Colorado Gov. Jared Polis is cutting Medicaid reimbursement rates and redirecting more than $100 million in affordable housing funds as part of his plan to close the state’s budget deficit. 

The announcement on Thursday, Aug. 28, comes two days after lawmakers wrapped up a special session in which they passed a series of tax changes that are projected to raise $250 million in new revenue to help with the state’s shortfall. 

The roughly $800 million deficit was caused by tax code changes under the sweeping megabill passed in July by congressional Republicans and signed into law by President Donald Trump. 

While the legislature was called back to the Capitol to raise revenue, lawmakers did not approve any spending cuts and instead empowered Polis to make those decisions himself. They did pass a measure, Senate Bill 1, that requires the governor to notify the legislature’s Joint Budget Committee of any spending reductions.

The governor on Thursday met with lawmakers on the committee to discuss his plan, which had already been approved through an executive order Polis issued earlier that day. The two-pronged approach includes $102 million in spending cuts and $147 million in redirected funds for the current fiscal year. 

Polis also plans to use more than $300 million from the state’s $2.3 billion reserve to plug the remaining budget hole. 

“Our goal was to cause the least harm, the least damage,” Polis said. “We hope you think we did that.” 

Most cuts are set to take effect on Sept. 1, though lawmakers can make changes when they pass their 2026-27 budget during next year’s regular legislative session. 

The majority of cuts will be made to the Department of Health Care Policy and Financing, which oversees the state’s Medicaid program. 

The department is set to lose more than $79 million. Around half of that will come from cuts to reimbursements to Medicaid providers. 

The legislature previously approved a 1.6% increase in provider rates for the current fiscal year, which will now be clawed back under Polis’s plan. That change won’t take effect, however, until October. 

Other cuts include more than $12 million in contracts with state colleges, universities and higher education programs, $3.6 million for gender-affirming care for transgender inmates, and $2.5 million for a program that provides dental care for Medicaid recipients. 

Polis is also redirecting money from other fund accounts to the state’s general fund to help close the deficit. 

The bulk of that will come from Proposition 123 funds, which provide grants and loans to help local communities build affordable housing. The governor’s plan will tap $105 million in Prop 123 funds, though Polis said this will not affect any funding projects that have already been approved this year. 

Other funds that will have dollars diverted include a disability support fund and a mobile home water quality fund. 

Polis said he worked to avoid across-the-board cuts and instead “wanted to put every dollar to the best possible use.” He said some of his cuts had been brought forward before, but that lawmakers did not accept them at the time.

“But that was in a different budget situation,” he said. “This is a time when we need to focus on the difference between things that are nice to have and things we need to have.” 

Polis said his plan will not touch K-12 funding, an especially delicate political topic after the legislature committed to a plan last year to enhance public education spending. It also does not impact public safety. 

The budget cuts come on top of a hiring freeze for state employees that Polis issued on Aug. 22 and which is set to last through the end of the year. Polis expects that to save the state $3 million. 

Most of the questions lawmakers asked Polis on Thursday centered around cuts to Medicaid rates. 

Sen. Barbara Kirkmeyer, R-Brighton, asked Polis why he did not instead cut funding for state programs that expanded health care to undocumented immigrants. Kirkmeyer specifically called out Cover All Coloradans, which provides Medicaid coverage for immigrants who are pregnant or post-partum, or for children under the age of 19. 

Polis said he believes in “making health care affordable for every Coloradan.” He said he doesn’t view the reduction to provider rates as “us cutting health care,” but as the state delivering changes that were in congressional Republicans’ megabill. 

The megabill did contain provisions reducing the federal government’s share of Medicaid funding for states, and mandating work and renewal requirements for Medicaid recipients. Most Medicaid changes, however, won’t take effect until 2027. 

“This is just the tip of the iceberg,” Polis said. “Many of the cuts on health care are in two years, in three years. It’s going to be a very challenging time for the legislature.”

Sen. Jeff Bridges, D-Greenwood Village, who chairs the Joint Budget Committee, said health care providers have already built budgets with the expectation of raising the rate increase that the legislature had previously approved. 

“Can we expect some increase in provider rates to be a part of the budget you propose to us for (fiscal year) 26-27?” Bridges asked. 

Polis did not commit to that, but told Bridges, “We’ll certainly look forward to working with you on that in the upcoming budget year and hopefully having some level of increase.” 

In a statement, the Colorado Hospital Association said it understands the state’s “extraordinary budget challenges” as a result of Congress’ megabill, but that cuts to provider rates “further strain the resources needed to care for patients and communities.”