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

via GIPHY

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. 

By Rayna Hetlage

Colorado made some big strides over the last decade when it comes to creating ways to make sure everyone, regardless of their income, can take care of their health by seeing a doctor for preventative care or when they’re sick. In the past few years, a historically high number of Coloradans have health insurance—either through their employer, through an individual plan purchased on the state health insurance exchange subsidized by federal tax dollars, or through the state’s expansion of Medicaid thanks to the Affordable Care Act (ACA). Despite these successes, there is still a long way to go before every Coloradan gets the health care they need. As of 2019 more than 370,000 people—about 6.5 percent of Coloradans—still lack health insurance according to the Colorado Health Institute.

On November 15th, 2019 the Colorado Department of Healthcare Policy and Financing (HCPF) and the Colorado Division of Insurance (DOI) announced another way to help Coloradans find the right health insurance option when they unveiled their long-awaited state public option proposal. The proposed option has many features the Colorado Fiscal Institute believes will benefit Coloradans who earn low incomes: standardized plans, certain services provided before patients’ deductibles are met, and the inclusion of all Colorado residents all deserve to be lauded. Though these are real wins for the health of Coloradans, CFI was disappointed to see that the final plan did not thoroughly explore the potential impacts of creating a Medicaid buy-in option, despite the final report mentioning that the legislation can explore this as an alternative.

The reasoning given for not considering a Medicaid buy-in more thoroughly was concern over how the state would generate the initial funds to create such a program. In many other countries, governments are able to fund public health insurance through taxes and all residents share in the benefits and responsibilities of funding health care to create a healthier, more equitable society. Unfortunately, Colorado’s TABOR law—which locks our tax code into the state constitution, making it difficult to update—prevents state elected officials from raising the revenue required to create a Medicaid buy-in program without a contentious, costly election campaign or creating an enterprise, thereby adding more complexity to our government.

Colorado isn’t alone in seeking options outside of the plans currently allowed under federal law: 19 other states have introduced or passed legislation to implement or study such a policy solution. In Washington state, lawmakers passed a plan similar to the one Colorado is considering.

The actuarial analysis of Colorado’s proposed option estimates the plan will cover an additional 4,600-9,200 Coloradans within the first year. This is a positive step forward, but it still leaves hundreds of thousands of Coloradans without health insurance. While we do not know how a Medicaid buy-in program would increase the number of Coloradans with health insurance, our legislators are still unable to fully explore it as an alternative or addition to the proposed state option. Without the ability to raise revenue easily, Colorado has its hands tied once again by our constitutional tax code. That leaves lawmakers able to decide only between offering the current option or waiting until the federal government acts to provide more options for everyone in the country.

It will be important for Coloradans to pay attention to how well this plan works. If it does end up lowering costs and expanding health care access, more people may end up signing up. However, if this plan only ends up being a choice for a tiny percentage of people who still can’t afford to see a doctor, afford medication, and access other health services that give them opportunities to live long and healthy lives, it will be important for everyone to know the reason why solutions are so limited starts and ends with TABOR.

By Ali Mickelson

Tuition at Colorado universities has been skyrocketing and as the cost of a college education continues to shift to students and families, many Coloradans are struggling to cope. This is confirmed in a new report from the Center on Budget and Policy Priorities (CBPP) that highlights how deep cuts in state higher education funding have led to rapid increases in tuition and less support for students.

And while these challenges will persist regardless of the outcome of the 2019 election, voters can start reversing this trend if they pass Proposition CC. That measure, which would allow the state to invest all the revenue it keeps at current tax rates in good economic times, would direct an anticipated $135.7 million towards higher ed funding over the next two years.

In the last decade, state funding for public two- and four-year colleges has decreased by $6.6 billion across the country. In Colorado, state support has dropped by nearly 10 percent, or by roughly $510 per student. This has resulted in dramatic tuition increases across the state, with tuition in Colorado increasing 69.3 percent over the last decade. This is the sixth-highest increase in the country.  

This shift from state funding to family budgets has had many negative impacts, particularly for Black and Latinx students and for families with low incomes. The average cost of attending a public four-year institution – including room, board, fees, books and tuition – accounts for 24 percent of an average family’s budget in Colorado. This burden is even greater for Latinx and Black students (32 percent).

Research also shows that increasing tuition consistently results in declining enrollment, especially amongst students of color. As a result, tuition increases can lead to less diverse campuses and fewer opportunities for many Colorado students. 

Furthermore, tuition increases may cause students who struggle to pay for college to choose less selective public institutions, which can decrease their future earnings. Research from the Brookings Institution found that a large share of high-achieving students from struggling families don’t apply to more selective colleges and universities, in part due to financial constraints.

Finally, the rise in the cost of higher education has also driven unprecedented levels of student debt. According to the Pew Research Center, 54 percent of students took on some debt to pay for college and about one-third of all adults under age 30 have student loan debt. A 2018 survey showed that student debt prevented 80% of borrowers from saving for retirement, 56% from buying a home, 42% from buying a car, and 50% from contributing to charity, according to the report. More than 85% said student loan debt was a major source of stress, and one in three said such debt is the biggest stress in their lives.

As the CBPP report illuminates, lawmakers need to consider the increasing costs of education if they want to ensure that all Coloradans have access to the opportunities afforded by a college degree. Continued cuts in the state’s higher education budget make college less accessible and inclusive and jeopardizes the future of our communities.

Though the challenge will be slightly less daunting if voters approve Proposition CC, lawmakers will still have their work cut out for them.

By Camila Navarrette, Communications Associate

Over the past few years, Millennials and Generation Z have been popular scapegoats for pretty much every economic issue, from lower rates of homeownership to the demise of chain restaurants like Applebees. 

The truth couldn’t be further from the conventional narrative. Young people have inherited a range of problems, from skyrocketing health care costs to the impacts of climate change, all thanks to a system focused on making sure the wealthy and big corporations don’t have to pay their share that — surprise — still isn’t trickling down. 

Something else we’re blamed for? The increasingly inaccessible and expensive road to obtain a college degree. There is a solution to these problems, and Proposition CC, which is on the ballot for Nov. 5, is part of it. 

As in every state, some of the taxes Coloradans pay support higher education. It makes sense — college degrees are associated with higher wages, employment and economic mobility. Investing in higher education benefits all of us because when people are more secure economically, everyone is better off.  Unfortunately, we only need to glance at state funding for our colleges and universities to see our investments in higher education aren’t keeping up.

In 1995 — the year I was born — Colorado dedicated 14.9% of the General Fund (the part of the state budget that doesn’t have restrictions over where it can be spent) to higher education. In the 2017-2018 budget — the year I graduated college — the state gave  only 8.4% to higher education. In 2000, Colorado funded two-thirds of a student’s cost of higher education, while the student was responsible for one-third. By 2016, that ratio had flipped. Students now carry more of the financial burden.  

The combination of decreased state funding and skyrocketing tuition costs has been a contributing factor in nearly half of Colorado students’ needing to take on debt to afford college. And for those students, myself included, the average debt is $28,650. Currently, Colorado is at the bottom of the barrel when it comes to higher education funding and ranks 48th in the nation, according to the Colorado Department of Higher Education. Debt to pay for tuition, books, room and board, and all the other costs of going to college create more financial barriers for families trying to get ahead. 

The solution is in front of us — Coloradans can vote yes on Proposition CC to invest an anticipated $88.1 million in higher education. In total, the state would be able to provide about $264 million for other underfunded areas like K-12 education and transportation. 

Addressing our state’s neglected needs wouldn’t be free, of course, but it’s not a big ask. For someone earning the median income of $69,000, they would forgo $27 of their 2021 state tax refund to support and improve these crucial public investments. For college students, even $27 can be a nice boost to your budget, there’s no denying that. But the collective benefit of fixing potholes, reducing traffic congestion and reinvesting in students and families is worth it.

After years of seeing our roads and schools deprioritized, a majority of Coloradans are ready to invest more in education and transportation. Proposition CC won’t be a magic solution to solve all of our fiscal challenges, but it’s a starting point to help the state evolve our programs to match the growth of its population and make sure that we’re setting ourselves up for a brighter future. I’ll be voting yes on Proposition CC in November – and you should, too. 

Originally submitted as a letter to the editor to MyMetMedia.Learn more about Proposition CC here.

By Ali Mickelson, director of legislative and tax policy

On Labor Day, we published new research about the state of low-wage employment in Colorado. The main takeaway from that report is that about 25 percent of Colorado workers are still struggling to make ends meet as wages remain low and median income actually decreased over the last 20 years. This is especially true for people of color and women because they’re more likely to be employed in low-wage jobs. 

While that research showed increases in the state minimum wage have helped, there remains more we can do to boost incomes for people who have a hard time paying the rent, putting food on the table for their families, or affording other basic needs. What tangible policy changes help people working low-wage jobs support their families and obtain economic security?  A recent report from the Center on Budget and Policy Priorities (CBPP) offers one solution.

CBPP argues for the passage of the Working Family Tax Relief Act, a bill CFI supports that is sponsored by Senators including Colorado’s Michael Bennet. The Working Family Tax Relief Act would increase the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), raising the incomes for tens of millions of families across the country.

Many of the workers in these families are employed in jobs which, while important to our economy and way of life, tend pay low wages. CBPP breaks out how many workers by occupation would benefit from the Working Family Tax Relief Act. Cashiers, retail salespersons, customer service representatives, and restaurant waitstaff would be the top occupations who would benefit. Put together, over 250,000 Colorado workers would see their incomes rise if the bill became law.

CBPP also found that the Working Family Tax Relief Act would increase incomes for millions of families whether they are Black, white, or Brown. That includes 24 million white households, 9 million Latinx households, 8 million Black households, 2 million Asian households, and roughly half a million American Indian and Alaska Native households. CBPP also notes that “white households constitute the greatest number of those benefiting because they’re the largest share of the population, but the bill would help a greater share of Black, Latino, and other households of color because they are over-represented in low-wage jobs due to long-standing racial barriers to economic opportunity.” That analysis mirrors the findings in our low-wage worker report.

The Working Family Tax Relief Act highlights the value of using tax policy to offset the racial and fiscal inequities in our economy. Policies like increasing the EITC and the CTC put money back into the pockets of the workers who do some of the most important jobs yet receive the lowest pay.  Colorado lawmakers also have the ability to expand and fund these kinds of policies at the state level.

Locally, CFI will continue to advocate for tax policy that lifts up and supports Colorado families who rely on low-wage jobs to make ends meet. Expect to hear more when the legislative session begins in January.