An article in The Denver Post earlier this month provided a perfect example of why, when we try to square the growth of the broader economy with the more lackluster experiences of ordinary people, traditional measures don’t tell you the whole story.

The Post story was about a new report from the U.S. Bureau of Economic Analysis that showed Colorado was among the top six states in the nation with the fastest-growing gross domestic product in 2013. Five of the six were top oil-and gas-producing states, including Colorado, where state GDP grew by 3.8 percent, making our state’s economy the sixth-fastest growing in the country.

The story also noted Colorado ranked 17th for per capita GDP.

That sounds like good news for Colorado. But GDP, which simply measures the total value of all goods and services in an economy, does not measure economic well-being. In other words, if Colorado’s economy is growing, does that necessarily mean that the state’s residents also are better off economically? Looking at things that directly touch people’s lives, like wages and unemployment, the answer is no.

While GDP is a useful measure of economic output, some states have been turning to a different measure of economic well-being – the Genuine Progress Indicator, or GPI. As with GDP, the GPI takes into account total economic output, but it balances that number with a host of other factors that add or subtract from the value, such as average hours worked, the costs of pollution, income inequality, the value of higher education and time spent commuting.

Last year, the Colorado Fiscal Institute for the first time calculated GPI in our state, finding that while GDP tripled in Colorado from 1960 to 2011, GPI trailed far behind.

Here’s a classic case of GDP disconnect: Guess which state in 2005 led the nation in economic growth, increasing its GDP by a whopping 15 percent? The answer is Louisiana, which, also in 2005, suffered the loss of 850,000 housing units, the disruption of 600,000 jobs and the tragic, largely preventable deaths of 1,836 people. So, that which Katrina destroyed, damaged or polluted, people had to rebuild, fix and clean up, and all of those goods and services that came from the aftermath of the hurricane were counted in the state’s GDP.

But it’s pretty doubtful the folks in Louisiana felt better off economically because of the hurricane.

Similarly, Colorado has had to rebuild homes, buildings, roads, bridges and water systems after last year’s devastating floods and fires, and all of that output is counted in our state’s GDP. Were those natural disasters good for our economy? If you only looked at GDP, it would seem so.

It’s probably true that a boom in oil and gas production is driving the bulk of the growth in Colorado’s GDP, but the measure counts all spending the same. If you have to spend more money on environmental clean-up and prevention measures as a result of more drilling, that’s counted right alongside the value of the minerals extracted. If your state suddenly experiences a sharp increase in crime and you have to spend more on law enforcement and incarceration, boom, you’ve increased GDP.

GDP also doesn’t take into account income inequality. Theoretically, if all the financial gains from increased economic growth in Colorado went to one person, GDP would still increase even though the state’s Gini coefficient – a measure of income inequality – would fly off the charts.

One need look no further in Colorado for the disconnect between GDP and the reality of middle-class Coloradans than the state’s long-term unemployment rate. Those without work for 27 weeks or more now represent 37.3 percent of all those unemployed. In the U.S. as a whole, the number of long-term unemployed is roughly twice the rate it has been after the prior seven recessions.

All of this discussion about GDP vs. GPI illustrates an important point: Public policies should be focused squarely on what’s best for the middle class, not just on increasing economic output. High GDP growth in the face of record long-term unemployment does not indicate an increase in economic well-being.

A strong middle class guarantees the sustainability of the economy and ultimately benefits everyone, including the folks reading the financial pages of the newspaper to check up on GDP and the people who deliver those papers to their doorsteps.

Colorado Quality of Life from Colorado State University on Vimeo.

The folks over at the Colorado Futures Center at Colorado State University have crafted a unique video that explains, in simple terms that even non-wonks can understand, why critical state programs like schools, colleges and health care – and hence our quality of life – will not be sustainable in the future unless we figure out a way to relieve financial pressures on the state budget.

By Ali Mickelson

Taxpayer Protection Disclosure Act narrowly dies in the Colorado Senate

After passing the House and clearing the Senate Finance Committee, the Taxpayer Protection Disclosure Act (HB 1285) narrowly lost on its first vote on the Senate floor, falling short by just two votes. 

Even though the outcome was not what we had hoped, the work and advocacy around this bill was  a tremendous step in educating lawmakers and the public about the dangers of working with unregistered tax preparers. We are hopeful that we can continue to work toward regulation of these preparers in the years to come at both the state and federal level. 

We’ll keep working until taxpayers get at least the minimal amount of consumer protection.

For more information on the Taxpayer Protection Disclosure Act, please click here: Taxpayer Protection

FAMLI ties

On April 15, SB 14-196, the Family and Medical Leave Insurance (FAMLI) Act was introduced in the Senate. This bill will create a statewide family and medical leave insurance program with partial wage replacement for employees who have worked at least 680 hours at their job in the previous year and must miss work to care for a family member or themselves when seriously ill. CFI has played an integral part in the development of this bill and this policy, including creating the structure for the insurance program and completing the fiscal and economic analysis. The bill is scheduled to be heard in Senate State, Veterans and Military Affairs at 1:30 on Monday, April 28^th.  April 28^th is also scheduled as a lobby day supporting the FAMLI Act (click here to sign-up!). 

For more information on this bill, please click here: FAMLI Factsheet.

Never-ending tax-capades         

Just when we thought the session might be winding down, both the House and Senate introduced a variety of late bills, including several that impact our state budget. CFI has been monitoring the progress of these bills and working with partners to share concerns over the creation or expansion of new tax credits included in some of the legislation. We hope to see more of the nearly 30 tax credits that have been introduced get scaled back or die in appropriations committees and we continue to use and share our tax principles in evaluating these new policies.

For more information on our tax principles, please click here: CFI Tax Principles 2014

CFI Executive Director Carol Hedges wrote a column for The Denver Post about TABOR, floods, wildfires, marijuana and how all these things remind her of Stanley Kubrick’s “2001: A Space Odyssey.”

Have a read.

CFI Tax Policy Attorney Ali Mickelson got the chance to reach a national audience through an article that appeared on the Spotlight on Poverty and Opportunity website this week.

“Spotlight” is a nationally known website sponsored by some of the country’s biggest charitable foundations, and it features commentary from advocates and researchers all over the United States. 

Here is a PDF of Mickelson’s article.

The Colorado Fiscal Institute’s relentless push to bring transparency to the state’s tax expenditures has helped move the state’s overall grade for transparency in spending from a “D+” to a “B” this year.

Colorado in 2013 had received a score of 60 for transparency in spending and ranked in 42nd among states, according to a study by the CoPIRG Foundation that ranked states by criteria such as whether you could search for spending online by agency name or keyword. One of the criteria, however, was whether the state tracked and made public tax expenditures, which include tax credits, deductions and exemptions.

In 2013, CoPIRG gave Colorado zero points for publicly disclosing tax expenditures in 2012. But in 2014, CoPIRG is now giving Colorado 9 points for tracking tax expenditures in 2013. What changed from one year to the next? The creation of the state’s first Tax Expenditure Report, something required under SB 184 in 2011, a bill CFI pushed.

The legislation was controversial at the time, with many lawmakers questioning the need for it. It only passed after an agreement that its modest fiscal note would be funded through a portion of revenues from a bill granting tax amnesty to certain delinquent taxpayers.

But the 2011 bill paid off, with the state for the first time publishing a tax expenditures report in January of 2013, too late for the CoPIRG report that examined disclosure in 2012. This year, lawmakers made funding for the tax expenditure report permanent. How controversial was the idea this time? Lawmakers loved it so much the measure, HB14-1018, passed unanimously out of the House, and it became a consent bill in the Senate. Gov. John Hickenlooper signed it into law earlier this year.

Because of the 2013 Tax Expenditure Report, CoPIRG in 2014 has moved Colorado’s transparency score from 60 to 86, giving it a “B” and moving it from 42nd to 16th among all states.

“The Colorado Fiscal Institute believes now, as it did in 2011, that transparency in the tax code is essential for effective decision-making,” said Carol Hedges, CFI executive director. “We’re glad to see that the Tax Expenditure Report has been recognized for providing needed information.”

By Chris Stiffler

One of the biggest issues at the Capitol is how to put more money into K-12 education. After a decade of a struggling economy, K-12 suffered significant cuts during the Great Recession through a mechanism called the “negative factor,” which has further contributed to Colorado funding its students well below the national average.

In fact, Colorado spends $1,872 less per student than the national average. With our tax collections finally rebounding, Colorado is in a position to start restoring the cuts K-12 schools experienced. But this isn’t as easy as it sounds.

Because of the complicated interactions with our constitution and how the state finances education, legislators are in a tough situation: they want to put more money into schools but they also must do it without blowing up the entire state budget or completely draining the State Education Fund. To understand this, we have to understand some Colorado school finance history.

Under Amendment 23, which voters passed in 2000, K-12 funding was required to grow by at least the rate of inflation and to account for student population growth. With falling tax revenues and budget pressures that accompanied the Great Recession, legislators determined in 2009 that Amendment 23 only applied to certain parts of the school finance formula and that other parts didn’t have to grow by inflation each year. This is where the “negative factor” comes in. Now, the legislature determines the amount of funding required under Amendment 23 and compares it to the amount of funding available.

When there isn’t enough money available, the gap gets filled with the negative factor — essentially a negative amount of money that is given to school districts. This mechanism allows compliance with the constitution while simultaneously decreasing funding below the original intent of the amendment. The negative factor subtracted 15.5 percent of school districts’ funding this year. After a few years of cutting via the negative factor, total funding for K-12 education in Colorado is now more than $1 billion below where it would have been without the negative factor.

The State Education Fund was also created with Amendment 23, intended as a savings account to protect Colorado school funding from economic downturns. Unfortunately, over the last decade, the money in the State Education Fund was drained to help maintain education funding when flagging general fund collections were used to support other programs.

Thus, the State Education Fund was never able to grow into the large reserve envisioned originally. The savings account became a checking account.

This year, with recovering tax revenues, the State Education Fund now has more than a $1 billion balance (due in large part to the $1.1 billion general fund surplus from FY 2012-13 that got transferred to the SEF thanks to SB13-260). So why don’t legislators reverse the billion-dollar negative factor using the $1 billion in the State Education Fund? The answer is complicated, and here’s why.

That $1 billion sitting in the SEF is one-time-money — only available this year — unlike the billion-dollar negative factor that is an annual shortfall. The $1 billion in the SEF can’t be counted on next year. So a school district can’t hire a new teacher not knowing if the money will be available next year to pay the teacher’s salary.

To further complicate things, money spent on K-12 adds to the school funding “base,” which then has to grow by inflation each year according to Amendment 23. If the state puts too much extra money into the base this year not knowing if that money will be available next year, it could create budget pressure next year, which would result in either taking money away from other programs funded out of the general fund or requiring cuts to education again.

In addition, keeping a large balance in the SEF helps the fund act as it was originally intended before the tight budget periods of the last decade: as a reserve fund that earns interest. With a large reserve fund built up, K-12 will be better able to weather the next economic downturn by smoothing funding during downturns in the economy, and funding wouldn’t have to be cut when general fund money isn’t available.

So, repaying K-12 education is a balancing act. The governor and legislators are trying to put as much money as possible back into Colorado schools without creating budget problems in the future. But they’re also simultaneously preparing school funding to weather the next economic downturn instead of suffering drastic cuts like K-12 did during the Great Recession. 

Editor’s note: Capitol Gains is a bi-weekly feature on fiscal happenings in the Colorado legislature.

By Ali Mickelson

Movin’ on up!

The Taxpayer Protection Disclosure Act (HB 1285) passed the Colorado House on Monday after the combined efforts of CFI, Tax Help Colorado, 9to5 Colorado, Together Colorado and the Bell Policy Center, groups who’d all testified in favor of the bill last week in a House committee. Despite opposing testimony from a tax preparer claiming the disclosure was a “solution in search of a problem,” legislators were compelled by the importance of this common sense consumer protection measure and the ease of administration. The bill has now been assigned to the Finance Committee in the Senate.

Borrow from Peter to pay Paul

Just over half way through the session, legislation is still being introduced to create new tax credits. The most recent “creative” idea is a state income tax credit to reimburse businesses for local personal property tax paid (HB 1279). CFI testified against this bill, noting the inequity involved in creating such an unusual tax policy. CFI was quoted in the Denver Post as saying, “Our (tax) system is built on the idea that we have state taxes that are applied equally to all taxpayers no matter where they live and local taxes that are locally approved to provide local services. HB 1279 undermines that system. The result is that taxpayers in low property tax areas subsidize the businesses that are in higher local property tax areas.” Yet, despite our efforts, the bill passed through committee and will be heard today in House Finance.

We care about child care            

CFI’s Colorado College policy fellow, Marlana Wallace, was finally given her opportunity to testify in support of a bill creating a new child care tax credit in Colorado, after several weeks of delayed hearings. The new credit (HB 1072) will make the credit available for the lowest-income families who are currently unable to receive the credit. Fielding questions like a pro, Marlana was one of several great testifiers that encouraged the committee to ultimately pass the credit on a party-line vote. The credit now will go to the House Appropriations Committee, which will grapple with the $20 million fiscal note. 

The Lone Ranger

CFI staff is becoming a frequent presence at the Capitol, often as the lone opponent on tax and budget bills that violate our principles for an effective tax system (see blog on our principles here). Our current “lone ranger count” is at four but will be increasing next week as we testify against the expansion and weakening of a job growth incentive credit (HB 1014) and again try to defeat the terrible policy in the “income tax credit for business personal property tax” bill (HB 1279).  

Colorado’s state revenues in the current 2013-14 fiscal year are $93 million more than previously projected, and the state is poised to start the next fiscal year in July with $61 million more than forecast in December.

OSPB projections also show the state will close out the current fiscal year that ends in June with $88.2 million above the general fund reserve and will start the 2014-15 year in July with $75.8 million above the reserve requirement.

Those March revenue projections come from the governor’s Office of State Budgeting and Planning and are more conservative than those from economists with Legislative Council. The Joint Budget Committee always takes the most conservative revenue estimates, and the March economic forecast determines the level of revenue on which the legislature bases the budget.

In any case, projections show there could be up to $1.1 billion more to spend in 2014-15 than was available in the current fiscal year.

Colorado is still slowly recovering from the ravages of the Great Recession in which the state had to bridge a shortfall of more than $1 billion, a deficit that meant sizable cuts in state support to higher education, resulting in steep tuition increases for multiple years and an abandonment of the funding formula under Amendment 23, a move that allowed the state to cut K-12 funding below what had previously been considered a base funding level. K-12 schools in Colorado are now more than $1 billion below the Amendment 23 line.

And there are many more funding needs.

“The Colorado Fiscal Institute is pleased that revenues are staying above projections,” CFI Executive Director Carol Hedges said. “However, we’d remind those watching the budget process that the current ‘surplus’ means only that we as a state have more than we expected, not more than we need.”

HB14-1285, a bill to require paid tax preparers to provide basic consumer disclosure, cleared the Colorado House today. It’s on to the Senate for the CFI priority bill.