Archive for the 'colorado tax revenue' Category

new report outlines fiscal challenges facing state governments

When the Great Recession hit, state tax revenues plummeted. Increased unemployment meant less income and sales tax revenue. Businesses saw lower profits, reducing the taxes they paid.

In the meantime, the demand for public services increased. With more people out of work, outlays from the unemployment insurance program grew significantly. With people falling into poverty and losing their health insurance, Medicaid expenditures increased.

This put Colorado in a difficult bind. Because the state is required to have a balanced budget, the government had to cut spending and turn to alternative revenue sources. With much of the big-ticket spending items mandated, cuts were especially concentrated on discretionary programs, such as higher education.

On the revenue side, some of the shortfall was filled by the Federal stimulus program (those dollars have run out). Some new revenue sources were implemented, such as taxes on vending machine purchases.

Colorado’s fiscal challenges are not unique. Indeed, impacts were much more significant in states such as California and Arizona.

Despite the end of the Great Recession and the bouncing back of revenues, many states still face daunting challenges. A report released just today by the State Budget Crisis Task Force outlines these challenges for 6 states. Although Colorado is not directly discussed in the report, it faces many of the same challenges. In particular, the report identifies:

  • Medicaid Spending Growth Is Crowding Out Other Needs
  • Federal Deficit Reduction Threatens State Economies and Budgets
  • Underfunded Retirement Promises Create Risks for Future Budgets
  • Narrow, Eroding Tax Bases and Volatile Tax Revenues Undermine State Finances
  • Local Government Fiscal Stress Poses Challenges for States
  • State Budget Laws and Practices Hinder Fiscal Stability and Mask Imbalances
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good news from the auto industry

Some of you know that I grew up outside of Detroit. Accordingly, I have a cultural interest in the automobile industry. Recent national reports show that the automobile sector is recovering, with US sales of cars and light trucks up nearly 13 percent from a year ago. Two factors at play. First, higher gas prices are driving demand for more fuel efficient vehicles. More importantly, increased US consumer confidence about the recovery has brought people back into the showrooms (perhaps after postponing purchases during shakier times).

So what does that have to do with Colorado? Several things. First, according to the Bureau of Labor Statistics Colorado’s new car dealers employed more than 14,500 workers in 2010, making them an important source of jobs. Yet this is down more than 2,700 jobs from 2007–just prior to the Great Recession. As the industry bounces back, we can expect dealers to bring on more workers.

Second, new car sales are an important revenue source for Colorado. According to the Colorado Automobile Dealers Association, new vehicle registrations from the period Nov 2011-Jan 2012 were up 20 percent from a year earlier (see chart). Based on the average price of a new vehicle of just under $30,000, an additional sale adds more than $850 to state coffers.

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Source: Colorado Automobile Dealers Association

Finally, although no one will confuse Denver with Detroit, Colorado is home to a sort of nascent automobile sector. In a recent inventory we identified about 50 Colorado based companies involved in engines, transmissions and clean fuel systems, mostly in product development. A robust and dynamic domestic auto industry can spur innovation across the country.