DENVER–An annual report published last week on economic competitiveness between states projects a significant decline in Colorado’s economy relative to other states. The dismal news comes in large part thanks to a growing public sector swallowing up more of the private economy.
The 14th annual “Rich States, Poor States” report, published by the American Legislative Exchange Council’s (ALEC) Center for State Fiscal Reform, rates Colorado’s economic performance 2nd in the nation for the decade spanning from 2009 to 2019.
The future looks less optimistic. The report expects the state to fall a stunning 18 places to 20th in the nation in coming years.
ALEC uses 15 variables to rate state fiscal policy, including income tax rates, corporate income tax rates, minimum wage, and tax expenditure limits.
Growing the public sector
In addition to these variables, ALEC also reports a state’s “Public Employees per 10,000 of Population.” Along with the state’s high sales tax rate and high minimum wage, Colorado showed especially weak performance here.
In this category, Colorado placed 34th with just over 540 public-sector employees for every 10,000 residents. In contrast, Nevada ranked best with 385 per 10,000 residents.
In an email to Complete Colorado, ALEC Press Secretary Alexis Jarrett provided elaboration from ALEC policy experts:
“[B]loated state governments are expensive to taxpayers and inefficient…As state budgets grow to support government workers, taxpayers foot the bill. Higher taxes are detrimental to economic growth.”
ALEC’s findings comport with the legislative action taken by the Colorado General Assembly in the 2021 legislative session.
Government employment ‘exploding’
Of all bills passed this session, 160 included provisions requiring new FTEs (full-time equivalent hires) to administer or staff state programs. Only four bills reduced FTEs.
The Legislative Council Staff projected an additional 348.2 FTEs with combined salaries amounting to over $22 million in the coming fiscal year if Governor Polis signs every adopted bill into law. In FY 2022-23, the estimates increase to almost 440 FTEs with salaries of nearly $27 million.
Jon Caldara, President of Independence Institute, a free market think tank in Denver, said in response to the ALEC report and the recent growth in public-sector employment, “There is a danger when growth of government employment is exploding while the state’s private sector employment is shrinking.”
“Why fight for a productive private sector job when it’s so much more lucrative and secure to go work for the government? That puts us on a bad path,” Caldara added.
Many of the new FTEs stem from controversial legislation. Senate Bill 260, which critics say circumvents the Taxpayer’s Bill of Rights (TABOR) amendment, accounts for 32.8 new public employees in FY 2022-23. Their salaries are expected to amount to almost $3 million.
House Bill 1266, a controversial ‘environmental justice’ bill, accounts for 24.5 FTEs in FY 2022-23. Salaries total $2.1 million.
TABOR, tax cuts a saving grace
In contrast to the low rank given for public employees, ALEC ranks Colorado’s individual and corporate income tax rate among the best in the country. That’s thanks in part to Proposition 116, a citizen’s initiative to reduce the income tax rate which won voter approval last November.
Thanks to the TABOR amendment, Colorado tops the list as having some of the nation’s best tax expenditure limits, which ALEC considers a benefit to a state’s economy.
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