Colorado economy Archives - Page 14 of 16 - Colorado-based Business and Economic Research

Hickenlooper Proposes Closure of Fort Lyon Correctional Facility

February 22, 2011May 31, 2014 horvath Leave a comment

Governor Hickenlooper recently proposed closing the Fort Lyon Correctional Facility as part of cost cutting measures to bring the state budget into balance. The facility employs roughly 200 workers.

For those in the metro area companies come and go and the loss of a company with 200 employees often goes unnoticed, unless a person works there. Approximately 1.2 million people work in the Denver-Aurora-Broomfield MSA, so a loss of 200 jobs would be 0.02% of total employment- not even a bleep on the radar. Bent County residents obviously have a different perspective.

A short lesson about the county will provide insight into their point of view. Bent County is located in Southeast Colorado east of Pueblo, between Otero and Prowers County. Approximately 6,500 people call the county home. Between 2000 and 2009, Bent County population actually increased by about 650 people, or an annualized rate of 1.2%. While this is less than the rate of growth for the state, at least it is positive. Not all rural counties in Colorado have seen their population expand over the past decade.

A review of Census data (Quickfacts) shows that there are about 2,000 households in the county and 2,400 housing units. There is a higher concentration of minorities (Black, American Indian, and Hispanic – terms used by the Census Bureau ).

About 65% of the population (which include prison inmates) are male. As is the case with many other rural counties, Bent has a lower concentration of people under the age of 18 and a higher percentage of workers over the age of 65.

In 2008, median household income for the county was about $33,000 compared to $57,000 for the state. As might be expected from these income levels, approximately 29% of the population lives below poverty level.

With that background let’s look again at the importance of the correctional facility. Fort Lyon is Bent County’s second-largest employer. (Note: Many Colorado rural counties are the home to correctional facilities).

Data from the Colorado Office of Labor Market Information (QCEW) reported that in 2009, Bent County has 1,303 covered workers (workers on payrolls who paid unemployment insurance) in 88 establishments. Only 560 are private sector employees.

At that time the top employment sectors were as follows: local government (451), state government (234), retail (68), hotels and restaurants (65), federal government (58), health care and social assistance (49), and finance and insurance (45). In December, 2009 the county unemployment rate was 8.7% (LMI). The loss of 200 employees in this economy would be devastating!

Should Governor Hickenlooper rescind his recommendation to eliminate the Fort Lyon facility? If so, what other programs can be cut or eliminated to keep the facility in operations? There is no right answer and there is no winner in this situation.

It’s a tough time to be a governor!

Colorado’s Bottom-Up Economic Development Strategy

February 11, 2011May 31, 2014 horvath Leave a comment

The first week in February Governor Hickenlooper (call me “John”) hosted the ninth stop in his Bottom-Up Economic Development tour across Colorado. For about two hours, the region’s top economic developers discussed job creation, economic development, and steps for increasing government efficiencies.

The most frequently discussed topic was transportation and the top priority was to complete FasTracks in a timely and cost effective manner. In addition leaders made a case for completion of the final leg of the beltway (between Broomfield and Golden) around the city, expansion of commercial air, maintenance of our bridges and highways, and reduction of congestion along I-70 into ski country.

Panelists felt that innovation and the attraction/retention of primary jobs was critical if we are to maintain our regional and national competitiveness. They also cited the need to have a well-trained workforce and an efficient, accountable, and adequately funded education system. As well, it is imperative that Coloradans work together to maintain the quality of life that makes the state so attractive. This will require leaders to address issues related to our water supplies, develop parks and recreation areas, invest in infrastructure, and utilize the state’s unique assets to attract commerce.

The metro area’s economic diversity was evident as leaders spoke in support of industries and clusters endemic to their region. For example, they addressed the need for the state to be more “military-friendly”, consider construction of nuclear power plants, understand the importance of refineries, realize the value of our construction and extractive industries, and support gaming and tourism.

As the Bottom-Up discussions continue, it would be beneficial to reflect on past economic-development successes. For example, consider the public-private partnership, the former Colorado Advanced Technology Institute (CATI). During the late 1980s, CATI was established to guide the development of science and technology and the growth of select high-tech clusters. Specifically, the group’s work laid the groundwork for the state’s photonics, materials, hardware, software, telecommunications, and bioscience clusters. While it may not be appropriate to resurrect CATI as it existed, there is merit in having the an organization that would fill many of CATI’s roles in fostering long-term growth.

Four years ago, a state job cabinet was formed, town meetings were held across the state to gather input, and plans were put in place. While that effort was well intended, it did not have the desired impact. Hopefully this Bottom-Up Planning approach with be more successful.

A well-thought out economic development plan couldn’t come at a better time. Colorado employment remains below the 2001 peak and it will be years before state payrolls return to the pre-Great Recession high mark.

The Colorado Budget Challenge 2011 – Where to Cut?

February 6, 2011May 31, 2014 horvath Leave a comment

For the next two months Colorado legislators will be dealing with the two-edged sword known as the balanced budget amendment.

During lean fiscal times, the amendment forces state senators and representatives to make difficult choices in this zero sum game. They have been faced with similar challenges since 2001 as growth in General Funds Revenue has not kept pace with increased demand for services.

For example, if you were a legislator, which of the following would you eliminate or reduce funding for?
• Social Service – Would you reduce or eliminate funding for single moms and lower income individuals to help them defer transportation costs so they can travel to work?
• Economic Development – Would you reduce or eliminate an incentive program that would retain or bring jobs to Colorado, foster growth in state output, and generate revenue for government entities?
• Health Care – Would you cut back or eliminate funding for a health-care program that would reduce services to elderly? The reduction in state funding would also decrease federal funding by a similar amount. It is a tough time to be a state legislator.

On a positive note, the balanced-budget amendment means that Colorado is not having to borrow money from the Federal government to continue basic operations.

The table below, highlights the source and magnitude of the challenges facing the state government as it is forced to deal with increased demand and reduced revenue. The table compares key data sets for 2001 and 2009. Highlights of the table are:
• The Colorado population increased by about 700,000 people.
• K-12 enrollment is up 76,000 students.
• Despite tuition increases, enrollment at the state’s colleges and universities has grown by more than 21,000 students.
• The prison population is up by about 6,000 inmates.
• The number of Medicaid recipients almost doubled, up 226,000.
• Employment levels were very volatile. The 2009 average was only slightly higher than the 2001 average.
• General fund revenues remained virtually flat (not inflation adjusted).
• Growth of general funds will be constrained by the severity of the Great Recession.

Clearly, the state does not have a stable fiscal model for being competitive in the global economy. The rough ride will continue well into the future.

1 in 6 Colorado Jobs are Construction or Construction-Related

February 2, 2011May 31, 2014 horvath Leave a comment

The following is an excerpt from Colorado’s Construction Industry – Impact Beyond the Hammers and Nails olorado’s construction and related industries employ one-in-six private-sector covered workers, yet almost 60% of the net jobs lost between 2007 and 2009 were in these sectors.

What type of economic activity is necessary to generate enough construction and construction-related activity to recoup these losses, particularly given the state of Colorado’s housing and commercial markets? (Note: this does not suggest that construction is primary or export industry or that is could or should be).

A financial analyst might suggest that the risk or volatility associated with the construction industry could be reduced if Colorado had a larger, more diverse economy. Therein lies the paradox. Because Colorado is a growth state, it is necessary to have a construction industry to support the current base of five million people and build the homes and buildings that would support a larger, more diverse economy. The Colorado State Demography Office projects continued population increases in the range of 1.5% to 2.0% for the extended future. (Population projections can be found on the State Demography Office website ).

Even with the recent reduction in state construction workers, the 2009 location quotient is 1.29, down from 1.44 in 2001. Because the industry is not considered a primary or export industry, at some point the location quotient will eventually revert to 1.0. At that time Colorado will have a concentration of construction workers comparable to most other parts of the country. Keep in mind that this correction will likely include a comparable adjustment in the related industries identified in this study.

Construction is necessary for the expansion and maintenance of the Colorado economy. It is essential that economic development, public, and private leaders understand the relationship between construction employment, its related sectors and the overall economy. That includes awareness of the volatility of the industry and the likelihood that construction employment will ultimately return to a location quotient of 1.0.

Impact of Tax Reduction Package (Tax Holiday) on Colorado

January 28, 2011May 31, 2014 horvath Leave a comment

The recent tax cut package passed by Congress is expected to raise real GDP by .6 to 1.2% points depending on the economist making the projections. As a result, projected Real GDP growth for the nation is expected to be in the range of 2.3% to 4.0%.

The lion’s share of the benefit lies in the short-term reduction of the Social Security payroll tax rate paid by
employees. For 12 months, that percentage will be reduced from 6.2% to 4.2%.

This is often referred to as the FICA tax holiday. The federal government does not actually make payments, they simply collect less revenue.

The following is a back-of-the napkin look at the impact of this part of the tax holiday on Colorado:

Let’s start with the following assumptions:
• Colorado has a covered workforce of 2.2 million people.
• Total covered wages are approximately 100 billion.
• About 85% of the workforce (private sector + federal employees) pay FICA taxes.

From these assumptions we can derive the following:
• About 1.87 million workers will benefit from the tax cut (2.2 million *.85).
• The total wages impacted will be $85 billion ($100 billion total state wages *.85)
• The “cost” of the program to the federal government for stimulus in Colorado, or the maximum amount of
stimulus for Colorado is $1.7 billion ($85 billion *.02)
• Each worker will receive about $900 per year, or $75 per month ($1.7 billion/1.87 million workers).

To calculate the impact to the state it is necessary to make another set of assumptions.
• Because payments are disbursed over a period of a year, rather than in a lump sum; it will be assumed that
slightly less than 1/3 will be invested, saved, or used to reduce debt.
• Slightly more than 1/3 will be used to purchase services (doctors, dentists, massages, etc.).
• Slightly more than 1/3 will be used for retail purchases.
• The Colorado sales tax rate is 2.9%.
• Because Colorado is a home rule state, sales tax rates for cities and districts vary based on location. For
ease in computation it will be assumed that the average rate of combined municipal and district sales taxes is 5.1%.

From this set of assumptions the final set of calculations show the following:
• $500 million will be invested, saved, or used to pay down debt (this will benefit the consumer).
• $600 million will be used to purchase services (sales taxes are not paid on these expenditures).
• $600 million will be used to purchase retail goods (sales taxes will be paid on these expenditures).
• The state will receive $17.4 million in additional sales tax revenue ($600 million * .029).
• The municipalities and special districts will receive about $30.6 million in additional sales tax revenue
($600 *.051).

Let’s put this $1.2 billion “investment in the Colorado economy” in perspective.
• The 2009 Real GDP for Colorado was about $252.7 billion. The $1.2 billion infusion of money into the
Colorado economy is approximately .5% of the 2009 Real GDP. Total costs of the program (to the federal government) are almost $1.87 billion.
• The state is facing a shortfall of about $1 billion. The tax holiday will generate about $17 million.

While these efforts to jump start the economy will provide some assistance in the short-term, there will be a
significant long-term cost to the federal government for the program. Will this effort to stimulate the economy
result in sustained economic growth or will it simply be a variation on past themes and only have a short term impact? How will this stimulus effort shape the discussion for the upcoming 2012 elections? These and other questions will be answered over the next 18 months.

The Economy Has Been Tough…

January 22, 2011May 31, 2014 horvath Leave a comment

Over the past two years, 150,000+ Coloradans have lost their jobs, the value of many 401Ks decreased by 40 to 50%, home owners have lost their mortgages and businesses have shut down. Rather than belabor this and other dismal data, the following quips have been pulled from a variety of sources to provide a lighter and less rigorous view of the country’s economic fortunes.

The state economy has been so bad that…

• A woman on the Western Slope ordered a hamburger at a fast food restaurant and the clerk behind the counter chimed in, “Are you sure you can afford the fries to go with that?”

• Coloradans have begun to receive pre-declined credit card offers in the mail.

• A farmer on the Eastern Plains received a note from the bank with a check marked “Insufficient Funds.” He called the bank to ask if that meant him or them.

• Two college students on the Auraria Campus were actually seen talking to each other, they couldn’t afford the cell phone plan that allowed them to send text messages to each other.

• A major corporation held a conference at one of Colorado’s finest mountain resorts. The recreational activities included a water balloon toss and squirt gun fight instead of river rafting; as well, the company golf tournament was held on the front nine at the miniature golf course. Awards were handed out at a wiener roast (that included smores) that evening.

• Parents in Denver’s wealthier suburbs have had to fire their nannies…in the mean time they learned how many children they had, what their names were, what grade they are in, and what schools they are attending.

• A resume-toting job applicant in Boulder was actually reported wearing a tie to a job interview – it matched his shorts and Birkenstocks. Despite the extra effort, he didn’t get the job.

The Great Recession officially ended in June 2009. In the 18 months that have passed, unemployment rates have risen (as expected), but other indicators suggest that better economic conditions lie ahead. Hang in there.

University of Northern Colorado Economic Forecast Points to Slow Growth in 2011

January 18, 2011May 31, 2014 horvath Leave a comment

The economic outlook for Northern Colorado matches that of the state – a slow but, painful recovery, according to Dr. John Green regional economist. In his annual forecast, Green pointed to 3.0% Real GDP growth this year with the possibility of a negative quarter.

On a sobering note he indicated that the labor supply will exceed demand – at least until the last of the baby boomers retires (2029). Green also indicated that the computer revolution has decreased the need for certain occupations, which will maintain a high level of competitiveness in the job market.

Green was not particularly optimistic about the housing market. He felt the housing supply was too high, further price declines are possible, mortgage rates are expected to rise, and that problems within the financial/mortgage industry will remain a problem. Finally he expects inflation to higher in both 2011 and 2012.

Locally, Green’s economic model pointed to flat employment growth in Northern Colorado. He felt that a more likely scenario was for employment to recover slowly throughout 2011 and 2012. Growth will be led by agriculture, the biosciences, clean energy, retail and the hospitality sectors. (On a positive note, NPR recently reported that Vestas plans to add 60 employees at its Windsor facility and begin operations in Brighton in 2011. The Windsor facility has a workforce of about 700 workers).

The high levels of foreclosures will prevent the housing market from gaining momentum. In addition, Green reported that houses under $280,000 are moving whereas more expensive ones are not. On the commercial side, construction is likely to resume in late 2011 at the earliest. Lastly, the number of bankruptcies are on the rise in Northern Colorado.

The NCBR Economic Forecast was held on Jan 6, 2011 at the University of Northern Colorado campus and also featured Mark Snead, Vice President, Economist, and Branch Executive Federal Reserve Bank of Kansas City – Denver Branch and Sandra Hagen Solin of The Capitol Solutions Team .

Health Care Adds 15% of Colorado Jobs in Past Two Decades

January 13, 2011May 31, 2014 horvath Leave a comment

In a state that regards its tourism and high tech cluster as primary drivers of the economy, it is somewhat surprising to note that the Health Care and Social Assistance (HCSA NAICS category) has accounted for 15% of net jobs added between 1991 and 2009. The sector has been recession proof, adding jobs every year during this period and it currently employs one-in-ten Colorado workers.

HCSA is divided into four distinct groups: hospitals, physicians, nursing homes, and social care. Physicians, or ambulatory care account for about 36% of total HCSA workers, followed by 29% at Colorado’s 90 hospitals.

Roughly 19% of workers are employed at nursing and residential care facilities with the remaining 16% in social assistance programs. The latter category includes service providers ranging from Head Start programs to commercial child care centers.

Population growth has been the driving force behind the steady expansion of the sector. Two of the four sectors are increasing at about the rate of population growth while the other half is expanding at a more rapid pace.

With continued population growth is on tap for the state over the next decade, increases in HCSA employment are likely to continue. Issues facing the sector include:
• Double-digit cost increases for health care coverage
• Change in the manner in which health care is distributed
• Increased emphasis on quality of service provided
• Changes in government health care policy
• Changing demographics
– Aging Baby Boomers
– Increased life expectancy
– Increasing number of minorities
– Rise in frequency of diseases, such as diabetes
– Increased number of lower income families
• Supply of nurses and dental hygienists
• Matching supply and demand for nurses and health care employees, particularly in rural areas
• Saturation of hospitals in some metropolitan areas
• Impact of efficiency gains on employment
• Continued population growth
• Increased demand for specialized medical care

While other sectors that have diminished in importance over time, that is not likely to happen for Health Care.

Colorado Legislative Council – State Economic Update December 2010

January 8, 2011May 31, 2014 horvath Leave a comment

The recovery of the Colorado economy continues to lag that of the nation, as evidenced in the December 20 release of Focus Colorado: Economic and Revenue Forecast , a quarterly publication of the Colorado Legislative Council . Many of the key economic indicators for the nation were revised upward while there were mixed results in the Colorado update.

The following discussion highlights revisions to key 2011 Colorado indicators:
• With Real GDP growth of 2.9% (U.S.),state employment will increase by 0.9%, slightly less than the September projection. This equates to 19,900 jobs.
• The most notable change is an increase in the 2011 unemployment rate. It was revised upward from 7.6% to 8.4% (Many economists in the state expect this rate to exceed 9.0% and possibly push past the national rate at some point this year).
• With more people on the payrolls, personal income is expected to post a modest increase of 3.1%.
• On the other hand Wage and Salary income will record a meager increase of 1.4%.
• Despite the increase in wages and personal income, projections for retail sales growth was revised downward from 3.1% to 2.5% (It should be noted that this rate of growth does not reflect changes associated with the tax reduction plan passed by Congress).
• On a positive note, the number of home permits was bumped up from 11,200 to 17,200. Continued subpar construction growth is projected beyond 2011 despite population increases in the range of 90,000 to 100,000 people per year.
• Finally, the projection for CPI growth remained at 1.9% for 2011; however, it is expected to ramp up by at least a point in 2012.

Positive factors not mentioned above include:
• Permitting in the oil and gas industry turned upward at the end of 2009 and have continued in that direction.
• While there is optimism within the industry about Colorado’s housing market, it is not yet reflected in the data. If it is any consolation, home prices are faring better in Denver than many other parts of the country.
• Foreclosures remain high, but they are on a downward path.

On the other side of the equation:
• Colorado’s financial sector is plagued with troubled mortgages.
• To illustrate that point, 27% of Colorado insured banks were not profitable at the end of September 2010. This compares to 20% nationwide.
• The state’s lending institutions have high exposure to troubled commercial real estate than other banks in most other states.

While there is good news in the most recent update, it should not be forgotten that the Lost Decade concluded with state employment at a level below the peak in 2001. Despite employment gains this year, it is likely that June 2001 peak employment will be reached again in 2012.

Colorado Legislative Council – U.S. Economic Update December 2010

December 29, 2010May 31, 2014 horvath Leave a comment

The December 20,2010 release of Colorado Legislative Council ‘s Focus Colorado: Economic and Revenue Forecast gives reason to be more optimistic about the performance of the national and state economy in the months ahead. Generally speaking, most key economic indicators received slight upward revisions.

At the national level the following bright spots were highlighted:
• Corporate profits have reached record levels.
• There have been 5 consecutive quarters of economic growth (GDP).
• World trade has bounced back.
• Personal income (wages and salaries, interest and dividend income, business income, rental income, and government assistance) has returned to pre-recession levels.
• Consumer spending has grown at a steady pace.
• Business investment has been a major factor in economic growth.

The following areas of concern about the U.S. have a familiar tone:
• Current economic growth is slower than mid-2009 because of decreased business inventories and the end of stimulus funding.
• Stagnant housing prices, high levels of unemployment, and volatile consumer confidence will limit consumption.
• Credit remains constrained.
• The country needs monthly job growth of 140,00ish jobs per month to keep unemployment from rising. For the past year, average growth has occurred at about half that level.
• While there is reason for optimism, it is likely that the economy will again be a major factor in the 2012 elections.

The recent update reflects minor changes to key national economic indicators for 2011:
• Real GDP remains at 2.9%. By comparison, average output growth for the 1990s was 3.2% followed by 1.8% in the 2000s.
• Employment is projected to grow at a rate of 1.1%, down from the September forecast of 1.2%.
• Unemployment will improve to 9.5%, down from 9.7% in the prior outlook.
• Inflation will increase slightly. The forecast was bumped upward from 1.5% to 1.7%.

This sets the stage for an improved outlook for Colorado in 2011.