with a plan and then execute that plan according to twenty four two one zero two. But also twenty four two one zero two could be independently triggered at any time and the governor doesn't have to tell us a thing other than the executive order, which could be what I heard from mister Lively, could be pretty broad and it wouldn't actually give us the details that we would need or want. However,
either way, we will come back, have our supplemental process in February and essentially have the final say over whatever those decisions were made, roughly. I saw I saw I see the lawyerly head nod. Yes. Mr. Lively. Thank you, Mr. Chair. There is nothing that prevents these executive orders from being issued while you are in session. Right. So even if we pass a budget that we feel brings the budget back into line, it could potentially still be up to the governor to say, I even with your budget, thank you, legislature, I don't think that we're in a good place.
Wow. Don't like that. I would trust the governor wouldn't do that because I think we would very rapidly defund many important offices to the governor. Mr. Immel. Nope. No. Nothing that. I mean, I think that sort of comes down to the legislature's authority at the end of the day. And we have all sorts of ways of taking that back. So appreciate the presentation very much. Senator Mabile. I think this is clear, but so if we do nothing, let's say there is a special session and we don't do anything about either of these or any of these statutes, the governor can issue executive orders to reduce spending.
And he could do that on the thirtieth or the thirty first of the month and it would go into effect the very next day, depending on the month. Right. So I think that if I could follow-up. I think what we're saying is that he has the ability under 20 four-two-one 102 to just do this starting on the September 1 right now, without talking to us. So, if we would like for him to talk to us, then perhaps we should look at 02/2005, which I think is the next presentation. Oh, Senator Kirkmeyer has got her hand up. Senator Kirkmeyer,
chime on in. Great. Thank you, Mr. Chair. And I just want to tell everyone thank you. Great information. And, I'm I'm looking forward to hearing the next portion of this, but I would just say off the top of my head, in case I have to get off this Zoom call because I am almost to the airport, I would be interested in looking at what we could do to do cleanup one zero two to make it more, I mean, I think there needs to be flexibility to be able to do executive orders under certain situations, especially in the situation maybe that we find ourselves in right now. But I think there should be more accountability to the joint budget committee certainly with
regard to that. And so maybe it's tying in a plan to 01/2002, similar to a plan that is tied in what is that? 01/2005? I can't remember the other one. Twenty four seventy five one o two zero one point five. You can't remember these, Senator Kirkmeyer, with your your incredible memory of your numbers? Envision it in my head, and I had you had one zero nine up the whole time the screen was off for me. If you could see it, you would remember it. It's the visual memory. All right. Thank you. I want to ask another question. Any, responses? Mr. Immel. Just to respond to what what you had said and kind of what Senator Kirk
Meyer maybe alluded to there, that while we have had courts say they're not going to second guess the governor's determination that there are not sufficient revenues available for expenditure, I think that that's been exercised always in times where that's a reasonable determination. And so when you say the governor can do this anytime he wants, I think there is some guardrail in the statute and if it were if revenues were through the roof, that's probably a different situation. That's odd. So I think if we took him to court, the Supreme Court might look more favorably upon this. Senator Madeline? Thank you,
mister chair. So I just wanna be clear. If we made changes to twenty four seventy five two zero one but did not make any changes to 24.2102, then the governor would still have the authority under 24.2102 to issue executive orders. And so by changing twenty fourseventy five to 02/2001, I'm not sure we've what we've exactly accomplished if we don't do both. Yes. Mr. Lively. Mr. Chair, Senator,
likely, yes. I mean, of course, it depends on the changes you make. But likely, yes. That it is true that that section appears to be broad enough that it could potentially swallow all the others. So ignoring it could defeat your purpose depending on what your purpose is? If the goal is to get the governor to work with us on a plan, I don't think necessarily get our sign off that might be more than I think we would even be able to do in sort of the emergency situations that we have right now. But if the goal were to get the governor to work with us,
would a change to twenty fourseventy five-two thousand and fifteen be sufficient for that? Mr. Lively. Likely not because as Senator Amabile said, and as you seem to be implying, the governor could say, great, we're not going to do that. And then also, obviously, there are any number of situations where we can be under the twenty four-two-one hundred and two situation, but not be under a 50% or more revenue reduction like we are right now. And that is probably worth remembering. Senator Kirk Meyer, is your hand still up or do you have another question? I'm gonna guess that she doesn't have another question then.
Thank you all. If you do, Senator Kirkmeyer, we'll make sure to get it answered. There. I do. Oh, you do. Go. They had to let me yeah. They put me on mute. So first of all, my comment was, and maybe I mixed up the statutes, but my comment was I think we should put parameters around on the part where he can do the governor can do an executive order and require that there has to be some consultation or planning put in place with regards to the executive order. Maybe the executive order can happen, but then he's gotta come to the joint budget committee and we've gotta talk it through and have those kind of plans put that in place,
similar to what is in the statute if he falls if we fall below a 50% reserve. So that's the so I may have mixed up the statutes. That's what I was trying to say. I mean, I think we could put those kind of guardrails on in any section of the statute, and I think we probably should. With regard to the language about suspending and discontinuing, I believe, what that was, at least how I think it was used back in, like, 02/2001, 02/2002, is we discontinued a grant program for the remainder of the year and, at the same time, we were required to suspend funding for a while in certain other programs and that's
how that was used. Just kind of a clarification how that was used back then. Getting rough nods. Thank you. All right. Thank you both so much for this presentation. Apologies to everyone listening online who is not as interested in the fine details of legislative authority versus executive authority, but this was fascinating, to those of us in these chairs. So thank you all so much. And we will not take a recess. We'll just roll right into miss Bickle's presentation. I think which which I think we'll get into exactly what it is that we've been asking. It's nice how all of these presentations have rolled into one another. Ms.
Bickel, whenever you're ready. No rush. Thank you, Mr. Chair. Amanda Bickel, JBC staff. Well, this entire project gave me the opportunity to redelve into exactly what had happened in the early 2000s and then in the two thousand and nine recession, which I will confess was actually a rather painful exercise. Like these were very, very difficult times. And one thing I noted to Director Harper, which I think is worth reminding you of,
is despite the excellence of our economic forecasters, nobody knows when a recession is coming and nobody seems to know when a recession ends. I found many examples of even where we had already some clear challenges at the national level, we kind of thought at that point Colorado might be okay. And then six months later, we were in a really deep situation. So, I know you've heard from us over time about how important we think the reserve is and this is part of it that is just awfully hard to project.
So with that, you have just heard all about the impact of federal HR1 from the economists and exactly that it really is expected to have a very significant impact on the budget. Depending on which of the forecasts you're looking at, you're talking about something on the order of already saying about the reserve would be down by about 5%, right? If not 5% of annual appropriations. In other words, it would fall from 15% to about 10% is currently OSPB's estimate and LCS is
pretty close to that. You've also just heard from your attorneys about these different pieces of statute that say what the powers of the governor are versus the powers of the General Assembly and that in particular, you have some statutes to give the governor pretty broad authority. It's my assumption the Governor's office is already working on a plan, right? And I do I heard Director Ferrendino say here that they will be talking to you about it. So I think in the current moment, almost in the absence of statute,
you can expect some interaction with the Executive Branch about what the plan, what they're thinking about right now. In terms of some of the reason I'm sitting up here rather than your attorneys is your attorneys won't actually make specific recommendations to you. So I've looked at these statutes as well, and I would say very consistent with some of the observations that you all have just been making in your conversation with them. I think that you could make some reasonable changes to both of these statutes,
both to the 24.75%, 201.5%, which is where you have the trigger based on the reserve level. And I think you could also think about some changes to 24.21024%, which is the statute that gives the governor quite broad authority to just issue executive orders and start restricting things when there is clear budget pressures. I think the one thing that you've got right now in 02/2005 is that it does require a plan,
whereas the other statute doesn't actually require any kind of a plan be submitted to you. And it's also got this very specific trigger that's based on the OSPB quarterly revenue forecast and you don't even that hasn't even happened now. And it says 50% of the reserve and your reserve with a 15% reserve, that would be a decline of 7.5% right now and of appropriations instead of maybe we're at 5%. So even if you were using the most recent work that's been done by OSPB
and LCS, you still wouldn't actually have quite triggered this statute. So I think that going to Page three of this memo I wrote you, I think it's in general probably good policy to change the threshold at which the governor is supposed to give you a plan. And so I would say more like 2% when you're at a decline in revenue that we're talking about maybe 2% of Appropriations or maybe 3% of appropriations. That's very consistent with the numbers that really used to be the effective decline because
it used to be that your reserve was much lower. It is an extraordinary situation right now that you have a 15% reserve. You went through many, many years where you had a 4% reserve. Maybe you had a 5%. Maybe you've managed to get up to a 7% reserve right before COVID. But this is a very unusual situation. So I do think that you can just change that threshold and that, that would make sense to me, make some adjustment there. I think in addition, you could you might want to clarify that the trigger could also take effect when
there's a change to a forecast such as that that just happened with the HR with the federal HR1, the OBAA bill. So and so it wouldn't be as narrowly tied to those quarterly forecasts. I also think you should consider some small changes as a number of you have discussed to twenty four-twenty ten twenty four. First of all, as I think Mr. Lively noted, there's a reference in there to a fiscal period and nobody anymore knows exactly what a fiscal period is. So perhaps we could make that fiscal year because that's really the period in which
you do your budgeting. I think the other thing is you might want to add language at least requiring some sort of a submission of a plan before it's implemented. You could, of course, consider more significant changes and more restrictions. I am hesitant to recommend anything like that to you. There's just so much we don't know about what might happen in the future. There's a giant sudden war and something needs to happen immediately. And I do think it's reasonable for a governor to have the ability when you're not in session to respond promptly to emergencies.
Ms. Bickel, I thought the first two presentations were dark, but thanks for taking us all away. So, I think what I'm hearing from you and frankly what I'm hearing from Senator Kirk Meyer and what I expressed very clearly, I think, in conversation, with Speaker Ferrendino is that I want the governor to be making these cuts of whatever flavor they are in consultation and collaboration with at least in consultation with us as the JBC, with the legislature more broadly. I think the presentation of a plan is something I heard very clearly, that Senator Kirk Meyer would like to have.
And so I think the way we get there in this I also heard from Speaker Ferrendino a strong desire to work with the legislature on this, to not just start executing on, twenty four-two-one hundred and two and just making cuts, at the start of September one. I heard a desire that they want our input on that to make sure that when we come back in February, we don't undo everything that it is that they did, which I think just causes chaos to the state government, chaos to to state employees, and folks that depend on the services we provide.
So what I have heard from everyone essentially is broad agreement with what it is that I think you've just taken to the table here. But with but I do see hands up, so perhaps I'm right or wrong. We'll start with Senator Madeleine and then Rep. Taggart. Thank you, Mr. Chair. I mean, yes, I basically agree, and it sounds like that's what there's some consensus around. But I just to be clear, the governor presents this plan. This isn't really for us to agree to. This is just, here's my plan. And I'm not saying that any governor would,
but it basically could be a take it or leave it. We're still doing it. And so there's nothing in these proposed changes that gets our consent. It just is giving us this information. And I understand why that is. And so I'm not arguing that that should be changed. I just want to be clear about it. Ms. Bickel? That is my expectation and suggestion, again, because you don't just don't know what might happen. I think I would add that the consent piece we give in February with the
supplemental in granted that the cuts we would need to make to make up for any cuts that aren't made now would be steeper. But at the end of the day, nothing in either of these pieces of legislation as they currently written or as we're contemplating, changing them would reduce the General Assembly's existing authority or alter the General Assembly's existing authority to set the budget for the state. Rep Taggart. Thank you, Mr. Chair, and thank you, Ms. Bickel. I also agree that these changes would certainly be a huge help,
but I'm going to throw a twist at it. And this may be too much. It just seems odd to me to continue two statutes as compared to having one statute that also includes the triggering mechanism. It just seems cumbersome to me to have two distinct statutes. If we were going to go through the exercise, I would promote collapsing them into one so that it's very clear the governor can do this,
the governor needs a plan, and this is what triggers this situation. That just makes it clearer, I think, to everybody involved. Ms. Dickle? I think that's really it's really a technical question for legal services. I mean, the statutes can be changed in a variety of different ways. And putting them together might you could do it in a way that made no substantive difference, right? Or you could do it in a way that made a substantive difference. And I think that would be the choice. In response to Rep. Taggart's idea, it seems to be like there's two different reasons why one or the other of
these would be invoked and or there could be. Maybe in the current situation, there isn't. But during COVID, for example, there might have been a different reason. So maybe it does make sense to have these two statutes. I don't know. That was I have no idea if that's true or not. I think, which is, Vickal, I think to look at his point, what we could do is say the only way that 24.2102 gets triggered is essentially this this percentage gets hit, and we can adjust the percentage to make it a more reasonable percentage.
Because half is half of 15% is way too much. No one wants to get there. So we could dramatically reduce that, make that so that that's what it is that triggers one zero two in all cases. But it it sounds like what you're saying is that we may want to allow some flexibility for 24 to one zero two to be triggered because we don't know what might happen, which is where you brought the darkness in. Right. It shouldn't be a kind of tie to So that we may want an alternative path forward there. Yes. I personally haven't thought through either one of those. I mean,
that was my thought. But obviously, this was the intent of this was for you to have a discussion about, did you want to make some more substantive changes to the existing broad authority of the governor to just make a determination and start applying restrictions. So just to I see both the member and the director have their hands up. But I'm going to throw this out there is potentially, I think, because we very much want to have the process outlined, in the revenue shortfall piece triggered right now. In short,
we want the governor to come and present the plan to us rather than just signing an EO. Perhaps for a special session, assuming the call is broad enough, we would want to change the revenue shortfall piece. Thinking that any changes we make to triggering in twenty four-two-one hundred and two could be something we take up in a general in a regular session as opposed to something in the special session, trusting that the gov is not going to invoke this particular one between now and, January. Okay. Senator Mable. Well, Director Harper. Thank you, Mr. Chair. Craig Harper,
GBC staff. And I'm not sure I'm going to add any real value here, but I think this has been an interesting deep dive for all of the staff as we've dug into these various provisions. And I read I think I'm interpreting them slightly differently and that General Assembly gave the governor a fair not differently than legal services, I don't think, but maybe then some of the member discussion. 102 gives the governor a very broad authority to go in and address the situation, as Senator Kirkmire has alluded to. To, we don't have the money, we need to make the cuts.
It's a very broad bit of authority there. It is term limited with the executive orders, so you've got this kind of rolling dynamic. The first one that Legal Services discussed, $201,500,000 I think it is, I read that as the General Assembly putting in a safety valve for when the governor has not taken been willing to take action under $102,000,000 It's like, for heaven's sake, if the reserve falls by half, you have to do something. So it's I think they complement each other slightly differently than I've heard discussed today and that you have one that's really okay.
And I think this is where when I read 102, what does it mean not to have enough money, you all have talked about that. Does that mean the reserve needs to be gone? Midyear with the way that our cash flow works, the reserve isn't really full anyway. It's all based on projections of what the year is going to look like at the end of the year in terms of the reserve because tax revenue comes in late. I mean, that what it means to not have enough money is a very complicated question. But you all as an institution have given the governor pretty broad authority there.
And the way I read two zero one point five is we're worried that you may not take us up on that. And if the reserve is going to fall too far, then we're going to compel action before we get too far. And I think the consensus at the staff level, and it sounds like the members are there as well, is waiting for half of a 15% reserve is way too long to compel that action. I think what you've heard from Director Ferrendino is they're moving well ahead of that, but we can't even trigger to a 1.5% now because the, a, we haven't even under the pretty dramatic scenario we have,
we haven't fallen to half of the reserve And B, it was based on a non quarterly update to the forecast. But I'm not sure this nuance helps. But I do think you're dealing with two different questions here. One is give the governor authority to do what he needs to do, which goes to some of Senator Kurt Meyer and Representative Taggart's questions about take action and take action soon. And then 201.5 is compelling. No, we really mean it. And we're going to set a definition. You can have your own discretion about what not having enough money means,
but we're actually putting a clear definition on it where you have to take action at this point. Whether you should merge them, I think, is a big policy question for you all. That's a helpful reframe, Director Harper. One is you must take action if you're going to hit a certain percentage of the reserves being spent. The other is sort of a the governor chooses to take action because he or she sees something that means they need to take action. Yes. Senator Mabile? Okay. I think that is a very helpful distinction.
And that would lead me to think we want to leave these two statutes as separate things. But we still might want to tweak the governor's ability to invoke executive orders in some way that we talked about today. But I think the big change here is actually fairly simple to change the trigger in 02/2001. I will say that in conversations with Executive Branch folks and really what I heard from Speaker Ferrendino today is that
there seems to be some hesitation to exercise ten twenty four in the current environment just because it's pretty unclear exactly when the governor's authority exists to do that and that it would be much safer if there was some other trigger, some other process that required the governor to go ahead and make those cuts, because this is so vague. So we may want to contemplate adjustments to both. Oh, I'm seeing a hand. Senator Kirk Meyer, chime in and help us out here.
Also last day for self security. Enjoy. Yes, yes. I'm walking all over the airport. But, I agree. I don't want to combine the two pieces of statute, and we may want to tweak them both a bit. I definitely think on tweaking the one where it's the executive order that there should be some kind of consultation or at least working with the joint budget committee. Right. So I think we're I'm on that same page. I don't know that I agree with lowering the reserve amount, but I'm open to hearing discussion about it. Right.
I am I'm surprised to hear that. I I do not I don't want the governor to only have to start cutting the budget if the reserve is gonna be spent by more than half. That, to me, seems like way more reserve. Is this TSA? This is the JBC, different letters. More productive by far than the TSA. Senator Amabile. Okay. So I think assuming we want to go ahead with if there is a special session, running a bill that tweaks two zero one and possibly makes some adjustments to 102.
We could ask for a bill to be drafted as if it were going to be in the regular session, but we really can't do that as the JBC. Or can we do that as the JBC? I know that we don't I don't know that we have enough people here We also have quorum to make that official asset. Well, we have four. We have two. We don't have another we need another House member. So could one of us ask for you all to start drafting a bill and then we could adjust who's actually running it when we get going here?
Because I would like to ask for you all to start drafting this bill. Mr. Amel? Thank you, Mr. Chair. Senator Mabble, as an individual member, you can request a bill for the 2026 session. Okay. With any subject you would like. And then if there is a special session, you could make that a bill for your special session. The way once the governor calls a special session, the Executive Committee will provide some guidance as to how bill request will work as far as the number that each member has. And so that would be part of the bill request.
The JVC's authority to request the bill, it comes from Joint Rule 24 and Custom and Practice and that joint rule is limited to regular session. So there's no inherent authority for JBC to request a special session bill, but you as an individual member could certainly do that. Okay. Whenever they want those desks? Okay. So I would like to do that so that we can get this rolling, and that way we have time to vet that with our colleagues in the event that there is a special session.
Senator Mabile, would you please add me for drafting authority on that bill? Yes. Thank you. Mr. Hamble? I can note too that if you request a bill for the radio session end up being a special session bill, that it would depend on the scope of the call, special session and whether that would run. I'm not sure about that, but we can talk more about that offline. Mr. Lively, it looked like you had a question. Rep Tagger, would you like to be included in drafting on that perhaps? Yes, Mr. Chair. But I still have I'll leave the two alone for the time being. I still, in my mind,
think they work better together. But let me think about that. What concerns me that neither of these suggestions and it's not a criticism, Amanda, sorry, Ms. Bickel. We've talked about the fact here informally that the plan needs to be presented to the JBC and then on to the potentially the General Assembly. But there is nothing in either one of these statutes other than requiring a plan that in fact reinforces
that those conversations need to take place. And my worry is if we don't have that and let's say the governor proposes a 1.5% cut and we think it ought to be a different number, where are we? We are basically, he is he or she has presented a plan that's going to go forward that we don't really potentially agree with. And that worries me. The fallback that I always have on that is February, right? At the end of the day, we do decide what the budget looks like when we rebalance to whatever the lower
number is in supplementals. Well, it looks like Director Harper just turned the mic on, so I'm just going to go ahead and turn it over to you right now. You're too perceptive, Mr. Chair. I think a central tension here that is sort of under the surface that you all are talking about is you all can absolutely come in, in February and make different cuts and additional cuts. I think the open question is whether that would actually restore any money to the programs that the governor has planned to cut that you're saying you disagree with. I mean, I think that depends on dynamics between the two branches,
between the governor and the General Assembly. But it's an entirely plausible scenario where the governor produces a plan, submits it. It shows really deep cuts depending on the scale of the shortfall. And it's to programs that the general assembly doesn't like. The general assembly comes back and says, we'd rather cut these other places. When you do that, you're limiting the governor's ability to spend the money on the places that you've now cut the appropriation for, but you're not actually forcing the governor to spend money on the places that they cut. So I mean,
there's That's sort of the The tension here is very you can your appropriation is permission to spend up to a certain amount. It is not a requirement to spend up to that amount. And one zero two four and then then you get into statute requires implement I mean, we get into some really gray territory here, but I don't I think it's important to keep in mind that if the governor produces a plan and makes the cuts that depending on the program, there's very open legal questions as to how much discretion you would have to actually
restore the funding that the governor has cut. That goes back to the very fundamental questions of what is a budget and what are the obligations of the executive branch to follow it. Senator Mavalley. Thank you, mister chair. But to your point, if we do nothing, we don't get a plan, potentially. We get we could potentially get one day of notice that here's the executive order that's coming. And so doing nothing doesn't help in any of these ways, but doing something might potentially lead to a plan, doesn't guarantee a plan.
And I guess I would just say I don't want to limit the governor's ability to take action in a real in an emergency, which potentially we're in right now, and leave that up to even our group because we have political differences. And I don't want to play politics with emergencies. And so I think we have to be careful in whatever limitations we impose. I think this also gets back to the fundamental question of different branches of government and
what is their role in moving quickly. And I remember this from fourth grade. The Executive branch is supposed to move quickly and the Legislative branch is slow and ponderous, which is why I say the wheel turns on February and we get our say then. So this is a fascinating conversation. I think it is remarkable to me the alignment that I feel like we at least maybe have with members of the JVC, on potential changes to this legislation. It is also, I will note, remarkable to me that the Executive Branch is seeking actively our input on these that
the Executive Branch is not saying, I don't care what you say JBC and legislature twenty four-two-one hundred and two is going into effect and starting September 1 we're going to cut. We'll tell you in our EO what that's going to be when we get there. I think they have actively sought to increase the legislature's role in at least this particular process and I think in legislative changes processes for all governors moving forward, which I will say I appreciate as a member of the legislative branch. Rep Taggart? Thank you,
Mr. Chair. I appreciate that. But the word right now only says notify. I'm not trying to in an emergency, I totally agree that a CEO and a governor have to you can't tie their feet to the floor and say you have no flexibility. I understand that. I've been there. But notified doesn't mean discussed, conferred, collaborates. You pick the word in addition. I'm not trying to restrict them, but I I there needs to be conversation and notified doesn't do it.
Well, let's change the word or add. Notify and discuss. Notify and we've got two lawyers here who I'm sure know what the various different differences of those words mean. You do. Many words. Let's figure out that I totally agree. Let's get the bill started and then we can But I think that should be part of what it is that we would want to to modify Words. Alright. Well, this is I guess we're there's no other discussion. We're way over time. Everybody's left. This is so much fun. Thank you all so much. Many people have left. There are some stalwarts still here,
and we see you and appreciate you. And those that left, good riddance. Except for except for Senator Kirk Meyer who's going out to see her grandkids. We admire that. Before I say anything else that gets me in trouble, JBC will stand in recess.