DENVER – The state’s budget is rounding into form and hospitals appear to be taking the biggest hit.

That is because lawmakers working on the budget opted to not collect $264 million from the federal government through the Hospital Provider Fee to avoid triggering tax refunds under the Taxpayer’s Bill of Rights.

TABOR requires that voters must approve any proposed tax increases and caps the revenue the state is allowed to retain, based on a formula of inflation and population growth, before having to reimburse taxpayers.

Rep. Millie Hamner, D-Dillon, said factoring the impact of TABOR was the hardest part of crafting this year’s budget as the state had reached the limit of revenue it was allowed to retain even though the state population and economy is growing.

That is where the Hospital Provider Fee, which is collected from hospitals and matched by the federal government and then reallocated to hospitals, fits in.

Because the revenue collected by the fee counts toward the general fund revenue of the state, it is considered taxpayer money and counted toward the TABOR limit. If that limit is exceeded, it triggers refunds and limits funds that can be given to other programs, such as transportation infrastructure repairs, education or health care.

“In order to make this budget work, we actually took the amount that we would have been refunding, the $264 million of general fund, and we decreased the Hospital Provider Fee revenue by that same amount so the result is we had that $264 million to work with in balancing the budget,” Hamner said.

The issue is the funds generated by the fee are used to subsidize the revenue hospitals lose caring for patients who either do not have insurance or are on Medicaid, Hamner said. “It keeps the hospitals solvent.”

That is especially true for rural hospitals, which are generally favored by the distribution formula of the fee.

But hospitals aren’t the only ones taking a hit in this year’s budget.

Transportation funding could slip $110 million and the K-12 “negative factor” would increase by $48 million.

The increase to the negative factor, which is the gap between state funding for K-12 and what some interpret as the obligation of the state under Amendment 23, doesn’t come as a surprise, as last week the conversation swiftly changed from “are you going to increase the negative factor” to “how much are you going to increase it” after the state’s revenue forecast came out.

The surprise is that the increase was limited to $48 million, especially when it was projected to go up $75 million, Hamner said. “Most people in the know were pleasantly surprised that was all we had to do, and they were even more pleasantly surprised yesterday when we closed out the budget.”

While any increase to the negative factor is lamentable, it isn’t necessarily an accurate representation of actual education funding, Hamner said. “When the schools say they’re being cut, that’s not exactly true.”

In reality, funding for K-12 is increasing in the 2017-18 budget by $190 million, including an increase in per pupil funding of $185.

The discrepancy between the increase in overall funding and the uptick in the negative factor is because of differing interpretations of Amendment 23, which requires state funding for education to keep pace with inflation.

Hamner said there are two interpretations: 1. The total funding amount for schools should increase at the rate of inflation, or 2. Only the per pupil funding should increase at that rate.

The Colorado Supreme Court has ruled that the funding for K-12 should be based under the latter interpretation.

But the budget is far from final, as it must go through both chambers of the Legislature and there is legislation pending that could change the outlook.

There is the big transportation funding bill, HB 1242, which would seek a sales tax increase to generate more than $650 million a year for the next 20 years toward the Colorado Department of Transportation’s budget, and a plan to reform the Hospital Provider Fee.

In the past, bills have been run by Democrats to change the fee into an enterprise, which would make the funds it generates not count toward the TABOR limit and allow the state to maximize the federal matching dollars for hospitals. But all have died in the Republican-controlled Senate.

One such bill was introduced earlier this week but was killed by its sponsor so a bipartisan effort could be crafted.

With the budget drafted and the impact to rural hospitals understood, the talks for reforming the fee are expected to increase along with the debate over how Colorado should prioritize funding.

“There are a lot of things that can happen to this budget and to the end-story between now and our last day of session,” Hamner said.

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