If the state’s Taxpayer’s Bill of Rights surplus were a cookie jar, a lot of lawmakers at the Colorado Capitol would have their hands in it — Democrats and Republicans alike.
The money has been directed in recent years toward tax credits aimed at boosting affordable housing, reducing childhood poverty and increasing economic activity.
This year, lawmakers have introduced bills that would tap into the surplus further to offer a back-to-school sales tax holiday, create an income tax credit for contributions to health savings accounts, and extend existing tax credits for businesses that create new jobs and for people who contribute to projects related to reducing homelessness.
So far, the legislature’s Democratic majority and Gov. Jared Polis have been able to ensure everyone gets at least a crumb. There’s generally been enough TABOR surplus since the pandemic to pay for all of the ideas that have become law without lawmakers having to dig into their general fund and cut state programs and services.
(The one big asterisk is what happened after congressional Republicans passed the One Big Beautiful Bill Act. That’s resulted in no TABOR surplus in the current fiscal year, which ends June 30.)
But plans to ask voters for permission to tap into the surplus to boost funding for education and other budget priorities may force Democrats to take a harder look at whether using that money to bankroll tax credits is the best use of those dollars. If the legislature and then voters sign off on the plan, every dollar of the surplus used for a tax credit over the next decade or more would be a dollar that could have otherwise been used for the general fund.
The surplus exists when state tax revenues exceed the TABOR cap on government growth and spending, which is calculated based on annual changes in inflation and population. The only way to change the cap, created when TABOR was approved by voters through an amendment to the state constitution in 1992, is through voter approval.
“We’re dealing with a limited amount of funds,” said state Sen. Jeff Bridges, a Greenwood Village Democrat who is working with the Colorado Education Association on the surplus ballot measure. “In that situation, you have to choose. Do we want to choose to have a bunch of one-off tax credits? Or do we want smaller class sizes, better paid teachers and students that are ready for Colorado’s workforce?”
Bridges’ forthcoming bill, as of now, would raise the TABOR cap by the amount of money the state spends on K-12 education through the general fund. That’s currently about $4.5 billion. The money would be prioritized to increase K-12 education spending by at least 2% each year — about $90 million in the first year. Any leftover dollars could be used to cover the cost of other state programs and services.
If the ballot measure passes, it wouldn’t mean the legislature would have $4.5 billion more to spend overnight. The existing TABOR cap is only expected to be exceeded in the next fiscal year by about $500 million and by about $800 million in the subsequent fiscal year.
The surplus would have been larger had lawmakers, mostly Democrats, not drawn it down for tax credits.
Bridges believes it would be harder for the legislature to pass tax credits if lawmakers had the option of instead growing the general fund. Right now, the money generally being used to pay for the tax breaks would otherwise have to be refunded to Coloradans.
State Sen. Jeff Bridges, D-Greenwood Village, speaks to reporters at a news conference about the 2025 special legislative session at the Colorado Capitol in Denver on Aug. 21, 2025. (Jesse Paul, The Colorado Sun)With the ballot measure still a long way from passage — and from making the ballot, for that matter — Democrats who are working on tax break bills this year say it’s too soon to discuss halting tax expenditures in anticipation of the initiative to direct more money to the general fund.
“We need to have a practical understanding of what’s happening here” before making tax credit decisions based on the TABOR cap increasing, said state Rep. Andrew Boesenecker, a Fort Collins Democrat working on the bill to extend tax credits for businesses that create new jobs.
But Boesenecker acknowledged that it’s a conversation that should happen among Democrats.
State Rep. Emily Sirota, a Denver Democrat and chair of the legislature’s Joint Budget Committee, said Bridges and the Colorado Education Association haven’t revealed their measure to other lawmakers yet — and Bridges has cautioned that the details are in flux.
That makes it virtually impossible, she said, for lawmakers to start planning their tax credit work around it.
The bill placing the TABOR surplus measure on the November ballot just needs a simple majority of support in the legislature to pass. Democrats have big advantages in the House and Senate.
Republicans are expected to put up a fierce fight in opposition to the proposal, but they can only slow the measure’s advance, not stop it.
State Sen. Byron Pelton, a Sterling Republican, is working on the bill that would create a state school supplies tax holiday. He thinks the state should lower tax rates, or offer tax breaks, rather than operate with a TABOR surplus. But if there is a surplus, he thinks it should be refunded.
DENVER, COLORADO — Jan. 14, 2026: State Sen. Byron Pelton, R-Sterling, speaks at the Colorado Capitol in Denver on Jan. 14, 2026. (Jesse Paul, The Colorado Sun)“I don’t mind tax credits,” said Pelton, whose measure doesn’t have Democratic support and is likely to fail. “But doing a tax holiday where you don’t have to pay taxes at all? That just helps families across the state.”
He predicted that the TABOR surplus measure, if it makes the ballot, will be rejected by voters. Pelton said voters want the legislature to prioritize spending — such as by redirecting funds set aside to fund Medicaid access for people living in the U.S. illegally — instead of spending more.
Efforts to increase the surplus
Some Democratic lawmakers plan to run bills this year that would increase the surplus by eliminating tax breaks, mostly the ones offered to businesses.
Democrats in the legislature did something similar during the special session in August in response to the passage of congressional Republicans’ tax and spending bill. Those moves generated about $150 million.
State Sen. Mike Weissman, an Aurora Democrat, is leading the efforts at the Capitol this year.
“The basic idea is the tax code needs to work for the large majority of people in our state,” Weissman said.
State Sen. Mike Weissman, D-Aurora, leads a committee at the Colorado Capitol in Denver Jan. 28, 2025, during a hearing for Senate Bill 3, which would ban the manufacture and sale of certain semiautomatic rifles, shotguns and pistols that can accept detachable ammunition magazines.(Jesse Paul, The Colorado Sun)More revenue would mean more money available for the kinds of tax credits Democrats have passed in recent years to try to address socioeconomic inequities. If a ballot measure increasing the TABOR cap passes, it would mean more money for the legislature’s general fund.
Democrats plan to decouple some areas of the state tax code from the federal tax code to reverse changes made through One Big Beautiful Bill Act. They also plan to take on some state tax breaks that have been eyed for elimination for years.
One of those is a state sales tax exemption on software that is delivered electronically. If you buy it in a store, the purchase is not exempt.
State Rep. Steven Woodrow, D-Denver, said the revenue generated by that change would be used to fund a tax credit incentivizing housing development near bus and train stops.
Beyond the TABOR cap
The debate over how to use the surplus wouldn’t be necessary if liberal groups pushing a graduated income tax get their way.
Their proposal — a change of the state constitution that would have to be approved by voters — would increase taxes on the state’s highest earners to generate billions of new revenue each year that wouldn’t be subject to the TABOR cap.
Last month, supporters of the idea got eight versions of their measure through the state’s Title Board. Barring appeals, they’ll now choose one to begin gathering signatures to make the
November ballot.
Proponents had been struggling to get the Title Board to approve their initiatives because of the state’s requirement that ballot measures only deal with a single subject.
It remains unclear, however, whether supporters have the millions of dollars needed to collect enough signatures to get their initiative on the November ballot.
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