By Elliot Goldbaum, Pegah Jalali, and Caroline Nutter

What’s in the Inflation Reduction Act?

This week, the U.S. Senate passed the Inflation Reduction Act. If it becomes law, it will make big investments in the fight against climate change and close tax loopholes for people making over $400,000 a year and some large, rich corporations. A House vote is expected this week. 

The Inflation Reduction Act comes after nearly two years of negotiations, stalled legislative efforts, and other barriers to more expansive and transformative economic legislation. It addresses fewer issue areas than Congressional leaders and the Biden administration—not to mention advocacy groups like the Colorado Fiscal Institute—were hoping for, but taken as a whole, it is a significant investment in a stable climate future and clean energy jobs, will provide people savings on health care costs, and it’s paid for with fair tax changes that ask wealthy people and rich corporations to pay closer to their fair share. 

Additionally, the legislation includes policies like deficit reduction designed to help curb inflation. (Interestingly, a recent New York Times newsletter went into the economics of inflation and climate change, and the two are much more linked than one might think).

Fighting climate change by drastically reducing pollution

The Inflation Reduction Act contains several provisions that will reduce pollution, create jobs in the clean energy energy industry, and do so equitably and justly. The legislation will reduce the type of pollution that contributes to climate change by 40% by 2030. 

Among the provisions included in the legislation:

• $20 billion in consumer incentives to purchase electric appliances, rooftop solar, and other improvements designed to make homes more energy efficient and less reliant on fossil fuels. People who earn low incomes and communities facing the greatest barriers to these types of improvements will see a substantial amount of the benefits.
• $60 billion in clean energy manufacturing incentives to create jobs that pay well and will be critical in advancing a clean energy future.
• $70 billion to decarbonize the transportation, manufacturing, construction, and agriculture industries.
• $60 billion in environmental justice priorities to drive investments to communities that have historically been the most likely to experience negative environmental impacts from industrial facilities.
• $20 billion to support sustainable agriculture projects.
• $4 billion for drought resliency in the Western U.S.
• Tax credits and grants to support biofuel production, designed to power the air travel of the future.
• Reduce methane emissions created during natural gas extraction. Reducing methane emissions earlier is considered one of the most cost effective ways to prevent catastrophic increases in global temperatures.
• Increases the royalty rate for oil and gas development leased on federal lands, ends noncompetitive leasing on federal lands, raises minimum bids and rental rates for oil and gas companies leasing federal lands, 

Additionally, despite the need to transition to clean energy, some concessions were made to ensure the passage of the overall package, including requiring onshore oil and gas leasing and tying it to clean energy development. The Inflation Reduction Act also removes authority from the Secretary of the Interior to raise royalty rates on federally leased lands for 10 years. Finally, though an initial draft of the bill included reforms to the oil and gas bonding system, this provision was ultimately removed. Those bonding reforms are still badly needed to stop the practice of oil and gas companies abandoning wells without cleaning them up (also known as orphaned wells).

Saving people money on health care costs

In addition to the historic climate provisions, the Inflation Reduction Act includes provisions designed to reduce health care costs for people across the country. Most of the cost saving measures center around reducing the cost of prescription drugs, especially for Medicare patients. Among the most important short-term policies was to extend the subsidies authorized under the American Rescue Plan Act last year. According to an analysis by the Center on Budget and Policy Priorities, failing to extend these provisions would have caused insurance premiums to skyrocket for many middle class families.

Provisions in the Inflation Reduction Act related to health care:

• Authorizes the Secretary of Health and Human Services to negotiate the prices of certain drugs with pharmaceutical companies.
• Requires rebates on certain medications if drug companies raise prices faster than the rate of inflation.
• Caps the amount of money a Medicaid Part D patient must spend out of pocket on prescription drugs at $2,000 per year.
• Extends the Affordable Care Act subsidies authorized in 2021 that allowed more people to purchase subsidized plans on state health insurance marketplaces.

Taxing wealthy people and rich corporations closer to their fair share

While not as ambitious as the tax plan laid out in previous federal legislative proposals, the Inflation Reduction Act has several provisions that will be used to pay for the climate, health, and deficit reduction policies in the bill. Additionally, the bill authorizes investments in Internal Revenue Service nforcement of existing tax laws.

• A 15% corporate minimum tax will raise an estimated $273 billion. Prior to Senate passage of the Inflation Reduction Act, Sen. Ron Wyden released research showing that over 100 companies with average profits of $8.7 billion paid a 0% effective tax rate in 2019.
• A 1% excise tax on stock buybacks will raise an estimated $73 billion. The Economic Policy Institute found that corporate stock buybacks increased by 50% after the passage of the Tax Cuts and Jobs Act in 2017, and soared to $580 billion in 2018.
• $80 billion in spending for increased enforcement of existing tax laws by the IRS is anticipated to raise an additional $203 billion in revenue.
• An extension of the limitation on the amount of losses businesses can deduct on their income taxes from 2026 to 2028 will raise an estimated $52 billion in revenue.

Additionally, the Inflation Reduction Act will be used to reduce deficits. Current estimates show the bill will reduce the federal deficit by over $300 billion. 

What does the Inflation Reduction Act mean for us?

The Inflation Reduction Act will go a long way towards reducing carbon emissions that are causing climate change. In addition to buying us some time to come up with more substantial climate policies, the legislation is estimated to create 9 million jobs.

For health care consumers, especially older people and others who are on Medicaid Part D, the legislation will mean reduced costs on prescription drugs. And for those who get their health insurance through state exchanges, the bill will help them avoid potentially huge increases in premiums.

Finally, we will all benefit from a fairer tax code. Rich corporations have been racking up huge profits in recent years, and by closing tax loopholes that mostly benefit them and people who make over $400,000 a year, Congress is sending a message that the tax code should be fairer for working people. 

Unfortunately, many important policies that were discussed in previous iterations of federal budget legislation did not make it into the Inflation Reduction Act. Permanently expanding the Child Tax Credit and the monthly advance payments that helped families afford rising costs, offering child care and preschool to families of young children, investing in the growing care economy and ensuring care workers can be paid what they deserve, a $15 federal minimum wage, and other policies would all benefit our country and our economy and help fight economic challenges like inflation and labor shortages. We also still have a lot of work to do on climate, despite the big wins in the Inflation Reduction Act.

However, given the many barriers to passage, this is an important piece of legislation that will address several important issues simultaneously, and provide avenues for an equitable economy and a just climate future.

By Pegah Jalali and Elliot Goldbaum

How do we get gas prices to come down?

Though gas prices have started to drop just a bit from the record highs we’ve seen this year, they’re still a big concern for families across the country, and policymakers are looking for ways to lower costs more. While some in Washington have floated the idea of a gas tax holiday (we wrote back in April about why that probably wouldn’t help), others are saying the only way to bring prices down is to increase fuel supplies.

Global events, especially the war in Ukraine and ensuing sanctions like banning Russian oil imports, are driving prices to record levels and are largely outside of our control. While the pandemic continues to create supply chain problems that are driving inflation, including the price of gas, the other main factor in the cost of gasoline is a sharp increase in demand now that more people have returned to daily commutes to and from work. More oil production should lead to bigger supplies to meet that demand and, at least in theory, lower gas prices.

So are they going to increase supply?

Based on statements from Colorado oil and gas executives on earnings calls with investors, we know the industry isn’t especially interested in trying to meet that demand and get prices back to normal levels. Instead, they’re using the spoils of high gas prices to further enrich themselves and their shareholders. This comes despite the industry engaging for months now in what is clearly a disingenuous lobbying campaign for more drilling on our public lands. 

Despite already sitting on 12 million acres of undeveloped leases and 9,000 unused drilling permits, the industry was demanding even more access to public lands. Instead of caving to pressure, the U.S. Interior Department came up with a smart plan that will protect cultural areas, wildlife habitat and migration corridors, and areas with low development potential. The wisdom of the decision to limit the amount of land available for leasing was confirmed when oil and gas companies left nearly one third of available land parcels sitting on the table at last month’s federal oil and gas lease sale.

To understand why this matters, let’s take a closer look at federal oil and gas leasing.

How does federal oil and gas leasing work?

The Bureau of Land Management (BLM) manages the federal government’s onshore oil and gas program, which oversees oil and gas leasing and development on federal lands. BLM field offices first prepare plans which determine what lands can be open to oil and gas leasing. Any individual or company can then nominate—at no cost and anonymously—any of the lands that are open to leasing to be included in the next federal onshore oil and gas lease sale. Next, BLM holds public auctions where bidders can compete for a lease by placing bids. The highest bidder gets the rights to explore the leased land for oil and gas deposits. 

Before being issued the lease, the lease holder must pay a bonus, which is the amount of highest bid, as well the first year’s rental fee of $1.50 per acre. Initial lease terms are set for 10 years, with the rental fee increasing to $2 per acre after the first 5 years of the lease. After production begins, the leaseholders have historically been required to pay 12.5% of their production value in royalties. The term of the lease is automatically extended as long as production continues.

How much are royalties from public oil and gas leases worth? 

A report released by Department of Interior in November 2021 showed federal onshore oil and gas development provided over $3.46 billion in revenue in FY 2020. That includes $2.3 billion in royalties, $92.9 million in bonus bids, and $23 million in rentals. 

Those numbers would be much bigger if the federal government updated royalty rates, according to a report by Taxpayers for Common Sense. That report estimated that if the federal government had increased the onshore royalty rates to 18.75%, the same rate it charges for offshore leases, it would have earned up to $13.1 billion in revenue between 2012 and 2020. Many oil and gas producing states have updated their royalty rates for leases on state land several times over the past decades. Colorado, Pennsylvania, and Texas have a 20% royalty rate. 

When oil prices rise as a result of global market fluctuations, the lost royalty revenues to the federal and state governments also increases. Onshore revenues fund water reclamation projects and may also contribute to the National Parks and Public Land Legacy Restoration Fund. 

In Colorado, the Department of Local Affairs distributes the Federal Mineral Lease revenues to local governments directly and through grant programs. As shown in the chart below, royalty revenues are distributed to the state public school fund (48%),  Colorado water conservation board (10%), direct distribution to school districts (1.7%), and local government mineral impact fund (40%). Increasing royalty rates gives Coloradans a fair return and helps us invest in our schools and other important services.

While the Interior Department smartly increased the federal onshore royalty rate to 18.75 for the sale in June, there are other ways the oil and gas industry exploits these century-old rules at our expense.

What happens when leases go unsold?

Despite the industry calling for opening up as much land as possible to drilling and nominating over 700,000 acres of public lands that the BLM initially evaluated for lease, they still left a lot of it on the table and didn’t try to bid on it. When nominated land goes up for sale but doesn’t receive any bids, it becomes available for what is known as “noncompetitive” leasing. That means companies can swoop in and buy federal leases for pennies on the dollar. 

Because a little less than one-third of the leases up for sale in the June lease sale went unpurchased, they will now be up for noncompetitive leasing—including over 2,000 acres of public lands in Colorado alone that went unsold last month. 

This is just another example of how our federal oil and gas leasing system, most of which hasn’t been updated for over 100 years, is allowing the oil and gas industry to line their pockets at the expense of wildlife, clean air and water, the communities who live on the front lines of oil and gas drilling, and all Coloradans who miss out on critical revenue due to outdated oil and gas royalty rates.

What can be done to help gas prices?

Making the increase in royalty rates that was adopted for the June lease sale permanent would mean more money for our communities through federal royalty revenue. 

Additionally, Colorado’s own Senator John Hickenloooper has made the issue of ending noncompetitive leasing a priority. “Non-competitive leasing encourages speculation on public lands at taxpayers’ expense,” Hickenlooper said in a press release when the bill was announced. “Westerners lose out when large swaths of land are set aside for speculation instead of conservation or recreation.”

While the newly announced Inflation Reduction Act does include some reforms to the federal oil and gas leasing program, it also includes less helpful policies that will tie the hands of the Interior Department and potentially make it harder to protect our public lands. While the bill contains a lot of other important provisions, especially related to climate change and fair taxes, there’s more work to be done to fix some of these issues.

Western voters agree that these reforms are important for maintaining our state’s beauty and the health and safety of our public lands and our communities, according to a poll conducted in February by Colorado College. These common sense reforms would go a long way towards protecting our communities from both an environmental and fiscal standpoint.

As far as gas prices go, In the short term, there’s not much we can do to lower them by big chunks. That’s why it’s more important than ever for us to find ways to transition to clean energy, end our dependence on fossil fuels, and continue our progress toward a carbon neutral future.

In the meantime, smarter, more fiscally and environmentally responsible leasing policies will be a big win for Colorado and the rest of the West.

By Sophie Shea, Policy Analyst

What’s causing inflation?

Amidst the turmoil of shutdowns, testing, masks, and all the other disruptions to daily life caused by the pandemic, now rising costs everywhere from the gas pump to the dinner table have created financial challenges for families across the country. Shutting down and reopening the entire global economy produced a prolonged shock felt by the entire world, and panelists at a recent event hosted by nonprofit news outlet ProPublica said it precipitated the highest U.S. inflation in more than 40 years. The biggest drivers? Extremely high global shipping costs, a failure of our “just-in-time” supply chain, and record-breaking high corporate profits. 

Why are shipping costs so high?

Reporting from ProPublica journalist Michael Grabell, one of three panelists at the event, found that three ocean shipping conglomerates control 90% of the transportation of U.S. imports. Carrier rates for shipping between Asia and the U.S. have increased by over 1,000% from January 2020 to today, according to Grabell. A White House analysis estimates that the ocean shipping industry made a record-breaking profit of $190 billion in 2021, which is seven times more than 2020 profits and 5 times more than the profits accumulated over the decade of 2010-2020. 

A rise in predatory and potentially illegal penalty fees contributes considerably to the sharp increase in international shipping costs––and profits. The fees in question are called demurrage and detention, which are essentially late fees. During normal times, they act as an incentive to maximize the efficiency of the flow of goods. However, pandemic shutdowns and a rise in consumer spending caused massive congestion in U.S. ports. Despite gridlock in the ports creating scenarios where on-time delivery became impossible, shipping companies continued to charge these exorbitant fees.

Reports also find that ocean carriers are engaging in predatory practices in the pickup stage as well. Importers of perishable goods complained that while they struggled to pay the high fees, their fruits and vegetables were left to rot. Several other businesses have filed complaints concerning ocean carriers’ exploitative behavior, and recently Congress approved the Ocean Shipping Reform Act, which gave the Maritime Commission more power to crack down on exploitative fees. However, more policy action is needed to effectively address predatory practices and corporate profiteering.

What happened to the supply chain?

While the pre-pandemic supply chain brought consumers cheap goods, existing infrastructure was not resilient enough to withstand the shock brought about by Covid, according to Dr. Rakeen Mabud, chief economist at Groundworks Collaborative and a panelist at the event. Mabud argues that brittle supply chains have been strategically cultivated across decades of corporate consolidation and disinvestment.

The strategy of megacorporations to corner vital markets put them in a prime position to take advantage of economic shocks and raise their prices at rates that are actually higher than inflation. Additionally, with a market set up to give corporations lots of power and little oversight, CEOs can raise prices without the threat of competitors undercutting them. While this has brought cheap prices in the past, corporate consolidation has come at the cost of resilient and stable supply chains for consumers.

Are corporations using inflation to raise prices?

Beyond the inflation we’re all feeling, groups like Groundwork and the Economic Policy Institute (EPI) argue higher corporate profit margins are responsible for more than half (53.9%) of consumer price increases. While some have pointed to rising wages as a driving force behind inflation, the same research from the EPI finds that labor costs have contributed to less than 8% of the rise in costs. Recent polling from Data for Progress and Groundwork Collaborative finds that 63% of voters agree that “large corporations are taking advantage of the pandemic to raise prices unfairly on consumers and increase profits.”

Additionally, Groundwork Collaborative found that corporate leaders are excited about the prospect of inflation as a means to increase shareholder profits, a sentiment expressed openly on public corporate earnings calls with shareholders. On one earnings call, Kroger CEO Rodney McMullen, whose company recently lost a labor battle with striking grocery workers in the Denver Metro Area, even went so far as to tell investors that “a little bit of inflation is always good in our business.”

What about high gas prices?

Panelists at the ProPublica event pointed to the war in Ukraine as a reason why fuel prices have climbed so high, but consumers shouldn’t expect to get any help from oil and gas companies. As gas prices continue to spike, fossil fuel producers have made it clear that they’re fine with limiting production and riding the cash cow of record high gas prices. 

Elsewhere, the first public lands leasing sale of the Biden era resulted in some land parcels going unsold in Wyoming, Colorado, and other western states, which CFI’s Pegah Jalali recently told the Associated Press was a sign that oil and gas companies weren’t actually interested in boosting domestic oil production, just maximizing their profits. 

Will raising interest rates actually stop price increases?

In response to rising inflation, the Federal Reserve began raising key interest rates earlier this year. This comes despite the fact that many economists, including Groundwork’s Dr. Mabud, predict this could lead to a recession without having any effect on the price of groceries or gas. Mabud argued during the ProPublica panel discussion that aggressively increasing interest rates would “artificially [create] a recession [and] put millions of people out of work, especially Black and Brown workers,” and called the notion of putting all our hopes in Fed action to solve inflation a “fundamental misunderstanding of why we have rising prices in the first place.” 

Based on Federal Reserve Chairman Jerome Powell’s own comments, it does not appear he’s concerned about workers. In May, when Powell announced a large 0.5% interest rate increase he told reporters at a press conference that raising interest rates and reducing hiring demand “would give us a chance to get inflation down, get wages down, and then get inflation down without having to slow the economy.” Though workers have seen their wages increase in the past two years, that’s after more than 50 years of essentially stagnant wages.

The other panelist, economist Dr. Claudia Sahm, argued that “the Federal Reserve can do nothing to get gas and food prices down,” and said it’s Congress and the Biden administration who have the power to address the supply chain and shipping issues that are driving inflation. 

What policies will help address the real causes of inflation?

In order to attack the root source of inflation, policymakers must crack down on corporate profiteering and invest in more resilient and equitable supply chains, says Dr. Mabud. She suggests an array of tools that Congress can use: a federal price gouging statute, taxing corporations more effectively through a windfall tax, and generally implementing more aggressive corporate taxation. She also recommends empowering the Department of Justice and the Federal Trade Commission to enforce corporate regulation and investing in clean energy sources to avoid the economic, climate-related, and geopolitical problems of fossil fuels. 

Dr. Sahm questioned why prices were so low pre-pandemic and argued that the globalization of production and the ensuing race to the bottom are considerable contributors to historic low prices. Dr. Sahm says, “the thing about inflation is understanding exactly how we had gotten all those really low prices. We have gotten these low prices off the backs of workers in Asia, people who get very low pay in the United States. These systems that are just put together with shoestring and bubblegum… Fixing these systems may come with a cost, but a benefit will be a more resilient and a more equitable system.” 

By Kaylee Kaestle

Reproductive rights are an essential part of the ability for women and all pregnant people to achieve socio-economic independence. Now that Roe has been officially overturned, drastic economic disadvantages are likely to plague women around the country. Colorado has long been at the forefront when it comes to policies on abortion, contraception, and other reproductive health policies. We were the first state to loosen abortion restrictions — even before the landmark 1973 Supreme Court decision in Roe v. Wade — making it a groundbreaking setting for reproductive rights advocacy and legislative decisions. 

This year, Colorado lawmakers codified the right to abortion in the state in response to the possible overturning of Roe. The Reproductive Health Equity Act (RHEA) had already been passed by the legislature and signed into law a month before Politico leaked a draft of a Supreme Court decision that would overturn the nearly 50-year-old precedent. Colorado will almost certainly see an increase in people seeking services created by a ripple effect of surrounding states —  like Oklahoma, Idaho, and Utah — passing bans and restrictions. Knowing that Roe was likely to be overturned, Colorado abortion providers have already been working hard to ensure they can continue to serve people seeking abortion and other reproductive health services without overwhelming our clinics and practitioners by preparing for a major influx of people coming from surrounding states seeking services. 

Because of these expected restrictions, it’s never been more important to lift up the economic implications of abortion bans and the widespread research that supports the sentiment that anti-choice legislation leads to drastic economic instability for those already facing numerous economic barriers. 

Historically, abortion bans have been detrimental to the overall economic prosperity of women. According to a 2019 analysis by the Institute For Women’s Policy Research, “Existing children in the households of women who were denied abortions were more likely to be living below the federal poverty level several years later than existing children of women who received abortions.” Likewise, half of all people who seek abortions live below the poverty level and 75 percent earn low income. Without the proper financial resources, women are much more likely to struggle with providing economic stability for themselves and their children, often leading to a continuous cycle of poverty.

Because of the structural barriers that limit access to reproductive health care, Black women are most likely to be negatively affected by abortion bans, and they are more likely to live in states that have restrictive reproductive health care legislation that typically doesn’t fund contraceptives through Medicaid programs. And even when these programs do fund reproductive health care, the copayment for services is often too expensive for many to afford. Because of these structural barriers, women of color have higher rates of unintended pregnancies, and, therefore, need more access to abortion resources than white women, but are more likely to live in areas with less access and have less financial resources to travel to seek care. A study of census information and IRS tax returns shows that unmarried Black teens who give birth reduce their probability of future employment by 47-58 percent. However, when Black women live in areas where abortion is safe and available, they are likely to see about a seven percent increase in employment opportunities. Considering Black women – and women of color in general – face more barriers to economic mobility in their lifetime than white women, abortion bans are just another barrier to closing the racial wealth gap. Without Roe v. Wade in law to ensure these services are allowed, there is a very real risk of further drastic economic disparities among women of color.

With surrounding state governments likely to implement abortion bans in the near future, Colorado is going to see an even greater influx of out-of-state people seeking reproductive services. According to the Texas Policy Evaluation Project, within the four months after Texas’s strict abortion ban was implemented in 2021, 5,500 Texans sought out-of-state abortions compared to 500 during the same timeframe in 2019. About half of those seeking out-of-state services went to Oklahoma and Kansas, which are now two of the primary states looking to rid reproductive services altogether. Colorado providers are worried flooded clinics and overworked practitioners will be left trying to deal with an increase in patients seeking reproductive health care. 

Despite Colorado’s longstanding history of being a pro-choice haven, abortion laws and restrictions are not perfect here either. According to the Guttmacher Institute, abortion is not covered by insurance policies for public employees and is only publicly funded in cases of life endangerment, rape, or incest, leaving those unable to afford abortion services potentially being subjected to forced births and additional economic barriers.

The decision to overturn Roe comes with a multitude of social and economic consequences, and though Colorado is one of the most progressive states in the country for reproductive health, there’s still more we can do to implement further protections to ensure that reproducing people have control of what happens to their bodies regardless of the color of their skin, where they were born, or how much money they make. To learn more and see what some of our partners are doing about the state of reproductive rights in the country, please check out the Colorado Organization for Latina Opportunity and Reproductive Rights (COLOR), Progress Now Colorado’s Keep Abortion Safe project, Planned Parenthood of the Rocky Mountains, Cobalt and the ACLU of Colorado.

#1 — $400 checks looking like $750 now

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Sizable revenue collections this past spring have grown General Fund revenue by 21.8 percent. This increase pushed the TABOR surplus – the amount that is expected to be collected above the Ref C cap – to $3.56 billion from the previously anticipated $2 billion. The expected sizes of TABOR rebates are now $750 for single filers and $1,500 for joint filers, almost doubling from initial predictions at the end of May of $400 for single filers and $800 for joint filers.

The legislature took action this year, creating a fairer way to distribute these one-time rebates, putting more money in the pockets of our workers and families. Through SB22-233, a temporary rebate mechanism was created to give every eligible Coloradan an identical amount of TABOR rebates, no matter their income or filing status. Rebate checks of $750 ($1500 joint) will be distributed in advance of filing your 2022 taxes and are expected to hit mailboxes this summer. Without the legislators acting, we would have seen a vast majority of the $3.56 billion go through an outdated six-tier sales tax refund, which gives the highest refunds to the highest earners and the lowest refunds to the lowest earners.

Though these advanced rebate checks are an improvement to an otherwise unfair system that takes dollars away from better funding public services, they will only occur this year. Legislators will face a similar choice next year when SB22-233 expires and TABOR surplus predictions continue to be in the $3 billion range for FY 22-23.

#2 — Colorado job growth outpaces the Nation

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Due to significant influxes of cash from COVID-19 federal relief at the state and local levels, job growth and retention in Colorado continues to remain robust. Our unemployment rate is at 3.5 percent, which is slightly under the national average of 3.6 percent. Colorado added 35,800 more jobs than pre-pandemic levels with the majority added this year. Though the positive labor market outlook is broad-based, certain sectors and geographical areas are still struggling to fully recover. Employment in the local and state government, mining and logging, accommodation and food services, and health care and social assistance sectors remains below pre-pandemic levels. Despite employment reaching pre-pandemic levels in metro Denver, Colorado Springs, and the state as a whole, Northern Colorado and metro Pueblo remain below pre-pandemic employment levels.

 #3 — Inflationary pressures continue to rise

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Despite strong labor market performance, inflation continues to outmatch wage growth hindering the market’s recovery. The March 2022 forecast updated its December inflation predictions from 3.4 percent to 7 percent. Headline inflation is now at 8.5 percent and core inflation (with energy factors taken out) is at 6 percent. The largest contributors to headline inflation are housing, transportation, and food. While transportation inflation is expected to level-off as geopolitical factors subside, price pressure in housing will likely continue into 2023. Inflation is outpacing wage gain, effectively lowering take-home wages and hurting predominantly lower- and moderate-income households.

#4 — TABOR Rebates in subsequent years

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The Referendum C cap is calculated using the Denver-Aurora-Lakewood Consumer Price Index (CPI) and population. Because of current inflation, the Ref C cap will be adjusted to be higher. However, because there is a lag in the calculation of the cap, Colorado’s budget will not see high inflation from calendar year 2022 calculated into its cap until FY 23-24.  Since inflation’s effect on the cap is delayed, the TABOR surplus for next year is still expected to just exceed $3 billion. By FY 23-24, the TABOR surplus will drop to $1.57 billion. As inflation continues to be factored into future Ref C caps, the TABOR surplus in years beyond FY 23-24 could be zeroed out.

#5 — Recession watch

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Growing inflation, aggressive monetary policy response by the Federal Reserve, and the housing shortage are contributing to elevated recession risk. Though retail sales started off strong in 2022, Coloradans are beginning to tighten their wallets, and buying is expected to moderate in the next half of the year— especially as purchasing power shrinks with inflation. Though TABOR rebates can absorb a slight economic downturn in the immediate future, a mid-term economic contraction could lead to budget pressure in subsequent years.

In March 2022, several ballot measure titles were filed that would, in various ways, limit or cap property tax
revenues collected by local districts in Colorado. Over forty years ago, California attempted a similar
experiment to ease the increasing property taxes of a state growing exponentially. Its own ballot measure,
Proposition 13, which capped property values for tax purposes and property tax rates, was not targeted and
the proponents had no plan to pay for it.

As a result, the measure cut the local share of school funding in half, and sales tax revenue as a share of local revenue almost doubled. While older, longer-term homeowners benefitted massively, new homeowners and young families saw little change in their property tax bills. And without adequate funding, a shifting and smaller tax base led to skyrocketing student-to-teacher ratios and dramatic cuts in per-pupil funding.

Ultimately, this type of property tax limitation would take away more money from our underfunded K-12 schools and cause substantial economic distress in the ever-growing state of Colorado.

Highlights:

• Proposing this property tax limitation in Colorado will reduce local government revenues by almost $2.5 billion annually and cost the state over $650 million a year in backfill dollars causing detrimental blows to our economy.
  
• California saw Proposition 13 catalyze a major decrease in tax deduction claims that lead to a major increase in the state’s internal and federal tax bill furthering economic instability.
  
• If this proposition passes, we would see a drastic decrease in funding for our K-12 schools that are already extraordinarily underfunded.
  
• Like California, Colorado would likely see an even greater increase in sales tax which would negatively affect the most financially vulnerable in our state.

Click here to download the full brief.

Why are gas prices so high?

For the last month, Colorado’s average price per gallon of gas has been stuck at around $3.96 per gallon — very close to the all-time record of $4.09 in 2008. In order to ease the impact of rising prices at the pumps, Governor Polis has called for a federal gas tax suspension, and asked the Colorado General Assembly to delay the implementation of SB21-260, a $5.3 billion transportation funding bill that Gov. Polis signed into law last year that raises the fee on gas sales starting at 2 cents per gallon in July of this year. 

There are a few contributing factors to this increase in price, but the primary reason is the Russian invasion of Ukraine. On March 8, President Biden announced that the U.S. was banning imports of oil from Russia in response to its invasion of Ukraine. Though Russian crude oil makes up only about 3 percent of U.S. oil imports, any reduction in supply results in higher gas prices for consumers. Combined with COVID-19 restrictions relaxing and summer approaching, there is currently much more demand than supply for fuel.

The graph below shows the average annual price of gasoline from 1976 through 2021 in the United States. The orange line shows the price consumers paid at the time, while the blue line shows the price adjusted for inflation. You can see that even though prices are nominally high, they’re still lower than they were in the early 1980s and mid-2000s and 2010s.

What do we pay in gas taxes?

The federal gas tax is 18.4 cents per gallon and has not increased since 1993. Since it is not adjusted for inflation, the real value of the federal gas tax has been declining. The gas tax is the main source of revenue for the Highway Trust Fund, which funds federal road and bridge projects. This stagnant funding stands in stark contrast with the price of construction projects according to an analysis from the Institute on Taxation and Economic Policy, which found a 185% increase during the same period. For this reason, and because vehicles have become more fuel efficient, the purchasing power of the federal gas tax has declined by 72 percent since 1993. 

Coloradans also pay a state gas tax of 22 cents per gallon. Beginning in July 2022, as a result of SB21-260, motor fuels are subject to additional fees starting at 2 cents and eventually reaching 8 cents, which will be phased in between FY 2022-23 through FY 2028-29 and then indexed to the National Highway Construction Cost Index. However, lawmakers and Gov. Polis appear poised to delay the implementation of that law in an effort to help people with rising costs.

What will a gas tax holiday do?

There has never been a federal gas tax holiday, however it’s reasonable to expect that it won’t do much, if anything, to reduce fuel prices. Part of the reason is because the tax is levied on producers, not consumers. Oil companies simply pass along those costs to consumers. Because the demand for fuel and the supply of fuel aren’t affected by a tax as small as the federal rate, it’s entirely possible the price will go up enough to eat away most of the savings.

Even if the savings do reach them, 18 cents a gallon is not enough to create meaningful relief. On average, U.S. drivers travel 13,500 miles a year, according to the U.S. Department of Transportation’s Federal Highway Administration. If you drive 13,500 miles a year and your car gets 24 miles per gallon, it would amount to less than $10/month in savings. With current prices, that’s less than a quarter of a tank for most small cars.

While the savings aren’t guaranteed, a gas tax holiday carries huge costs for the public services the taxes pay for. In 2020, Americans used about 123.7 billion gallons of gasoline. Assuming a similar consumption for 2022, lifting the 18.4 cents gas tax for the rest of 2022 would cause the loss of about 17 billion dollars. 

What about climate change?

The transportation sector is the largest source of pollution contributing to climate change in the U.S., accounting for a little less than one-third of emissions. A gas tax cut could result in higher fuel consumption. A study by the University of Pennsylvania shows that under such a tax cut, from March to December 2022, the average gasoline consumption per capita in Colorado would increase by 0.84 to 2.47 gallons (depending on demand elasticity).

This is especially frustrating because Colorado is already behind when it comes to meeting our climate goals according to the state’s greenhouse gas reduction roadmap. If we want to achieve those goals, we need to accelerate the transition to clean energy in the transportation sector and invest in public transportation and electric vehicle infrastructure. We need policies that move us away from burning fossil fuels, and a gas tax holiday would work in the opposite direction.

Can’t we just drill for more oil?

It’s reasonable to wonder whether increasing domestic oil production would increase supply to meet the rising demand for gas. However, domestic gas prices are driven largely by global oil prices. There are a number of other challenges that mean ramping up production might not even be possible on the scale needed to lower prices.

Additionally, increasing domestic production is not simple. Oil producers are facing a shortage of workers and equipment as a result of the pandemic. Gasoline supply is also constrained by refining capacity, not just oil production. U.S. refineries are built for lower quality crude oil that is imported from other countries, not the higher quality crude that is produced domestically. For that reason, we would likely be exporting the increased production rather than shipping it domestically. 

Moreover, here in Colorado oil companies are currently sitting on thousands of permits. At least two local companies told investors on earnings calls earlier this year that, despite having the permits, their company intended to use the windfall from high oil prices to pay dividends to shareholders rather than invest in increased production. 

Are there any other alternative solutions to give people relief on gas prices?

A gas tax holiday would do little to help working families, it wouldn’t do anything to increase supply or reduce demand for gas, it would significantly reduce federal revenues, and would delay the necessary transition away from fossil fuels. That is all aside from the fact that it wouldn’t target relief to the people who need it most. There are better, more targeted policies that can be implemented to help families at times of high inflation, such as tax credits like the Earned Income tax Credit (EITC) and Child Tax Credit (CTC) that help people who earn low incomes afford basic needs. Directing cash into the hands of workers and families is proven to stimulate economic activity locally, and it would be a more effective and efficient way of helping people afford high gas prices.

Instead of temporarily suspending the gas tax, Congress could alleviate some of the effects of fuel inflation by permanently making the CTC fully refundable, permanently extending the CTC to children of immigrants who pay taxes with an Individual Tax Identification Number, continue to pay the CTC out in monthly installments, expand the EITC to younger workers below the age of 25, and bolster the size of both programs.

#1 – Inflation continues to squeeze family budgets

U.S. headline inflation was 7.9% in February, the highest rate in 40 years. Ongoing pandemic-induced supply chain disruptions, the war in Ukraine, and wage increases are all contributing. Transportation, energy, housing, and food are the biggest components of price increase locally. This caused Legislative Council to double their 2022 inflation estimate from 3.4% in December to 7% now. That projection will affect the next year fiscal year’s budget (FY2023-2024). Inflation is also affecting how much revenue the state can retain and invest in public services (more on that below). Inflation remaining high means lawmakers should be focused on targeting fiscal and economic policies at people who earn low and moderate incomes who are getting squeezed hardest.

#2 – $2 billion in TABOR rebates this year, but less in coming years

This year’s rebates are twice as big as any that came before, but while state economists revised 2022’s rebates up from $1.87 billion at the December forecast, rebates in the years to come are now expected to be much lower. As the risk of a recession starts to creep back up and the 7% inflation figure in 2022 increases the Ref C cap, the actual number has major policy implications elsewhere: Lawmakers are still considering plans that could make TABOR rebates fairer by being less slanted toward the wealthy. Elsewhere, advocates have filed a ballot initiative that would ask voters to forego about $800 million of their TABOR rebates and send that money into the State Education Fund.

#3 – A likely temporary situation calls for smart, one-time investments

Revenue is higher for a few reasons. First, federal fiscal stimulus propped up the economy through paycheck protection programs, unemployment insurance, and other temporary measures. Second, the pandemic recession had only minor impacts on many high-income earners, who make up a large share of the income tax base. All of this means lawmakers coming budget will have $3.2 billion more to spend than the current budget. However, many economists predict this trend is unlikely to continue, and higher deficits and inflation will probably temper the level of federal intervention in the next recession. This all means lawmakers should focus on policies that make one-time investments in people, not permanent changes based on temporary circumstances.

#4 – Colorado is nearly back to pre-pandemic jobs numbers

The state has recovered 98.4% of the jobs lost since March 2020. That’s better than the 90.4% figure nationwide. The sectors with the most jobs that haven’t yet returned to pre-pandemic levels are in the hard-hit accommodations and food service sector, which makes sense given how long the pandemic has dragged on. Despite these gains, Colorado’s unemployment rate was 4.1% in January compared to the U.S. rate of 3.8%. While that might sound bad, it’s due to Colorado’s high labor force participation rate, which is third highest among states. CFI Executive Director Kathy White talked to The Colorado Sun about that this week.

#5 – Strong wage gains for low-wage workers getting eaten by inflation

Wage growth in beginning of 2022 has favored Colorado workers who earn low wages. According to the 12-month moving average of wages, the workers in the lower 25% saw their wages rise 5.8%, followed by 4.2% increase in the next 25% of workers. Low-wage workers haven’t seen wage growth that strong since 2007. Unfortunately, that high inflation is making it so workers are spending most of those gains on more expensive goods.

What was the Marshall Fire?

On December 30, 2021, the Marshall Fire, a prairie grass wildfire in Boulder County destroyed or damaged almost 1,300 homes and businesses. The severity of the fire, which spread from unincorporated Boulder County to the towns of Superior and Louisville, was largely due to gusting winds of up to 100 miles per hour. Before it was extinguished, the fire burned 6,000 acres and forced 35,000 people to evacuate. Thousands of people continue to be displaced, and the cleanup and rebuilding process is likely to last years. The fire was the most damaging in terms of structures destroyed in state history, but what was most shocking was the fact it happened not during the heat of summer, but at the end of December.

December of 2021 was an extremely warm month for Colorado. Our average statewide temperature was more than 7 degrees warmer than the historic monthly average for December. December was also dry, particularly for the urban corridor and Eastern Plains. Although average statewide precipitation from October through December 2021 was only 0.3 inches less than the long-term average for the same period, Boulder County received only 0.66 inches of precipitation in the last three months of the year, which was 2.64 inches less than the long-term average.

Another factor at play in the severity of the damage caused by the Marshall Fire is residential and commercial property development in the Wildland Urban Interface (WUI). WUI refers to the areas where urban development occurs in proximity to natural areas and vegetative fuels with little clearance. The map below shows the area within the Marshall Fire boundary located in the WUI. In total, 2,745 acres burned in the boundary were in the WUI.

With the area of the WUI in Colorado topping more than 3.2 million acres, it’s possible more communities will have to contend with fires similar to the Marshall Fire in the future.

Climate change is projected to exacerbate warm and dry conditions across Colorado in the years to come. Most places will experience more warm days and precipitation is projected to decrease in most parts of the state, which will lead to drier vegetation and more susceptibility to burning.

Last year, CFI released climate research that looked at how different climate scenarios could play out for Colorado. Under a business-as usual-emission scenario, some areas of the state will experience more than 100 days with temperatures higher than historic high temperatures, and many places will experience 50-60 percent less precipitation by 2050. These conditions will put more communities at risk.

Climate projections show that limiting increases in emissions will significantly limit the effects of climate change compared to business-as-usual practices. That makes it essential to take action now to avoid potentially irreversible damage to our ecosystems, which will have a catastrophic effect on Coloradans and our economy.

Failing to act on climate change will create significant costs for Colorado: In 2020 alone, Colorado suffered $1.7 billion in costs from wildfires and drought. Without significant emission reductions, these costs are expected to increase over the next few decades.

The economic costs will be great, but the human costs will be even greater. With more extreme heat and ozone pollution, it will be Coloradans with respiratory illnesses, people who work outdoors, young children, and older people who will all be disproportionately affected by health problems caused by climate change.

Colorado and the country must do more to mitigate these issues by passing policies designed to curb emissions, create more resilient communities, and invest in the health and well-being of the people who make up our economy.