By Esther Turcios and Scott Downes

Colorado’s investment in infrastructure is vital to the economic prosperity and mobility of communities around the state. How people and businesses move around, where we live, how we access water and public utilities, and how goods and services are deployed all rely on strong public investments.

Now more than ever investments in our transit system, water treatment systems and many other publicly-used systems are necessary to address our growing population and help all Coloradans succeed.

Benefits of Investing in Infrastructure

Investments in infrastructure have both short-term and long-term benefits that are shared among everyone-individuals as well as businesses. Public investments in infrastructure, more so than private investments, can help spur job growth, maintain and improve our state’s environment, and improve the long-term quality of life for our residents.

In their 2012 report, the Economic Policy Institute found that the benefits of public investments in infrastructure extend beyond simply increasing GDP, and improve hard-to-measure assets like safer water and cleaner air. Further, the Center on Budget and Policy Priorities supports the argument that investment in public infrastructure fuels economic growth. For example, well maintained roads, airports, and ports ensure that manufacturers can obtain raw materials and parts, so they can deliver finished products to consumers. Also, renovated roads, highways and accessible transit allow workers to get to and from their homes to different locations where jobs are located. Finally, investments in housing are necessary and fundamental to addressing the housing needs of Colorado’s growing communities.

These types of public investments are critical for the well-being and economic prosperity of Coloradans. This is particularly true for rural communities and for individuals and families living in low-income areas, where schools, roads, and local water sources are in dire need of updates and expansions – which are often less likely to attract the kind of private investment seen in affluent areas, which in turn only benefits those who can afford it.

Investing In Colorado’s Infrastructure

Access to an affordable public transit system has profound effects on both productivity and communities. For instance, according to a study done by the American Public Transportation Association, for every dollar spent on public transit, $4 are returned to the economy. The study concludes that public transportation allows for better personal mobility, better access to job opportunities, and both monetary and health savings.

Unfortunately, transportation costs in Colorado are increasing quickly while funding has not kept up with the state’s growing needs. According to CDOT, Colorado is facing a $1 billion annual funding gap for transportation and infrastructure needs. Colorado’s gas tax ranks 40th in the country and has been static at 22 cents per gallon since 1991, when the average tank of gas cost less than half of what it is today. The state is working with a gas tax that has not changed in 25 years, but how much fuel you can purchase with it has.

Additionally, in the last 25 years, Colorado’s population has increased by 64 percent and the annual congestion time in major urban areas has increased 283 percent, while the CDOT budget has only increased 31 percent and total lane miles have only expanded by 15 percent. With high maintenance costs and revenue sources that don’t keep up with use, the state does not have funds to expand infrastructure to meet growing population needs and the changing economic environment.

Proposals that overly rely on toll roads, fee-for-service models, private investment, or taking away funding from other vital priorities like education or health care are not viable long-term solutions, as those ideas tend to provide a more narrow benefit to fewer communities, disadvantage rural areas and lower-income communities, and enrich private investors that do not have a long-term interest in a communities’ well-being.

Investing in Affordable Housing 

Infrastructure is not just about how we get around, but also where we live. Housing is sometimes left out of infrastructure discussions and policy proposals but investing in development and rehabilitation of affordable housing is vital to Colorado communities. According to the Center on Budget and Policy Priorities, investment in housing infrastructure not only reduces hardship for low-income individuals and families, seniors, and people with disabilities, but it also help create jobs and generate economic activity. Colorado is currently facing a housing crisis, with 49.7 percent of renters paying more than 30 percent of their income on housing costs. In 2017, Colorado ranked as the 11th most expensive state for housing. A minimum wage worker would need to work 95 hours a week to make enough for a two-bedroom rental in Colorado to be less than 30 percent of their income. So, leaving housing out of infrastructure funding – or relying solely on private investment – would miss the opportunity to improve the well-being of all Coloradans.

Investing in Colorado’s Water System

Water control and air quality have become an issue of great concern for Coloradans who revere the state for its natural beauty. With the population boom in the recent years and periodic drought conditions, the state faces the possibility of a significant water supply shortage in the next few decades, according to the Colorado Water Conservation Board. Colorado’s eight major river basins are all facing many challenges. Conservation Colorado’s report card finds that the Colorado River, which supplies more water for Coloradans than any other river, has been given a D rating for “Bad,” due to the threats imposed by climate change, decreases in water flow, and increases in evaporation as a result of higher temperatures. The headwaters of the Arkansas River, which has a C “Needs Work” rating, are tainted by mining pollution and the Dolores River, also a D rating, is threatened by mining pollution and high water demands. As the foundation of Colorado’s environment and the arteries that help support communities and businesses, the state’s water system is in dire need of protection and care.

Looking Ahead to New Infrastructure Challenges  

Colorado faces many challenges with its budget and its ability to invest in infrastructure needs, and these challenges are further compounded by the White House budget proposal and the Trump Administration infrastructure plan released in February. These two proposals include severe changes in federal policy and harmful cuts to federal support for infrastructure that would in sum likely put Colorado at a further disadvantage.

One of the key components of Trump’s infrastructure plan is that it aims to spur additional investment from states, local governments, and private investors (who are expected to profit from this plan). While headlines touted a $1.5 trillion plan, the proposal calls for just $200 billion in new funding over the next decade. And it would upend the current federal match of 80 percent and cap federal grants at 20 percent of new transportation projects, which constitutes an enormous cost shift to states and localities. For Colorado, this could mean an estimated loss of nearly $1.9 billion in federal highway and transit funding from FY 2021 to FY 2027, which could result in a loss of more than 23,000 jobs, as reported by the Center for American Progress.

Meanwhile, the White House budget proposal also calls for a reported $240 billion in funding cuts to highway, rail, aviation, transit, water, and other infrastructure programs.

Clearly, the Trump Administration’s infrastructure plan places an enormous burden on state and local budgets and favors a heavy reliance on private investment. But these are simply cost shifts that would cut federal support for infrastructure over the long term and concentrate those costs on states and cities, and eventually individuals and families through toll roads and other user-based fees. The heavy focus on private investment leads experts to anticipate that projects with an appealing potential return and likely profit will be preferred over projects that communities need.

Looking for Public Investment Solutions

The bottom line is that when Colorado invests in infrastructure, we’re investing in the services and supports that Coloradans use every day. From taking public transportation or driving on any of the state’s 23,000 miles of highways, to having access to clean water in our homes, to developing and renovating buildings that support affordable housing initiatives, Coloradans benefit from these shared public services and structures.

Colorado’s way of life and past economic growth is rooted in part by enormous public investments made in the post-World War II era. Those investments seeded the economic backbone and infrastructure that helped make today’s growth and prosperity possible. That is why we cannot afford simply to rely on federal investment or look solely to private investors to solve our infrastructure challenges

Rather, we need to identify new ways to make vital public investments in infrastructure that can help all Coloradans succeed and prosper, without turning to flawed ideas that will prioritize profit over public need.

1. TABOR Rebates Projected for Coming Budget Year

Thanks to stronger economic growth, Legislative Council now projects that the state will exceed the revenue limit by $8.4 million and be required to give TABOR rebates in FY2018-19, the budget which lawmakers are currently building. TABOR rebates are also projected to be $156.4 million in FY2019-20. This is a large change from the December forecast when there was still several million dollars of room below the revenue cap. Those TABOR rebates will not come in the form of refund checks to taxpayers, but rather fund a property tax break for seniors and disabled veterans known as the Homestead Exemption.

2. More Revenue Uncertainty Than Usual 

Legislative Council warned legislators that there is a great deal of uncertainty that could affect the forecasted figures, resulting in a larger margin of error that is typically the case. These factors include shifts in taxpayer behavior before and after the passage of the Tax Cut and Jobs Act, and several unknowns stemming from changes in the federal tax code.

As a result of TCJA, Legislative Council estimates the state will see increased revenue of $196.5 million in FY 2018-2019, and $329.8 million in increases in FY 2019-2020. However, new analysis from the Institute on Taxation and Economic Policy suggests the revenue increase next year could be closer to $28 million.

Because these are essentially estimates on estimates, and a lot remains unknown about taxpayer behavior under the new federal tax code, legislators should proceed with an abundance of caution with these numbers.

3. A Booming Economy, For Now

The forecasts suggest that Colorado’s strong economic growth is expected to continue, at least in the near term. Employment growth and other business indicators appear favorable, though both Legislative Council and OSPB pointed out that higher costs of living, such as housing, and a tighter labor market could damper or restrict continued economic growth. Colorado has continued to see some of the sharpest housing price increases in the country, though those increases and new housing inventory have been inconsistent across the state. As well, both forecasts flagged the possibility that inflationary pressures and national economic factors could pose additional risk in out years.

Oil production in Colorado has spiked to record levels, which is driving at least part of the increased revenue estimates through severance tax collections, but oil and gas employment has not yet fully recovered from the 2015 downtown. Wage growth in Colorado continued its moderate increase and resumed outperforming national wage growth. However, wage growth continues to be dampened by demographic factors, such as higher-wage employees aging out of the work force.

The state’s economic indicators are pointing in the right direction, but as we’ve seen in the past, and as one state economist warned, “that could turn on a dime, frankly.”

4. A Portion of the Revenue Boon Might be One-Time Money

General Fund revenue expectations were increased by $297 million from December because of stronger economic activity. This means lawmakers will have $1.23 billion more to invest or save than was budgeted for last year. This is great news for legislators as it provides more opportunity to get out of the state’s funding hole and make the public investments that help communities thrive – or to save for when economic conditions inevitably change. The governor called for budget-makers to use to extra revenue for transportation, education, and boosting the General Fund reserve. The governor’s office also cautioned that some of the money this year might only be a one-time thing. Budget-makers should also be aware that obligations from the General Fund to pay for transportation projects ramp in the next few years because of SB17-267.

5. The TABOR Rebate Situation Impacts Legislation This Session

For legislators trying to adjust tax credits or raise revenue, the March revenue forecast is something of a game changer. Now that the state is projecting TABOR rebates, there are implications for what type of changes legislators can make during the current legislative session (look to the Mesa County v. State ruling). Legislation that changes tax policy that results in net new revenue would likely necessitate voter-approval and fee increase proposals will result in larger TABOR rebates.

The following testimony was delivered by CFI Executive Director Carol Hedges in the House State Affairs committee on March 8, 2018:

Good afternoon. My name is Carol Hedges. I am the Executive Director of the Colorado Fiscal Institute and I am here today to testify in opposition to HB 1203 that, among other things, reduces the state income tax rate from 4.63% to 4.0%. The estimated cost of the bill – that is the amount it would reduce the General Fund – is $1.15 billion in FY 18-19.

This reduction in revenue would have drastic, deeply damaging effects on communities across the state.
It would close hospitals since the amount of this reduction in state revenue would be roughly equal to the all health care spending from the General Fund.

Or it would close colleges and prisons since the reduction is roughly equal to the entire General Fund allocation for colleges and universities, corrections, and human services…combined.

Put another way, it would be equal to more than a quarter (27%) of the state share of the K-12 education budget at a time when reductions from the Budget Stabilization Factor have already put K-12 funding $828 million in the hole.

Some folks like to believe that no one would notice but cuts like these would have serious consequences for all Colorado families. Student debt would increase drastically. More families would struggle to pay for housing and child care. More communities would have to reduce school weeks and there would be even more pressure on local governments to increase property taxes.

It is dangerous, magical thinking to believe that slashing public investments will be offset by each taxpayer paying a little less in taxes. Each Coloradan paying slightly less in taxes simply cannot supplant the toll of closing hospitals or colleges or prisons – as this bill would necessitate.”

And please don’t misunderstand the situation we are in, our public investments are not keeping up with our needs. We have yet to recover from the cuts made in the last recession and population growth and deferred maintenance are catching up with us.

We are currently in an investment hole:

For example:
-Funding for our kid’s schools is $828 million below where we were in 2000, if we consider inflation.
-There are only 4 states that invest less than we do in postsecondary education.
-We have more than $9 billion worth of need for transportation funding over the next decade.

How did we get here? How can we have a great economy that is generating more revenue and still be so behind in investing in our communities?

Since those who don’t remember the past are doomed to repeat it, I want to remind us of some of the past tax cuts decisions that have contributed to the hole Colorado is already in.

In 1999, the General Assembly was in a similar position, facing a growing economy and a growing general fund. That body yielded to the temptation to cut the income tax rate, cutting the rate from 5.00% to 4.75% at a cost of $ 300 million. They further reduced the tax rate in 2000 from 4.75% to 4.63%. In 2001, the first of two recessions in a decade struck reducing general fund revenue by nearly 16% triggering a downward spiral in public support for higher education, pushing more of the cost of education beyond high school to parents, students and employers. No part of the state was exempt from the impact of cuts. The combined effect of the tax cuts and the early 00s recession led to voters approving Referendum C.

Just two years later, a second recession rocked the country. The Great Recession reduced general fund collections by $1.3 billion in just two years. Those reductions gave rise to the Negative Factor in public school funding, caused the closing of many state sales and income tax credits and deductions and squeezed every bit of possible revenue for transportation out of the General Fund.

Growing General Fund revenue tends to create renewed enthusiasm for tax rate reductions and 2018 is no exception. And, yes, the current revenue projections suggest that the state will collect more revenue this year than last. But that is not a reason to reduce revenue. Rather, it provides an opportunity to make wise decisions that can help our current economic expansion become more sustainable.

In this time of a growing economy in the Front Range, a prudent approach would be to use the new resources to address challenges statewide, to invest in a foundation of public structures that can sustain front range prosperity while also spurring more growth in our rural communities. This is also a great time to increase the state’s budget reserve. You have been making progress in increasing our savings account, which is our communities’ protection against savage cuts prompted by unexpected economic downturns. But we can still do better, as a 8-10% reserve would be one worth pursuing.

I can’t help but wonder, where the sponsors of HB 1203 would cut, were this bill to become law?

I find it incredibly ironic that the amount of revenue lost from the tax cuts in the late 90s would more than pay for the current $3.5 billion in “shovel ready” transportation projects. They would just about finance the cost of the $9 billion of transportation needs, particularly if those investments could have been made in the 18 intervening years rather than ignoring those needs.

If those cuts had not been made, we would have had the ability to make the transportation investments we have neglected PLUS we would not have had to make such drastic cuts to our schools and colleges. Tax cuts mean cuts in investments and in a time when so many Coloradans will already be seeing increased paychecks, those foregone investments seem like opportunity lost.

At this point in Colorado’s struggle to address the needs linked to our growing population, rapidly changing technology and regional economic disparities, I think it is time to resort to some old fashioned common sense: What is the first thing you should do when you find yourself in a hole? Stop digging.

I ask you to vote no on HB 1203. Thank you.

The following is a statement from CFI Executive Director Carol Hedges on White House budget proposal announced and what it means for Colorado:

“Public investments help build and sustain the thriving communities in which we all want to live. Federal funding is a big part of that as it helps preserve, protect, and empower our communities. Where our kids go to school, how we get to and from work, where the next generation of workers are trained and educated, what job prospects we have to earn a good life, and how we access and enjoy parks and public lands are all part of the Colorado way of life and those priorities all rely on federal support.

The president’s budget proposal released this week would erode that Colorado way of life by cutting the very investments that help make it possible.

If this federal budget proposal were actually enacted, it would threaten schools, student aid, and other critical needs. It would take away health care from seniors and people with disabilities. It would make housing and food less affordable for working families trying to make ends meet. And it would make it harder for people to succeed and earn a good living.

Just looking at housing alone, initial estimates show that Colorado would lose more than $20 million in public housing funding, $13 million in HOME funding, and more than $34 million in Community Development Block Grant funding.

Meanwhile, as the legislature debates transportation funding, the president’s infrastructure plan would shift billions of dollars in costs to the state and local governments. One initial estimate shows that Colorado could lose up to $1.9 billion in federal transportation funding over an eight year span under this plan.

The president’s budget proposal would make the tough choices in Colorado’s state legislature that much more difficult. However, despite the president’s misguided budget proposal, it fundamentally does not change the basic fiscal equation facing state leaders: they can either cut or eliminate vital public services and supports that we all depend on, they can find other areas to cut such as schools or transportation, or they can increase revenue to make vital public investments and support Colorado’s way of life.

Colorado is a great place to call home because of the public investments we’ve made in our state, our communities, and for our families. This budget plan would undo that work and make it harder for every Coloradan to succeed.”

FOR IMMEDIATE RELEASE

CONTACT: Scott Downes at downes@coloradofiscal.org 

by Carol Hedges, Executive Director

Coloradans are fond of touting our way of life as unique, and with good reason. We are home to a beautiful landscape, a rich heritage, a growing economy, and a distinctive Western spirit.

Whether you’re a fifth-generation Coloradan or a new resident, a rancher on the Eastern Plains or a resort worker living the dream in a mountain town, a retiree on the Western Slope or a recent graduate working at a startup, you are here because you – and because the generations before you – wanted a better life.

That’s embedded in our DNA. It’s core to who we are and what we are as a state.

For centuries, people have made Colorado their home to pursue a way of life they can call their own. For some, that’s rooted in agriculture, farming, or ranching. For others, it’s the draw of the mountains and a spirit of adventure. For many, it’s a sense of both solitude and community in frontier towns. And for others, it’s the opportunity and entrepreneurship found in Front Range cities and beyond.

The Colorado way of life encompasses so much and so many distinct variations. It’s often reduced to having a ski pass and a Subaru, but being a Coloradan is so much more than that. When you travel around this vast state and meet people in all its wonderful communities, you realize that being a Coloradan is about loving where you live and living how you want.

But one of our unique characteristics as a state is making that more and more difficult. And that culprit is TABOR, which increasingly stands in the way of Coloradans being able to live how they want and earn a good life.

In our first post about the 25th anniversary of the passage of the Taxpayer Bill of Rights (TABOR), we noted that understanding the last two and half decades of fiscal policy in Colorado is not nearly as critical as looking ahead to figure out what kind of fiscal policy we want and need for the next 25 years.

And what’s increasingly clear is that our current fiscal constraints are woefully ill-equipped to support the many ways of life that we want to see thrive across Colorado communities.

Despite our recent economic growth, we are seeing more and more fissures emerge in our schools, our health care, our roads and infrastructure, and all the other ways that we’re falling short on the public investments needed to help our communities thrive well into the future.

And those fissures are made more difficult because TABOR and other constraints hinder our ability to invest in and support the different ways of life we are home to. It hamstrings policymakers. It subscribes local communities to government by formula. And it strips away our collective ability to support what makes Colorado communities great.

We’re at serious risk of letting our fiscal policy deepen an already growing economic divide between urban and rural communities.

As a state, we’re seeing near record lows in unemployment. But at the same time, wages have stagnated, cost of living – especially housing – is skyrocketing, and the poverty rate in some rural counties is more than four times what it is in affluent suburban counties.

TABOR and other constraints shackle how and how much can be invested in our state, while our state continues to change and evolve in ways that were not envisioned 25 years ago.

The policy demands of a county where there are 89 houses per square mile are much different than in a county where there are 4 houses per square mile – which is what the difference between urban and rural counties looks like from a density standpoint.

The needs of a community where 30% of the population is over 65 years old – as is the case in Hinsdale County – are going to be different than where it’s only 10% – as is the case in Denver.

Our state’s aging population can hamper wage growth, as older, higher-paid employees leave the workforce and are succeeded by younger, lower-wage workers. Colorado’s homestead property tax exemption alone, a property tax break to seniors, is growing 8.5% from last fiscal year to the next. Meanwhile, health care and human services costs continue to rise and claim more of the state’s General Fund revenue.

All the talk of attracting the new Amazon headquarters or potentially putting in a bid for the 2026 Olympics is fascinating since TABOR and other fiscal constraints have prevented us from funding infrastructure that keeps up with our current growth as it is.

In the last 25 years, Colorado’s population has increased by 64 percent (more than 2 million additional people). The vehicle miles traveled have increased by 82 percent. Annual congestion time in the urban metro areas has increased by 283 percent. Meanwhile, CDOT’s budget has only gone up by 31 percent and the state gas tax has remained flat at 22 cents per gallon. Since 1991.

What does any of this have to do with TABOR? And how does it harm Colorado’s way of life?

Every big policy question that Colorado faces depends to some degree on TABOR and other fiscal constraints – on schools, health care, housing, higher education, parks and public lands, job and economic growth, roads and infrastructure, and many other issues. And in many if not most cases, those questions come down to choosing between essential priorities that keep Colorado awesome.

The same cycle repeats itself, in good economic times and bad, where elected officials tell us we have to choose between vital priorities. Or even worse, they tell us simply that we can’t do something that we should, because of a formula or a constitutional constraint. Or because they don’t want to go to the ballot. Or because they don’t think it will pass.

Coloradans don’t want to hear that we can’t. We know that it doesn’t have to be this way if we don’t want it to be. We know that we shouldn’t have to constantly decide between urban and rural priorities, between funding schools and roads, or between improving health care and higher education. We know that as another 2 million people are anticipated to move here over the next two decades that we have to do it differently.

What makes Colorado so awesome and so special is that we are perfectly capable of respecting and supporting different ways of life in our state. But TABOR hinders and harms our capacity to do just that.

The solution is not to throw more money at every problem, but rather to rethink – with fresh eyes and new ideas – what fiscal policy makes sense to guide us going forward and consider whether TABOR should be a part of that for the next 25 years.

The role of good government isn’t to tell us how to live, but rather to help and support the communities that we want to live in. And we have to ask ourselves if TABOR does that: Does it support a government that works for all people and creates more opportunities to earn a good life

For the past 25 years, Colorado has held a unique position as the only state that restricts itself to governing by the TABOR formula. We’ve succeeded in many ways in spite of that, and been set back in many others. But we have a truly unique opportunity to reckon with whether this is the right policy to support our way of life for the next 25 years and beyond.

With the passage of the federal tax plan, it is a very sad and disappointing day for an old tax nerd like me. By now, we all know that the bill will provide huge tax cuts for corporations and America’s wealthiest people. Many of us also know that while the bill was touted as tax reform, it is really just a tax grab for the folks who are in the best position to manipulate political power to their own advantage.

What saddens me is that this tax bill will unnecessarily cause people economic harm that is otherwise avoidable. With this bill, we lose important tools to address the personal economic devastation that occurs during downturns. By cutting taxes and increasing the deficit when the economy is strong, we have taken away the federal government’s ability to help states and families manage the next recession. And it is all so that the really rich and the really influential can keep even more of the wealth that working people help produce.

What disappoints me most is that during a time when the country is faced with rapidly crumbling infrastructure, unprecedented technological changes, and an expanding economy, Congress chose a flawed economic theory as our guide rather than a proven public investment approach as the path to prosperity. This trickle-down theory was wrong in the 1980s and followed by economic hardship for working people. It was wrong again in the early 2000s and followed by the Great Recession. Yet here we are once again.

Because of the unique nature of the Colorado tax code, our general fund stands to gain revenue from the passage of the federal bill. But, do not be misled, the new state revenue is not sufficient to fill the gaps left by reduced federal support. Let’s hope that our Legislature chooses the proven path to widespread prosperity and makes strategic investments in Coloradans with the new resources.

During this tax debate, Senator Gardner said we need to stop dealing with an “Atari-era tax code that is outdated and overly complicated.” He’s right. And while we disagree with his conclusions for what that means in this bill, CFI will hold him other leaders accountable to that statement as we work with thousands of Coloradans to modernize our state’s constitutionalized tax code and change TABOR’s role in our economic future.

The Colorado Fiscal Institute recently defined “shared” prosperity to mean that everyone has the opportunity to become economically successful and that as Colorado continues to grow, all people are equitably reaping the benefits of economic expansion. However, this can only be achieved when we break the barriers that prevent our communities, particularly communities of color, from achieving economic success. One way to promote both economic efficiency and strong economic growth is by investing in education and job training.

K-12 education

Access to a quality K-12 education is beneficial for students, parents, and their communities. When we invest in our schools, particularly those in low-income neighborhoods, we’re investing in smaller class sizes, after school programs, the arts and more school materials for each student. These investments can mean more opportunities for students to get better paying jobs and to give back to their communities, helping others thrive.

A study by Northwestern University and University of California, Berkeley investigated the long-term effects of increased funding on students who attended high-poverty schools between 1955-1985, before they began their K-12 education. According to the findings, schools that received a 10 percent increase in per-pupil funding were associated with better economic outcomes for their students. This translated into 10 percent higher individual earnings and 17 percent higher incomes throughout students’ lives. Furthermore, the study found that the increase in school funding was linked to a 4 percent increase in base teacher salaries, an increase in 1.4 more school days per year and a 6 percent decrease in teacher-student ratios, all things proven to help children succeed.

A quality education isn’t only beneficial for students and families. Countless research and studies show a strong correlation between quality education and a state’s economic growth. For example, a 2013 report by the Economic Policy Institute (EPI), found that a well-educated workforce, in particular workers with a college degree or more, is key to a state’s increase in productivity. Evidence from the report shows that between 1979-2012, states that saw an increase in the number of adults with at least a college degree had a cumulative growth in productivity. During this same time period, states that had an increase in productivity saw an increase in worker compensation. EPI found that overall a well-educated workforce is what actually drives a state’s economy and attracts high-wage employers, not tax cuts for businesses as trickle down theories incorrectly suggest. This report strengthens the argument that public investments, notably those in education, are the driving force behind sustained economic growth for communities and states.

These and countless other studies show that by properly funding schools, especially high-poverty schools, we are investing in our students, families, teachers and the entire surrounding community. Unfortunately, today Colorado ranks among the lowest, 39^th among all states, in terms of per pupil spending in K-12 education. The local share of K-12 funding has fallen significantly since the 1980s, and the state now spends nearly $2,147 less per pupil than the national average. Largely as a result of our unique constitutional restraints, funding for K-12 and higher education continues to lag in Colorado and our students and the economy are paying the price.

Source: Public Education Finances 2013 from U.S. Census Bureau Published 2015

Higher education

The benefits of a quality K-12 education are compounded by access to a higher education.  In 2016, the median household income for a Colorado high school graduate was $31,515 while the median income for a graduate with a bachelor’s degree was $51,136. In other words, for every dollar a college graduate earned, a high school graduate only earned 62 cents.

To clarify further, people with two and four-year college or graduate degrees earn substantially more than people with a high school degree, further enhancing people’s economic mobility. According to the Pew Charitable Trusts, students who grow up in the poorest 20 percent of households and who have access to a college education are 2.5 times more likely to have an income that places them in the top 60 percent of earners later on in life. This is especially important for Black and Latino students who have made significant strides in higher education but continue to fall behind their White counterparts in enrollment and completion of a higher education degree.

Further, attainment of a higher education degree is linked to different rates of unemployment. As reported by the Bureau of Labor Statistics, unemployment rates for people without a high school diploma (7.7%) are much higher than for individuals with only a high school diploma (5.3%), and are drastically higher than for those who hold a bachelor’s degree or higher (2.5%).

However, similarly to K-12 education, higher education funding in the state has also seen large cuts throughout the years, particularly during the Great Recession. Today, Colorado ranks 48^th when it comes to state support per each full-time college student.

Job training programs

Job training programs are another important public investment which increase productivity and make a state’s workforce more enticing for businesses. These programs are a vital resource for workers who weren’t able to receive higher education but want to get certified in a specific field. According to the Center for American Progress, workers who receive training tailored for a specific skill or job earn more than $300,000 more in wages in a lifetime. Examples of jobs that require skills training include licensed practical nurses, carpenters, plumbers, and biomedical equipment technicians to name a few. Cost-effective investments in job training can provide workers the opportunities to secure a job in any of these in demand professions as reported by the Colorado Center on Law and Policy (CCLP). This is especially true for workers who do not have a post secondary education. CCLP’s “State of Working Colorado Report,” found that in 2016 about 13 percent of the labor force had a high diploma while another 7.2 percent had less than a high school education.

Many states, including California, Iowa, Kentucky, Connecticut and others have already created and invested in job training programs to support workers. For example, these states and many others have turned to apprenticeships as a way to address the gap in job specific skills. Iowa for instance, established the Apprenticeship and Training Act in 2014 which appropriated $3 million annually to the apprenticeship program training fund. These funds support grants to apprenticeship program sponsors to help cover the costs of classroom supplies, job equipment, and new locations for training. As Colorado’s economy continues to grow and wages continue to stagnate, it is important to look at innovative ideas from neighboring states who are creating programs to address the needs of the workforce and the growing racial wealth divide.

Access to quality education, whether it is K-12, higher education, or job training programs, is associated with higher wages, higher employment and lower dependence on public benefits. It allows students the opportunity to have more economic mobility and contribute more to Colorado’s economy. Therefore, investments in schools and job training are crucial to our state’s economic growth. If we don’t address the barriers to funding and accessing schools, people can’t invest in their education, which is one of the most important factors in increasing productivity and creating wide shared economic prosperity.

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Tune into our next blog “Investments in Infrastructure Bring High Returns” where we will discuss in greater detail how investments in infrastructure increase productivity and shared prosperity.  

1. Federal Tax Changes Mean More State Tax Revenue for Colorado

The federal tax bill has far-reaching implications for Coloradans. The bill (known as the Tax Cuts and Jobs Act) was just passed by the house and senate and will likely be signed into law before Christmas. At the federal level and for nearly every state, the TCJA means less tax revenue. But Colorado can expect to see an increase in revenue: the JBC forecasts $35.2 million more in the General Fund reserve by June 2018 under the TCJA, and an additional $196.5 million for the FY2018-19 budget. 

Why? Unlike most states, Colorado uses Federal Taxable Income to calculate its tax base. By eliminating many deductions, the TCJA broadens the federal tax base for individuals and corporations. The bill then lowers federal tax rates, resulting in cuts in federal taxes. In Colorado, however, the tax base (Federal Taxable Income) broadens but the state tax rate remains the same—so more state revenue. 

Though this means Colorado can expect a bump in state tax revenue, the dramatic effects of the Tax Cuts and Jobs Act will still put pressure on our state budget. The tax bill costs a lot of money ($1.5 trillion, by most estimates), and decreases federal revenue significantly. Republican members of congress have promised cuts to federal spending in 2018, which means less federal money for Colorado. That makes the pie smaller for all Coloradans, and will require the state to make up the difference (for reference, more than 1/3 of Colorado’s budget comes from the federal government). 

2. Why Do Front Range Home Values Hurt Local Government Budgets in Rural Colorado?

The Gallagher Amendment prevents the share of housing property taxes to increase relative to non-residential property (for more on how Gallagher works, watch our handy Gallagher video here!). Because housing value is expected to increase relative to other property, the Residential Assessment Rate (RAR) is projected to fall from 7.2 percent to 6.11 percent in 2019.  That 15 percent drop in the statewide RAR will be particularly damaging to local government budgets, especially in regions that haven’t seen growth in housing value like the Front Range has.  Legislative Council projects that 18 counties in Colorado will actually have less property value to tax in 2019. The automatic cut to housing property taxes will also put more strain on the General Fund to provide a greater share of school funding.

3. Colorado’s Economy in 2018: Slowing Our Roll

Tax collections jumped by 7.8 percent in 2017 but that type of year-over-year growth isn’t set to continue in 2018 because of the aging population, housing costs, and a tight labor market.   In particular, the state’s growing aging population constrains economic expansion. (For context: the share of Coloradans age 65 and older is expected to increase 115% by 2050, according to state demographers.) 

Historically low unemployment rates in our state can also mean less job growth. A robust job market means employers have trouble attracting workers if they don’t raise wages, which increases the cost of doing business and can slow growth. The high cost of housing is dampening consumer spending as more and more of our paychecks pay for the cost of living. Sky-rocketing housing prices are also leading to a slowing of people moving to Colorado; in fact the projected-rate of population growth was reduced from 1.6 percent to 1.4 percent because of a slow down in net migration. 

Despite these constraints, Colorado’s economy is strong. Using our current economic strength to invest in the future is fiscally responsible and makes Colorado more resilient. Providing crucial supports like affordable housing and healthcare to all Coloradans helps to stabilize and sustain growth. 

4. Good News or Bad News for School Budgets? Hard to Tell

Schools are funded both by state revenue and local tax revenue.  Because local property taxes came in higher than what was anticipated when the FY 2017-18 budget was written, the state requirement to fund schools dropped by $110 million. Schools could benefit from the extra $110 million if the state keeps its funding constant, but it is not obligated to do so. State aid to schools could be cut by $110 million to free up revenue for other parts of the state budget.  The automatic property tax cut on homes prompted by the Gallagher Amendment will  also adversely impact school budgets in the next several years. Gallagher’s side effects will put a greater burden on the state General Fund to pay for schools as local tax contributions for schools continue to fall.

5. More State Revenue for the FY2018-19 Budget

There are no TABOR rebate obligations projected for the forecast period.

The General Fund is expected to end the FY2017-18 with a 6.8 percent reserve (which is $35 million above the required amount).  The General Assembly will have $963 million more to spend for the upcoming year than what was budget for in FY2017-18.  That isn’t all new money however, keeping up with inflation and pupil growth requires the state to pay $240 more next year just to maintain the same school funding levels.

By Esther Turcios

At the Colorado Fiscal Institute, we advocate for fiscal and economic policies that promote equity and widespread prosperity in Colorado. It is public investment, funded by sound fiscal policies, that supports economic well-being and thriving communities.

But what do we mean by “widespread prosperity?” Widespread or “shared” prosperity means that everyone has the opportunity to become economically successful. It also means that as Colorado continues to grow, all people are equitably reaping the benefits of economic expansion. Simply put, it means people in every community across the state have access to opportunities to learn, work, and earn a good living to support themselves and their families. When everyone can participate in the economy in a meaningful way, we are all better off.

Unfortunately, in Colorado, like most states, prosperity is not shared in an equitable way across all communities.  Whether it is gaps in income between genders or races, disparity in wages and productivity, or differing achievement levels in education, the divide between those on top and those on the bottom is increasing all the time.

A Lack of Equity in Sharing the Benefits of Increased Productivity 

The unfortunate reality is that even with our recent, rapid economic growth, Colorado is lagging behind in spreading prosperity among all communities.  This is particularly true with how the gains from productivity are shared between employees and corporate shareholders.

Jobs that pay too little for people to get by are growing as a share of Colorado’s economy and the wages those jobs pay are shrinking. That’s not only bad for people in those jobs, it’s detrimental to the economy as a whole.

According to an analysis by CFI, the portion of total jobs that are “low-wage” has been on an upward trend since 2010. This means more Colorado workers are in low-wage jobs. Low-wage jobs are those paying less than what a full-time worker would need to live above the federal poverty line for a family of four. That annual threshold was $24,300 in 2016, which translated to an hourly wage of about $12.48 an hour.  More than 600,000 Coloradans — 25.2 percent of workers — have jobs classified as low-wage by this definition.

We know that a main pathway to shared prosperity is increasing the wages of workers. But despite increasing productivity, worker wages have been stagnant over the past 40 years. According to a report by author and economist Peter Fischer, the stagnation of real wages has left many workers behind. Fischer finds that real wages did not grow at all from 2008 to 2014, and were just 4 percent higher than they were in 1972. Yet, over that same time period, the productivity of American workers nearly doubled. If the minimum wage had grown with productivity, it would be more than double what it is now.

In a functional economy, there is a strong link between greater productivity and higher wages. An increase in productivity and new income generated from said increase should be returned to employees in the form of higher wages. However, this is not what has been occurring and shared prosperity is suffering because of it.

A Lack of Prosperity and the Racial Wealth Divide 

CFI is also seeing a widening gap in wealth between different races in Colorado. Wealthy, white individuals and families are becoming richer while low and moderate-income individuals and families, particularly communities of color, are falling further behind.

In 2016, it was reported that the 400 richest Americans own more wealth than the entire Black population and one- third of the Latino population combined, for a total net worth of $2.34 trillion. This translates to an average household divide of $500,000 between Black and Latino households compared to White households. This divide can be directly attributed to historical policies and practices, such as housing and lending discrimination, that have created barriers for these communities to achieve economic success and widespread prosperity.

We also see this growing racial wealth divide manifesting in Colorado. According to a report from the Colorado Trust, today, 22.9 percent of American Indians have incomes below the federal poverty line, compared to 21.1 percent of Latinos, 20.2 percent of African Americans, and 15.6 percent of Asians. In comparison, only 8.9 percent of White households have incomes below the federal poverty line.

Next Steps 

There are choices we can make and active roles we can take in shaping our public policy to better address this lack of shared prosperity. Public investments in our communities can increase productivity and equitable fiscal policies can result in more broadly shared economic benefit. Colorado must invest in policies that focus on the education and skills of workers, top-notch infrastructure, a healthy workforce, and entrepreneurship and innovation. It’s time we talk about investing our state and local dollars into essential programs that we interact with every day, like our schools and our transportation systems, so we can create more opportunities for all communities to prosper.

Additionally, an equitable tax code plays a crucial role in creating widespread prosperity for communities. This is especially important when addressing economic security for communities of color.  Colorado’s flat income tax system sounds equitable because everyone pays the same rate, but it fails to consider that low and middle-income earners spend a much greater share of their income on things that are taxed through sales taxes. When we look at all state and local taxes, we find that the poorest Coloradans pay 8.4 percent of their income in taxes while the wealthiest Coloradans only pay 4.6 percent in taxes.

It’s time for us as a state to start deconstructing the actual barriers that prevent our communities, particularly communities of color, from achieving economic success. Our priorities should focus on promoting productivity, higher wages, and shared prosperity by breaking down barriers to quality public investments and addressing inequitable tax structures.

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Tune into our next blog “How Education & Job Training Boost Productivity”  where we will discuss in greater detail how investments in education and job training increase shared prosperity.