By Jeremy Albright

Since mid-March, efforts to contain the spread of COVID-19 and avoid overloading our health care system have created historic job losses. By breaking down the data, it’s apparent just how deep the economic consequences of the pandemic are.

Every month, the Bureau of Labor Statistics at the US Department of Labor releases data on employment, unemployment, and the labor force for each state. Employment refers to the total number of workers who are currently employed, while unemployment is the number of workers who are out of work and looking for a new job. The labor force is the sum of those two numbers — everyone who is either working or looking for work. These measures are always important for measuring the health of Colorado’s economy, but they are especially critical now.

COVID-19 has caused significant unemployment. Colorado’s current unemployment rate (the number of unemployed workers as a percentage of the total labor force) shot up to 4.5 percent in March from 2.5 percent in February. By comparison, the last time Colorado’s unemployment rate was 4.5 percent or higher was September of 2014. Such a large increase in the unemployment rate in such a short span of time is shocking, but it doesn’t even capture the full picture.

In addition to rising unemployment, the labor force is shrinking due to the lack of available jobs. While total employment in Colorado fell by 108,000 in March, only 62,300 of the people who lost their jobs are considered unemployed. For another 45,700 workers, not only are their jobs gone, they’re not actively seeking out a new one and therefore aren’t considered unemployed under the technical definition. Figure 1 below shows how the numbers break down:

Similarly, we can learn more about the present employment situation by comparing today’s numbers to points in the past. Since the Great Recession, Colorado had been among the leading states for job growth, adding nearly 618,000 jobs between February of 2010 and February of 2020. The change in the number of jobs over the last month starkly contrasts with the accelerated job growth of the last decade. In March 2020, Colorado now has about as many jobs as it did in March 2018. COVID-19 has erased nearly all of the job growth of the past two years.

It remains to be seen just how much COVID-19 will damage Colorado’s economy in the weeks ahead, but the sacrifices businesses and employees are making are already evident. Next month’s state employment and unemployment report will give us a clearer picture of just how many of the last decade’s job gains have been wiped out by the pandemic.

By Carol Hedges

Ever since the COVID-19 pandemic began, the deluge of data and reports on the health and economic consequences of the coronavirus has been overwhelming. This week, as virus-related deaths nationwide passed 30,000, we also learned that US debt is expected to exceed the size of the overall economy for the first time since World War II. Horrible as it’s all been, I thought I had grown accustomed to reshaping my perspective and my emotions on the magnitude of the crisis daily.

And yet, this week I read something that did more than just surprise me. It literally made me sick to my stomach. The CARES act, a bill that my organization evaluated and even lauded as desperately needed relief for millions, contains a provision that will provide some of the wealthiest people in the country with billions of dollars they would have otherwise paid in taxes.  

CFI missed this “easy-to-overlook provision” because we were squarely focused on the relief provisions for the workers and businesses who’ve lost their livelihoods as we try to “flatten the curve.” We spent our time combing documents, comparing notes with partner organizations, getting insight from small business groups, sharing in the pain felt by immigration advocates, and doing everything else necessary to understand what the federal response will mean for Coloradans. As we focused on our priorities, we neglected to scrutinize the bill’s other provisions more heavily, including those that benefit the country’s wealthiest and most powerful.

As Congress denied $1,200 direct cash payments to millions of immigrants who file their taxes using an Individual Tax Identification Number (ITIN) instead of a Social Security number, they carved out a generous deduction that applies only to those who earn over $500,000 in income. Rough calculations suggest that providing the $1,200 cash payment, along with a $500 per-child boost, to families who file using an ITIN would have cost just under $7 billion. The portion of the tax break to benefit those earning over $1 million, by my rough calculations, will cost about $75 billion.

This provision also has real costs closer to home. Since Colorado’s tax code links the amount of a filer’s income subject to state taxes to their federal taxable income, state revenue will be further drained. At a time when Colorado is already expected to be getting $3 billion less in revenue to pay for the public services we’ll need to recover from the pandemic, Colorado’s wealthiest will be able to deduct losses on their real estate investments from as far back as 2017. It’s incredible and infuriating. 

For years before COVID-19 even existed, our upside-down tax code let the highest-earning Coloradans avoid contributing their fair share of the costs of essential public services. Now, because of this tax break, we’ll have even less to face one of the greatest fiscal challenges in our history.

The crisis created by COVID-19 didn’t cause the weaknesses in our social fabric, but it is exposing them. This shameful piece of the stimulus bill demonstrates how difficult it will be for us to make sure the costs of this crisis are spread equitably rather than being borne disproportionately by low- and middle-income families.  

When Congress returns to work to consider another round of badly needed federal aid, I hope they will rethink these provisions. Failing that, I urge the members of the Colorado General Assembly and the governor to decouple Colorado from this section of the federal tax code and spare us from this unwanted and inequitable piece of tax policy.   

By Esther Turcios and Louise Vazquez

A Crisis Within A Crisis
Everyone in Colorado, in the United States, and across most parts of the world is feeling the effects of the coronavirus pandemic. Whether we’re dealing with illness, losing our jobs or income, or even an increase in everyday stress from staying at home to curb the spread of the virus, this pandemic has affected every Colorado family and community. That includes immigrants.

Those of us who have lost our livelihoods and worry for our health and well-being are now seeing our elected officials start to step in with aid. Congress and the president recently came to an agreement on a $2 trillion stimulus plan to get cash out to families, businesses, and state and local governments to mitigate the toll of the COVID-19 outbreak. Whether that aid comes from cash payments or unemployment insurance (UI), leniency on utility bills or evictions, or any other form, it all helps.

But imagine if you were excluded from receiving this aid, and had to deal with losing your home, struggling to feed yourself and your family, and trying to find a way to earn income to pay the bills without the help others are receiving. This is the reality for many undocumented immigrants. The reason: recent federal relief efforts left out those who use an Individual Tax Identification Number (ITIN). 

In the midst of this pandemic, we’ve seen a common refrain: we are all in this together. But that’s not the reality for so many of our friends and neighbors. So how do we live up to the goals and aspirations of truly being all in it together? First, we must agree and recognize that our immigration status doesn’t determine our humanity. Everyone should be able to meet our own needs and the needs of our families and weather the storm created by COVID-19. Being able to do so shouldn’t be a privilege afforded to most, it should be a basic right for all of us. Second, we need to recognize that with the fear of being detained by Immigration and Customs Enforcement (ICE), being subjected to discrimination and racism, and many other day-to-day worries continuing despite the outbreak, immigrants are in many ways dealing with a crisis within the COVID-19 crisis.

How Colorado Can Help
Immigrants are a part of our communities. They’re our family members, our neighbors, our colleagues and friends. Like everyone else in Colorado, immigrant should be able to receive aid without additional barriers. Colorado immigrants contribute greatly to our economy, they pay nearly $4.2 billion in local, state, and federal taxes and do many important jobs — many of which are currently deemed essential under stay-at-home orders in Colorado and across the country. And while the fiscal and economic contributions made by immigrants of all statuses are important, we should include them in relief efforts, not only because they work and pay taxes, but because it’s the right thing to do. By leaving immigrants out of federal and state responses (like Congress did when they passed the CARES Act), families are going without the relief they need to pay their bills, put food on the table, afford doctor visits and other costs associated with staying healthy, and make it through this crisis. Not only is this immoral, but as this public health crisis has made plainly clear, when we forget and neglect the well-being of some us it affects us all.

People of all races, citizenship statuses, and income levels must advocate for federal and state responses to include immigrants in relief efforts by: 

• Distributing cash funds to all residents regardless of status.
• Providing health care and UI benefits to individuals regardless of status.
• Prohibiting ICE from detaining people during the pandemic.
• Releasing people imprisoned in detainment centers.
• Asking community and philanthropic partners to prioritize immigrant communities by issuing statements to their grantees to provide spaces where they are not at risk of being detained.

Colorado has already taken some of the action necessary to provide support to our immigrant communities, including banning ICE arrests in courthouses. The Colorado Immigrant Rights Coalition (CIRC) has also provided unemployment, medical, and legal resources for immigrants and refugees in the state of Colorado. CIRC is also petitioning Governor Jared Polis to take action on providing needed assistance and protection for immigrants during the COVID-19 outbreak. You can sign and share the petition here. 

If you or someone you know requires help during the crisis, the Center For Health Progress has provided resource guides in English and Spanish with information on options for food, housing, health care, mental health, domestic violence, utilities, unemployment, and more, as well as general information about social distancing, the stay-at-home order, and COVID-19 itself. The Colorado Center on Law and Policy has also put together a list of resources for immigrant families.

A crisis like the COVID-19 epidemic brings to light how connected we are and how much we need each other. Let’s include everyone in conversations and policy regarding prosperity, economic well-being, and safety because immigration status should not determine whether any Coloradan is treated with humanity.

By Jeremy Albright, research manager

On March 5, the first reported case of COVID-19 was reported in Colorado. By that time, the disease had already wreaked havoc on economies and health systems in China, Iran, and Italy. Less than a week later, Governor Jared Polis declared an official state of emergency and began announcing a series of sweeping public health policies designed to curb the spread of the virus. In addition to limiting public gatherings to 10 people or fewer, Polis ordered everything from the state’s ski industry to public dining in bars and restaurants to close. By March 25, Polis had issued a statewide “stay at home” order which, among other restrictions, limited business operations to those deemed essential.  

While public health officials across the world call these steps necessary to save millions of lives, they come at a massive cost to the livelihoods of workers and business owners. And though the true effects of this situation will not be known for some time, recently released data leads economists to believe the US is already in a recession, and the continuation of the outbreak is expected to have unprecedented economic consequences. As we wait for the full picture of the COVID-19 containment efforts and the breadth of the subsequent recession to become clearer, the data from past recessions can serve as a benchmark for comparisons to the one that lies ahead.

During a typical recession, economic growth slows because consumers take home less in their paychecks (or receive only a partial wage replacement through unemployment insurance) and subsequently spend less money on goods and services. In turn, businesses require less labor to produce products or provide services, and often lay workers off to cut costs associated with decreases in demand.

While economy-wide recessions can result in all businesses receiving less revenue, and workers losing their jobs as a result, some industries are more prone to changes in employment than others. Industries like construction, luxury goods, leisure services, and hospitality often experience the largest drop in sales. For example, US industries as a whole experienced a 5.7 percent drop in employment during the Great Recession, but employment in the construction sector decreased by 21.4 percent — a substantially sharper decline than any other industry. Likewise, trade and transportation experienced a 7.1 percent decrease in employment. In Colorado, workers in the sales and personal care and service industries were much more likely to lose their jobs than the average worker in those industries.

Past data show the scale of a recession may vary, and which workers and industries are most affected depend on the economic climate and the root of reduced economic behavior. The chart below shows how three key sectors of Colorado employment faired during and after the Great Recession and subsequent recovery:

In the immediate wake of the COVID-19 outbreak, workers in Colorado and across the country have filed a staggering number of unemployment claims as virus-related layoffs and business closures mount. On March 20, the number of new unemployment claims was estimated to hit more than 2 million nationwide by March 26. In fact, that estimate proved to be roughly more than 1 million claims too low, according to new numbers from the US Department of Labor. In Colorado, nearly 61,000 workers filed new unemployment claims from March 21-26, nearly five times the increase from March 23-25, following a boost in capacity by the Colorado Department of Labor and Employment to process claims after the system was overloaded in the initial wave of layoffs. Workers in the leisure, hospitality, retail, and food service industries represent the vast majority of that first wave of jobs lost due to efforts to curb the spread of the virus. After the broader stay-at-home directive from Gov. Polis, it’s possible the next wave of claims will come from a broader group of workers.

Given the unprecedented surge in unemployment claims, many predict the effect of the outbreak-induced recession on Colorado’s leisure, hospitality, and retail sectors will be larger than effects of the 2008 recession. The Economic Policy Institute (EPI) estimates 26.5 percent of Colorado workers are employed in these industries, slightly higher than the nationwide average of 25 percent.

Our analysis of labor data comparing 2008 to 2018 estimates food service workers will likely make up a significant number of jobs lost. Jobs in that industry make up a sizable share of the economy, totaling over 9% of all employment in the Denver-Aurora-Lakewood metropolitan statistical area in 2018. Of these food service workers, waitstaff and bartenders — the vast majority of whom are currently unable to work — represent more than 35 percent of food service workers in the area.

Because workers in the leisure, hospitality, and food service industries are often most likely to lose their jobs during any recession, and because those jobs were already among the fastest-growing occupations in Colorado, job losses will almost certainly be unlike any in modern history. Overall, EPI estimates Colorado will lose around 261,000 jobs statewide, or an 11.2 percent drop in total employment.

Whether the coming recession is v-shaped or u-shaped (i.e. a sharp economic contraction followed by an equally sharp uptick in growth, or a sharp contraction followed by a more prolonged recovery) is dependent on a number of factors, some of which we have more control over than others. It will be difficult to control the extent to which we are able to contain the spread of the virus through social distancing measures that require millions of people to adhere to drastic changes in our way of life. However, changes to laws and policies at the federal, state, and local level are well within our control and offer solutions that could help ensure a quicker recovery — though achieving them may be more difficult for political and other reasons.

As of late March, little is certain about the COVID-19 outbreak and the recession it is still spawning. One thing, however, is clear: there is a massive, ongoing disruption in our way of life. Large swaths of workers are losing their jobs, either due to efforts to curb the spread of the coronavirus or extreme reductions in demand related to those efforts, and the economy is reeling.

All signs point to us still being in the early stages of an unfolding event, so in addition to lacking a full picture of the overall economic impact, we also lack critical information about how the impact of this disruption will be distributed across Coloradans of different races and income levels. Historical data show that pandemics tend to disproportionately affect those who work jobs that pay low wages, older people, and those who lack health insurance. Because of systemic bias, people of color tend to be overrepresented in the categories of those most affected. We must use data and common sense to craft recovery policies that help those most affected and most in need. 

With the crisis deepening seemingly by the hour, it will be critical for Congress, state lawmakers, and other policymakers to make sure the costs of recovering are spread in a fair and just way. If we meet this challenge with the same unprecedented speed and tenacity shown by the virus, Colorado and the country can emerge with a more sustainable and more equitable economy.

By Chris Stiffler, senior economist

Here at CFI, we’ve been thinking a lot about the economic impact of the coronavirus pandemic. In particular, we’ve been trying to get a handle on what this incredible disruption will mean for Coloradans in the next few years. As researchers, we are most comfortable evaluating historical data, so we turned to the last two recessions to see how economic indicators performed and what happened with state revenue. This analysis will inform our consideration of what lies ahead.

By looking at past data, we don’t want to imply the economic fallout will resemble either the 2001 or 2009 recessions. The economic disruption from the COVID-19 recession is truly unprecedented. There will, however, be similarities in terms of the fiscal effects: state revenue will fall, and at the same time demand for public services will increase. 

The following ten charts show what happened the last two times we were faced with a contracting economy. We’ve also included a few that demonstrate some differences between now and then that suggest that the trajectory for recovery may be different this time around.

We think it’s important to provide this data so we can all share the same starting point when, inevitably, our attention turns to the kinds of policies we need to get Colorado back on track. At CFI, we will be looking for policy solutions to address the short-term economic chaos and, equally as importantly, we will be laser-focused ways to more equitably allocate the long-term costs of the outbreak.

During the last two recessions, revenue in Colorado’s General Fund, a majority of which comes from sales and incomes taxes, fell by 13 percent. Most of that revenue funds schools and healthcare. Other important services receiving funding from General Fund sources include colleges, human services, courts, and prisons.

The federal Earned Income Tax Credit (EITC) is a powerful tool for boosting incomes of families and workers who earn low incomes when they file their tax returns. Many states, including Colorado, have adopted state-level EITCs that augment the federal credit. For Coloradans who qualify, the state credit is 10 percent of the federal. In 2009, during the height of the Great Recession, the federal EITC was worth $703 million. While Colorado did not have a permanent state EITC until 2013, if the 10% state credit existed during 2009, it would have been worth $70.3 million. 

Absent a recession, the estimated cost of the EITC is represented by the gray dotted trend line. Under that projection, the cost would have been $60.1 million. As you can see, the actual experience of Colorado tax filers was not a straight line. Instead of an anticipated $60.1 million, the 10 percent state credit would ended up being $70.3 million, an increase of 15.5 percent created by falling incomes during the Great Recession. Applying that 15.5 percent increase in the state EITC to last year’s figures, we would be looking at an increase of around $12 million.

Medicaid gives people who earn low incomes and children of parents who do not have their own health insurance the ability to see a doctor and get other health care services. Colorado expanded eligibility for Medicaid under the Affordable Care Act starting in 2014, but only those who earn below a certain income level are able to enroll. The federal government covers a portion of Medicaid costs depending on age and other factors. Children get a 50 percent federal match, while adults without dependent kids, who were added in the expansion, get a 90 percent federal match.

During the Great Recession, there was a a spike in Medicaid child enrollment. After a slight drop in the number of Medicaid-eligible children from 205,390 in FY2006-07 to 204,022 in FY2007-08, enrollment rose sharply to 302,410 in FY2010-11.

General Fund revenue fell by 13 percent in 2009, followed by another 4 percent drop in 2010. That meant there wasn’t enough money for K-12 funding to keep up with inflation and growth in the number of students, which meant there were big cuts for K-12 schools. In FY2012-13, the state cut 15 percent from its school budget — resulting in the loss of a full $1 billion in annual revenue for schools. As the economy began to recover, the state slowly reduced the annual shortfall to $572 million for the FY2020-21 school year. Even though legislators cut the school funding deficit nearly in half, we still enter the COVID-19 recession with the state underfunding schools by hundreds of millions of dollars.

In 2000, Colorado voters approved a property tax exemption for homeowners over the age of 65 (and later extended it to disabled veterans). The funding for it came from the General Fund until 2017 when it became the first TABOR rebate mechanism. The legislature has the power to zero out the exemption, which it did for for years during each of the last two recessions. Older Coloradans who have lived in their home for at least 10 years save a little over $600 a year on average, but a 2019 CFI analysis found the exemption inequitably distributes benefits along racial and economic lines.

During good economic times, the General Assembly is usually able to transfer General Fund revenue to the fund that pays for our roads. During the last two recessions, state general fund collection reductions cause those transfers go away, forcing us to rely almost exclusively on Colorado’s gas tax to fund transportation. That tax, which is a set per-gallon amount and isn’t tied to inflation or fuel prices, has stayed the same for nearly 30 years.

Colorado’s public colleges and universities are vital institutions, and a college education is widely seen as a way to open doors to economic opportunity. During recessions, workers who have experienced layoffs or find it difficult to get hired often turn to higher education as a way to develop and hone their skills to make themselves more marketable to employers.

Over the last 25 years, Colorado resident enrollment in colleges and universities averaged a 1.25 percent increase each year. But after the Great Recession, there was a 9.5 percent jump in resident enrollment in 2010. That same year, growth in community colleges enrollment was nearly double that of four-year colleges at 18.9 percent.

Because more than two-thirds of the US economy is driven by consumer spending, the way people are feeling about spending money is typically a good bellwether for whether we’re heading towards continued growth or entering a recession. In the chart above, it’s clear that while sales tax collections were still increasing in 2008, consumers were anticipating hard times in the near future. They were right. The consumer sentiment index fell to 74.5 in 2008, and sales tax collections in Colorado fell by 9 percent the next year. The Consumer Sentiment Index didn’t return to pre-recession levels until 2014. 

In January 2020, Consumer Sentiment was very robust at 132.2. State economists forecasted that sales, use, and excise taxes would make up 30 percent of General Fund revenue in September of 2019.

During past recessions, the unemployment rate typically spikes quickly compared to the time it takes for employment to return to pre-recession levels.

In August of 2001, Colorado’s unemployment rate was 4.1 percent. Joblessness was slowly increasing at that time, rising from its lowest point of 2.7 percent in December of 2000. By June of 2003, the unemployment rate in Colorado peaked at 6.1 percent. 

In August of 2008, unemployment stood at 5 percent in Colorado, rising to 7.6 percent by August of 2009 before peaking at 8.9 percent in September 2010, two years after the financial crisis of 2008. Those job losses took two years to peak, but it took Colorado’s economy nearly six years to return to the pre-recession level of 5 percent unemployment in June of 2014.

The amount of money individuals can sock away for a rainy day, or the lack thereof, is one way to tell how long they might be able to weather a job loss. In August of 2008, the national savings rate was 3.8 percent. While that rate peaked in 2012 before leveling off, heading into 2020 people were saving was more than double what they were prior to the Great Recession.

The sluggish recovery following the Great Recession was, in part, because people were paying back debt and adding money to their savings rather than consuming. Though it’s encouraging to see the national savings rate increase to a higher level, it’s important to remember most of the increase comes from people who earn the highest incomes. Those same high income earners received much larger income gains since the Great Recession and then garnered disproportionately large federal tax cuts in 2017.

Despite the rise in inequality, savings rates among people who earn low and moderate incomes are still higher. For instance, 40 percent of Americans said they were unable to absorb an unexpected $400 cost in 2018 according to the Federal Reserve’s Report on Economic Well-Being. That’s still an alarming statistic, but it’s substantially lower than the 50 percent of people who said the same thing in the 2013 edition of the report.

By Chris Stiffler, senior economist

The COVID-19 outbreak is presenting unprecedented challenges for governments across the globe, including the state of Colorado. Adopting behavior necessary to curb the spread of the disease and “flatten curve” of demand on our health care system is having drastic and immediate effects on our economy.

Lawmakers paused the legislative session on Saturday, March 14 in response to the outbreak, but the Joint Budget Committee still met on Monday to hear the quarterly revenue forecast from state economists. Because state revenue is tied to economic activity, this latest forecast will be very consequential for lawmakers when they return to work and pass a budget.

During these unique circumstances, we hope our top five takeaways from the forecast will help you understand the challenges the state is facing:

1. Colorado will have hundreds of millions of dollars less for state priorities in the 2020 budget, and there won’t be any TABOR rebates

In December, forecasts from state economists estimated lawmakers would have $832 million more for next year’s budget (FY2020-21) than was appropriated this year. However, because of increases in inflation and more K-12 students, Medicaid patients, and college students, lawmakers went into the 2020 session expecting to have about $56 million in new money to spend in FY2020-21. 

As of Monday, that forecast has been drastically revised downward. Instead of $832 million to spend to keep up with inflation and population growth, now economists believe there will only be $27 million more. Even going by conservative estimates, this means Colorado will be short of keeping up with inflation and population growth by more than $425 million.

This sharp decline in revenue has also dramatically changed the TABOR rebate situation. In December, forecasters expected $367 million in TABOR rebates in FY2020-21. The state is now projected to be $630 million below the spending cap set by Referendum C in 2005.   

Because the first TABOR rebate mechanism pays for the property tax exemption for older Coloradans and disabled veterans, lawmakers who were expecting to use those rebates to fund the exemption must now pay for its nearly $162 million cost out of the General Fund — the section of the budget that pays for roads, schools, Medicaid, colleges, human services, and other important priorities. Lawmakers have funded this exemption through TABOR rebates or General Fund spending every year since was zeroed out from 2009-2011 during and immediately following the Great Recession.

2. Our economy’s strength before the COVID-19 outbreak may help us recover

While good news has been few and far between lately, today’s forecast did have the potential for a silver lining: the economic contraction forecasters are expecting is not the same as the Great Recession in 2008. The financial crisis that caused that recession was created by structural issues in the banking and housing markets, which required years of intervention to get back to a healthier place.

Entering the month of March, Colorado’s economy was strong (despite some businesses too exposed to corporate debt). Low unemployment, high consumer confidence, and growing personal income gave the economy a good foundation before COVID-19 ground things to a halt. Retail sales were up 3.2 percent in December over the same period the prior year. Restaurants, bars, car dealers, and retail stores all saw nice growth between 4 and 5 percent compared to the prior January. More broadly, the national economy added 2.4 million new jobs in February, making it the 113^th straight month with job growth. 

Prior to the outbreak, unemployment rates reached historic lows. The national unemployment rate of 3.5 percent was the lowest level since 1969, and Colorado’s unemployment rate of 2.5 percent continued to be one of the lowest of any state in the country. Going into March, new claims for unemployment were also near historic lows.

Confidence from homebuilders was strong in February 2020 as measured by the House Market Index which recorded a 74 rating (up from 62 the same month a year prior). 

While there is still a great deal of uncertainty around how quickly we can and will recover from the effects of the COVID-19 outbreak, forecasters hold out hope we can still bounce back by the end of the year.

3. Will the recovery be V-shaped or U-shaped? We won’t know until at least May

Because the state unemployment survey for the month of March was performed the week of March 9, the figures released in April won’t be able to capture what COVID-19 is doing to Colorado’s labor market. We’ll have to wait until May, when the state releases April jobs data, before we can begin to really access the effects of the outbreak on employment. Economists also look at Unemployment Insurance Claims, but those leave out the gig economy and independent contracts, many of whom will be among the hardest hit by a sharp drop in demand for services like ride sharing.

Legislative Council’s forecast is treating this as a temporary shock to the economy — closer to the recession created by the 9/11 attacks, not a prolonged downturn like the Great Recession. Unfortunately, the Federal Reserve System will not have as many tools available to address the economic downturn as it did at the start of the Great Recession: On Sunday, the Federal Reserve drastically lowered interest rates and announced plans to purchase government debt on Sunday in an effort to stimulate the economy and stabilize financial markets. With the benchmark federal interest rate now hovering between 0 and 0.25 percent, there’s little the central bank can now do to act if conditions worsen.

The federal government is currently considering fiscal stimulus measures like emergency paid leave and other measures, and can act much more broadly than that, but those policies will require Congress to pass a bill and the president to sign it.

All of these national economic policies will have an effect on how quickly our state economy recovers.

4. We can’t respond to the COVID-19 outbreak and the economic downturn ahead by cutting spending

During the heart of the Great Recession lawmakers cut $1 billion dollars from K-12 education by creating the now-infamous negative factor (now called the budget stabilization factor). Lawmakers also made deep cuts to higher education, causing tuition to increase and students to take on more debt in order to afford it. They also passed legislation that temporarily suspended certain tax exemptions like the property tax exemption for older Coloradans mentioned above.

Some of these cuts were restored during the 2012-2019 recovery period, but the impact of those reductions remain. We are still underfunding K-12 education by over $500 million and we only spend about 43 percent on per-student funding for higher education compared to the national average.

While lawmakers might be tempted to turn to more cuts in funding as they did in 2009, it’s critical for everyone in Colorado to understand that we cannot cut our way to prosperity. We have underfunded our public services nearly to the breaking point and more cuts will just mean more stress on our families and our communities, not economic recovery. 

5. Lawmakers will need to get creative when they come back to the capitol in order to face the health and economic challenges of COVID-19 head-on

The forecasts state economists provide look only at the revenue side of the budget equation. While it’s clear we are about to experience a sharp decline in money coming in through tax collections, Colorado will almost certainly need to spend more to address the consequences of this unprecedented public health crisis and the economic challenges associated with it.

While the federal government will likely act as well, lawmakers and Gov. Polis will be looking for methods to rapidly inject money into the budgets of Coloradans who might be out of work for a few months.

This is going to be tricky, because the same tax code that limits our ability to adequately fund our public investments like schools, colleges, and roads also limits our ability to quickly navigate a fast-moving crisis like the one presented by COVID-19. This unprecedented challenge will require legislators and the governor to think outside the box in order to come up with options that will adequately address the sudden and potentially months-long drop in the demand for and the supply of goods and services.

By Caroline Nutter

On February 10, the Trump administration released a budget for FY2021 that makes harsh cuts to health care, food and energy assistance, and other supports millions of people rely on to make ends meet. The administration’s proposal, which would cut the federal budget by $2 trillion over the next decade, also calls for the 2017 tax cuts to be made permanent. It’s estimated that those tax cuts — which disproportionately benefitted the wealthiest people and corporations — cost at least $1.5 trillion between 2018 and 2028.

Health Care Cuts
The bulk of the administration’s proposed health care cuts come from stripping about $1 trillion in premium subsidies (those subsidies help families who earn qualifying incomes afford to pay for health insurance they purchase through exchanges like Connect For Health Colorado) and funding for states to expand Medicaid. Medicaid expansion and premium subsidies, originally laid out in the Affordable Care Act (ACA), were the two foundations of the policy. The budget would also implement work requirements for Medicaid, which would leave millions of people without the ability to afford to see a doctor or get other health care services. These cuts come after the administration failed to repeal the ACA in 2017 and signed on to support a lawsuit filed by a group of states led by Texas who argue the law is unconstitutional.

Cuts to Tools for Reducing Poverty
The budget not only proposes $182 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) and a $20 billion cut to Temporary Assistance for Needy Families (TANF) over the next decade, it also makes it harder for people to qualify for SNAP in the first place. The budget proposes extending the work requirement rule for those receiving SNAP from age 49 to age 65 and imposes new requirements on states for families who receive TANF. The administration also proposes a 43 percent reduction in funding from FY2020 to FY2021 for housing assistance by eliminating the National Housing trust fund, taking away vouchers for 160,000 households, and cutting other development programs.

Cuts to Student Loan Debt Relief
President Trump’s proposal would cut the popular Bush-era public service loan forgiveness program as part of a $170 billion cut in assistance for certain student loan borrowers. In addition to the cuts to the loan forgiveness program, it also includes cuts to work-study funding, proposes annual and lifetime limitations for parents and graduate students looking to take out loans, and eliminates subsidized federal student loans. The budget does contain modest expansions in eligibility for Pell Grants and provides additional funding for Historically Black Colleges and Universities (HBCUs).

Tax Cuts
This proposed budget would make permanent the temporary personal income tax rate cuts passed in the Tax Cuts and Jobs Act of 2017. That law, also known as the Trump tax cuts, made sweeping changes to the federal tax code, including permanently lowering the corporate income tax rate from 35 percent to 21 percent. The law also included significant cuts to personal income tax rates. For instance, beginning in 2018, the law reduced the top income tax rate for couple filing joint income tax returns from 39.6 percent to 37 percent. We’re already starting to see income inequality worsen, with the nonpartisan Congressional Budget Office projecting incomes for the top 1 percent will grow twice as fast as wages for middle-income families. That unequal growth is due, at least in part, to the Trump tax cuts.

What Isn’t Getting Cut?
The budget proposal would increase funding to the Department of Veterans Affairs (VA) by $12.3 billion, NASA’s budget would increase by $2.7 billion, and the Department of Homeland Security (DHS) would see a spending boost of $1.6 billion. The increase in VA spending would be directed towards the fight against opioid abuse and suicide prevention, as well as expanding caregiver benefits to those caring for sick or disabled veterans. The majority of NASA’s increased spending is to go towards the President’s goal of sending astronauts to the moon by 2024. Unsurprisingly, increased budget dollars for DHS would be used to expand deportation powers and for border wall funding.

A Harmful Blueprint
As troubling as this budget is, as in past administrations, the president’s budget is an “aspirational” document since spending caps for the upcoming fiscal year have already been set by Congress and the White House. The document is, however, a look at the administration’s goals for the future. It’s clear the White House is committed to slashing funding for tools that lift millions out of poverty and remove barriers for families struggling to make ends meet, while simultaneously making permanent the temporary individual income tax cuts passed that went into effect in 2018.

The Colorado Fiscal Institute invites you to join us for an evening of exploration into the history and reasons behind why racism is at the root of tax policy, and how we can change the tax code to create a system that builds a more equitable future.

Tax policy isn’t race neutral. In fact, the history of its development shows us how it has been used explicitly as a tool for discriminating against people of color. Tax policy has been a powerful tool for shaping our country’s political, social, and economic landscape and has contributed to further consolidation of wealth and power into the hands of a small, predominantly white, group of people in the United States. But tax policy can also be wielded to undo those harms, right past wrongs, and build a more equitable future. It can be a tool for creating a true and healthy democracy.

We are excited to bring Michael Leachman, Senior Director of State Fiscal Research at the Center on Budget and Policy Priorities, to lead the discussion on how taxes shape politics, policy, and our ability to live out our democratic ideals. Leachman co-authored Advancing Racial Equity With State Tax Policy, a report that digs into the harmful legacies of past racism and the damage caused by continuing racial bias and discrimination.

Michael Leachman is Senior Director of State Fiscal Research with the State Fiscal Policy division of the Center, which analyzes state tax and budget policy decisions and promotes sustainable policies that consider the needs of families of all income levels.

There is no cost to this event but seating is limited. Please use the form below to RSVP.

Registration is closed. 

Thanks for your interest but we are no longer accepting registration for this event as we’ve reached capacity.

Let us know if you have any questions at schneider@coloradofiscal.org.

By: Christ Stiffler, senior economist

1. Slower growth on the horizon

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Do you want the good news or the bad news first?

The good news is unemployment is still very low at 2.6 percent and workers are still seeing some wage gains. The bad news? They’re continuing to predict a tight labor market will cause Colorado’s economy to grow at a slower pace next year.

Some of our state’s low unemployment is due to retirees who dropped out of the workforce during the Great Recession deciding to get back in again. Unfortunately, some retirees are returning to the workforce because their retirement savings aren’t allowing them to keep up with increases in the cost of living.

2. Local governments tied to the global oil market? Huh?

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Unlike some past years, there won’t be a huge change in the residential assessment rate used to calculate the property tax bills of homeowners under Colorado’s Gallagher Amendment. That’s because we’ve had balanced growth in both residential and non-residential property. Still, the residential assessment rate is expected to drop slightly from 7.15 percent to 7.13 percent in 2020.

There is one wrinkle in this projection: Because much of the non-residential property value growth of the past few years was due to an increase in the value of oil and gas facilities, and recent declines in the price of oil and natural gas could result in a higher-than-expected drop. Since many special districts rely solely on property taxes for funding, public services like fire departments and libraries are tied to the global oil market.

Elsewhere, with few affordable options in the Metro Area, many families are relocating to the Colorado Springs region, which is expected to see a growth in assessed value of 12.2 percent from 2020-2021. Families are also heading to the Eastern Plains, trading a longer commute for more affordable homes. The Metro Area is still expected to see fairly strong assessed value growth at 9.1 percent.

3. Lawmakers will have less to work with than they did last year—despite a great economy

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Colorado’s economy has been expanding every year since the Great Recession, and though (as noted above) growth is expected to slow soon, the economy is about as strong as it can get. Unfortunately, due to the tax code we’ve locked into our state constitution, we can’t use all the benefits of that strong economy to invest in things like K-12 education and transportation.

Although the state budget is expected to have $832 million more this year than when appropriated last year, because of inflation and the growth in the number of K-12 students and Medicaid patients, we’ll only have $55.5 million more to spend on next year’s budget.

Even during what many economists see as the best possible economy over the past few years, we still can’t pay down the negative factor or invest enough to solve our transportation needs.

While there will be a tax rebate for tax year 2019 in the form of a temporary reduction in the state income tax from 4.63 percent to 4.50 percent, forecasters do not predict the state will have enough revenue coming in to keep the rate at 4.50 percent in 2020. There will, however, be enough to trigger the six-tier sales tax rebate in addition to funding the homestead tax exemption for older Coloradans and veterans with disabilities.

4. More kindergarteners (but fewer babies)

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The new law allowing every child over the age of five to enroll in full-day kindergarten is expected to boost enrollment for the 2019-20 school year by 3.6 percent, which is higher than normal and driven by expansion of Kindergarten from the full day kindergarten bill passed last session.

At the local level, families seeking the cheaper housing mentioned above are leading to significant growth in enrollment for Colorado Springs-area school districts, while a lack of affordable housing in the Denver area is hurting enrollment growth for districts like DPS.

Despite the bump in enrollment expected for this coming school year, a decline in the state’s birth rate during the Great Recession is will mean fewer school-age students expected to enroll in future years.

5. Double TABOR craters

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As described above, the constitution doesn’t allow us to capture the benefit of real economic growth, which we could use to save in reserve or use to fund capital construction projects like new schools or other buildings. But it hits Colorado’s budget twice because, in addition to not allowing us to invest all the money we collect, Colorado’s strong economy means we don’t get as much from the federal government. That’s because formulas the US government uses to distribute money to the states is based on the idea that richer states can generate more revenue to pay for public investments, but our constitution restricts Colorado’s budget from benefiting from economic growth.

That means we don’t get as much money from the federal government, but we also can’t use all the revenue we take in—money the federal formulas assume we have—to pay for schools and Medicaid either.

By Chris Stiffler, Senior Economist

It took more than five years, but Colorado’s retail cannabis industry hit $1 billion in state tax revenue in May 2019. Since Colorado retail cannabis sales were legalized in 2014, total state revenue totaled $1.15 billion through October 2019, according to the Colorado Department of Revenue. While total state taxes and fees on retail cannabis continue an upward trajectory, the excise tax on cannabis growers (the revenue source that supports a school construction fund) has remained flat since the middle of 2016. Figure 1 below shows total taxes and fees compared to the revenue collected from the 15 percent excise tax. 

Before diving into why this is the case, it’s important to put cannabis taxes in context within the state budget. Even after adding up all the revenue from cannabis legalization, it generates around $200 million per year, which is only around 2 percent of the state General Fund. So while $1 billion over five years definitely sounds like a lot of money to you and me, it’s a drop in the bucket when it comes to the financial needs of our state. Put another way: the total program funding for K-12 education in Colorado during the same time period was $37.7 billion, of which cannabis taxes represented just 3 percent.

The Retail Marijuana Excise Tax is one of two cannabis taxes paid to the state. The other, a special sales tax of 15 percent which is paid by consumers when they purchase retail cannabis, is the source of most of the total state taxes and fees paid on retail cannabis.

The monthly average excise tax collection on cannabis averaged $6 million per month in 2017, $5.1 million per month in 2018, and $5.3 million per month through September 2019.  The excise tax is based on the wholesale price when transferred from grower to retailer. There’s a pretty simple explanation for why wholesale excise tax collections are falling: wholesale prices are also falling. When wholesale prices drop, that means less excise tax revenue is generated from the 15 percent tax even though cannabis sales continue to increase. The result of the lack of growth in these tax collections means less money for capital school construction in Colorado.

The Retail Marijuana Excise Tax funds a portion of school construction in Colorado through the Building Excellent Schools Today (BEST) program. In FY 2018-19, cannabis taxes generated about $50 million for the BEST program for an annual total of $140 million. Recreational cannabis is one of several sources of revenue for BEST, including Colorado Lottery spillover funds, State Land Trust Funds, and interest. In FY 2018-19, BEST funds helped capital construction projects in about 30 schools across Colorado ranging from new roofs to HVAC upgrades to asbestos abatement. 

After holding steady for the first two years of legalization, the wholesale price of retail cannabis has declined significantly. The wholesale price per pound was around $1,800 from 2014-2016, with a peak of $2,007 a pound in January 2015, as seen in figure 2 below. In 2018, the average wholesale price per pound fell to $759. More efficient cultivation largely drove the decline in wholesale prices.

Figure 3 shows the cannabis excise tax revenue as a portion of total taxes and fees on cannabis since 2014. In the middle of 2016, the excise tax revenue was 35 percent of the total; that number fell to 22 percent this year. While the drop in wholesale costs means flat excise tax revenue, it has translated into lower wholesale prices for retailers, and (at least theoretically) lower prices for consumers. 

Other states with legal retail cannabis such as California and Maine learned from Colorado’s experience and moved to a structure that taxes cannabis by weight rather than by price. But there’s a trade-off to that method. Since retailers are facing paying higher taxes as demand grows for more and more cannabis, it could end up encouraging producers to increase the product’s potency per ounce instead—which could create health risks. There are policy responses to those fears, including creating new regulations to cap the potency of cannabis products. Those pitfalls aside, taxing growers on the basis of weight would mean steady tax revenue regardless of wholesale cannabis price levels.

This story shares inverse similarities with another Colorado fiscal policy issue involving choosing between taxing by price or taxing by weight (or in this case, volume). The majority of funding for Colorado’s roads comes from the $0.22 per gallon state gas tax. Because we tax gas on a per-gallon basis, state revenue isn’t directly affected by changes in gas prices. Colorado’s gas tax hasn’t changed since 1991, but the price of gas has more than doubled and our cars get much better fuel efficiency than they did in the early 1990s. Better fuel efficiency means cars are putting more wear and tear on our roads without drivers needing to refuel more often to keep up. If our gas tax had been adjusted for inflation, it would be $0.46 per gallon and we would have hundreds of millions more to invest in our roads, highways, and transit. 

Should the gas tax be based on price? Should cannabis wholesale taxes be based on weight? These are all complicated questions, but they all speak to the fact that locking in tax policy that works one year might not be the best policy a few years later when economic and fiscal conditions change.