Research and the Real World

I hear many people describe Colorado as an over-retailed state. While on the surface this appears to be true as we drive down highways and interstates in the metro region and see the same retailers cropping up every few miles (Target, Home Depot, Costco, etc.), the state is, in fact, not comparatively over-retailed compared to the nation when examining employment and number of firms. In 2008, the concentration of Colorado's employment in retail was 3.7% less than the national concentration of retail employment, and the concentration of firms was 10.3% less than the nation's. In addition, the average number of people per establishment was 12.9 in Colorado, versus 14.5 nationally.

Colorado has a disaggregated sales tax structure, where the state takes a share of revenues and the remainder is left to local governments (county, municipal). In the City of Boulder, for instance, the state's share is roughly one-third of the 8.16% sales tax rate, and the remaining two-thirds are for local governments and special districts (state 2.9%, county 0.65%, city 3.41%, RTD 1%, Scientific and Cultural Facilities District 0.1%, and Metropolitan Football Stadium District 0.1%) (http://www.taxview.state.co.us). Given that municipalities like Boulder can receive 42% of the sales tax revenue, there is incentive for cities to court retailers and even participate in real estate development.

Real estate pays dividends and other returns to the community in the form of property taxes, sales taxes, employment, services, etc. Despite cities holding a diversified portfolio of real estate (residential, industrial, retail, office, hotel, etc.), there is inherent risk, as with any investment. In this most recent recession, the exposure is to market risk and company risk (over leveraged, undercapitalized). As markets contract, the city is exposed to decreasing revenues with little additional cash flow to backfill the losses.

Look to Lafayette for an example. The closure of the Albertsons store will lead to as much as $450,000 less in annual tax revenue according to city estimates  (Bounds, Lafayette Albertsons closure plans prompt petition drive, 2009). This contributed to the city's proposed closure of the library one day per week, in addition to other cuts. In fact, commercial real estate along South Boulder Road in Lafayette has been vacated by two Albertsons stores, Walmart, McDonald's, Ace Hardware, and others.

Photo by: Cliff Grassmick. 

Louisville is in similar straits. Sam's Club announced its departure from the city, leaving a $500,000 hole in the city's general fund and $250,000 hole in the capital projects fund. Banking on a revenue bump from ConocoPhillips, the city is considering $250,000 to $400,000 in budget cuts.  (Bounds, Louisville looks at budget cuts to make up for lost Sam's Club revenue, 2010)

In essence, the state's disaggregated sales tax structure has led to disaggregated risk. For years, the benefit of risk has played into the healthy growth of local government's general funds; given the recessions of this decade, the benefits have transformed to burdens of risk. By aggregating sales tax revenues, cities, counties, special districts, and the state are all pooling risk - like a diversified portfolio. This removes the company risk of one large retailer closing (i.e., Sam's Club, Albertsons) and thus spreads that risk across the state.

Revenue sharing is one idea that has been proposed to pool risk in the Boulder-Broomfield corridor. By sharing tax revenues (and expenses) between interconnected municipalities, there is less need for every city to have an elaborate shopping center luring consumers. (see http://www.bouldercounty.org/BOCC/Consortium/RS/index.htm for more information).

It is hard to believe that 10 years has passed since the 2000 Census. Sometime in March Coloradans will receive their census forms in the mail and will be encouraged to complete and return them by Census Day, April 1, 2010. (A prompt return saves us all money as the estimated cost of raising the follow-up response rate by 1% is about $85 million.)

The administration of the decennial Census is a federal activity mandated by the U.S. Constitution. The results are used for congressional apportionment, determination of electoral votes, and allocation of funds for certain government programs.

Because Colorado's population expanded at a much faster rate than the nation's during the "go-go nineties," the state gained a seat in the House of Representatives after Census 2000. This also means that Colorado had more clout in the subsequent presidential elections, with one more electoral vote.

From a funding perspective, 18 of the largest federal grant programs use census data as a metric for apportioning funds. The federal government provided more than $255 billion in funding to states for fiscal year 2004 for these 18 programs, including the largest program, Medicaid. Securing an accurate count is crucial, because on a per capita basis, each person is worth about $826 in federal funding each year through these programs.

The U.S. Census Bureau is working closely with the Colorado State Demographer's Office to conduct the census in Colorado. We encourage you to look at the census information on their website, or contact Barbara Mason with questions at 303-866-3120.

At the 2010 Colorado Business Economic Outlook, the forecast for newspaper publishing industry was the following:

"the recession has accelerated the dilemma facing newspapers in Colorado and across the nation.... Businesses and consumers have substantially reduced spending on traditional advertising.This suggests that the newspaper's business model has become obsolete."

Since the 2010 presentation in Denver in early December, denverpost.com reported that Affiliated Media Inc. received permission to seek court approval of its bankruptcy plan to cut debt by about $751 million at a hearing set for March 4, 2010. The company is the holding company for the Denver-based MediaNews Group, the owner of the Denver Post.

Social media is at the heart of the structural changes taking place in the way information is shared. The following sampling of social media statistics illustrates the shift that is occurring:

• There are more than 50 million LinkedIn members worldwide, and membership is growing rapidly.
• 15% of bloggers spend 10 or more hours each week blogging.
• 70% of bloggers are talking about brands on their blogs.
• Twitter has about 15 million active user accounts.
• Facebook current has in excess of 350 million active users on a global basis.

While the absolute accuracy of some of the data regarding social media usage may be questioned, it is clear that the movement toward social media is much more than a passing fancy. The BRD learned the value of social media this past fall when we made our first effort at promoting our economic forecast on Facebook, Twitter, and LinkedIn. With certainty, the stories about the BRD's research will have a greater presence in these media in the months ahead.

Why do little league fathers have fights under the bleachers? Is the promotion of top female athletes like Lindsay Vonn sexploitation or good business? Should college athletes be paid wages?

To help answer these questions and understand the role of sports in society, the Leeds School of Business formally rolled out its Business of Sports Certification Program in mid-January. The BRD's role in the program is to offer support for experiential research learning opportunities that will be provided to students.

The following is a short teaser of some of the material to be covered in the program.

Physical activity can be divided into four mutually exclusive categories: play, games, sports, and athletics. An understanding of the definitions of these activities helps inform the debate about questions such as those posed in the first paragraph.

• Play is unstructured activity. Children are experts at play--this is never more evident than on a cold winter day when they want to run, jump, and hop around the house. There are no rules in play, and score is not kept. It is the purest form of activity.

• Games are loosely structured activities that may involve more than one individual. Rules are minimal. Scores may be kept, but winning and losing may be based on competition or cooperation. Games are the focus of many recreation-based youth programs.

• Sports are highly structured activities that may involve individuals or teams. Sportsmanship is an essential part of the competition, even though scores are kept for the purpose of determining a winner or loser. Amateur competition, such as high school sports, is the best example of this category.

• Athletics is competition with a minimal set of rules, just short of open warfare. Winning occurs at all costs. Competition at this level is a form of entertainment. The NFL, NBA, MLB, and NHL are all examples of athletics.

Sound intriguing? The BRD is interested in learning more about how you think sports, recreation, athletics, and the creative industries play a significant role in our society. If you are interested in the program, contact Robin Miglarese, Interim Director of the Leeds Executive Education Program, at 303-735-0183.

One of Colorado's finest January traditions is the National Western Stock Show (NWSS). The event, which runs from January 9th-24th, has been held in the Mile High City for more than 100 years. Despite the down economy, more than 600,000 participants and visitors attended the eclectic mix of rodeos, dancing horses, commercial exhibits, and livestock auctions.

The fact that the NWSS appeals to everyone, from city slickers to the top livestock breeders in the world, makes it arguably one of the top economic drivers in the state. A 1997 visitor spending study estimated attendee expenditures to be more than $80 million for the 16-day event. In 2010, over 40 countries were represented at a meeting of the International Livestock Congress held in conjunction with the NWSS. Their attraction to Colorado is the genetics and science represented at the show, not to mention the western hospitality.

Over the years, the NWSS has been a strong economic driver because of constant monitoring and improvement to show events, activities, and facilities; however, the event has reached a crossroads. The future growth and reputation of the NWSS may be constrained by its current location and other factors.

The NWSS is an important part of Colorado's heritage and economy. Stay tuned for the release of an updated economic impact analysis that will help inform the public discussion about the future direction of the National Western.

The Colorado Photonics Industry Association (CPIA) holds its annual meeting at the University of Colorado at Boulder each November to highlight relevant research being conducted at Colorado's universities and recognize the top company in the industry for the past year. This year, the Company of the Year Award was presented to Neal Anderson, vice president of space systems for DigitalGlobe.

Many people have used Google Map or Mapquest, yet it is unlikely that people are aware that those pictures likely came from services provided by a company in our backyard, DigitalGlobe. A little over 15 years ago, the Department of Commerce granted DigitalGlobe, then known as WorldView, a license to build and operate a satellite system to gather high-resolution digital imagery of the earth for commercial sale.

So why is DigitalGlobe important to Colorado and Boulder County?

"DigitalGlobe has shown excellent growth and innovation in the digital imagery market," said David Giltner, president of CPIA. "The recent launch of the company's third high resolution satellite, WorldView-2, highlights the success of DigitalGlobe, as well as the high tech environment in Colorado that supports companies like DigitalGlobe."

More specifically, DigitalGlobe is a significant employer inconspicuously located in southwest Longmont. It has close ties to Ball Aerospace, the manufacturer of its satellites, and Lockheed Martin, located in Jefferson County. In addition, the company works closely with Google and Microsoft, as well as other suppliers in the local area. More importantly, DigitalGlobe demonstrates the value that innovation plays in the sustained prosperity of our local, state, and national economies. We welcome your thoughts about DigitalGlobe and other state or local companies that are quietly shaping the world we live in.

As an editor/project coordinator with the BRD for 20-some years, the 2010 Colorado Business Economic forecast was my 20th. Granted I'm not a research analyst or economist, but as a person who's read my fair share of forecasts over the years, here are some things that stuck in my mind as I worked on this year's (in no particular order):

Construction--Don't look for the Construction Sector to lead us out of this recession. Colorado will record only 7,000 single-family permits in 2009--a 37% decline from 2008 and an 83% drop from the peak in 2004.

Energy--Colorado is home to eight of the largest natural gas fields in the nation and three of the largest oil fields. The Henderson Mine is North America's largest primary producer of molybdenum (used in the production of steel).

Retail--Colorado retail sales for 2009 are forecast to decline (decrease, fall, drop, slide--how many ways can you say that? We had to use those words too many times this year.). This significantly affects the coffers of state and local governments.

Healthcare--Sixty-two percent of all U.S. bankruptcies are caused by medical problems. Of the $500 billion spent annually in the U.S. to treat the top 10 most expensive diseases, $93 billion are attributed to obesity-related factors.

High Tech--Colorado ranked third nationally in per capita high-tech employment for the third consecutive year, according to Cyberstates 2009.

Total employment--The current decade shows the weakest job growth of the past four decades, with the addition of approximately 117,900 jobs. Compare that to the 650,000 jobs that were added during the "go-go" 90s.

What did forum attendees think? Check out their comments, along with the complete 2010 forecast, on the BRD website.

In 2008, Colorado ranked 10^th in the country for job growth, increasing 0.8%. According to Economy.com, Colorado is expected to fall in ranking to 31^st, losing 3.8% of employment in 2009, before rebounding to 9^th, with -0.4% employment growth in 2010. It becomes a stark reality check when a state can rank among the top ten performers while recording a net loss of jobs.

Early in the decade, employment peaked in December 2000 and didn't return to that level until December 2005 - a full five years later. Since then, the state added more than 110,000 new jobs before peaking in June 2008. Seventeen months later, the precipitated decline has moderated, but may not be over. Assuming that employment bottoms in Q1 2010 and begins to build, the year could be a net zero for growth. If the state returns to pre-recession growth rates, then it could be likely that Colorado returns to June 2008 employment sometime in 2013. If some new, slower growth becomes reality, it could be longer.

Colorado will have roughly 117,900 more jobs closing out this decade than when it began, all of which were essentially created in the first 12 months of 2000. Population has increased nearly 870,000 over the same period. With unemployment at 6.7% (not seasonally adjusted), there are many more people living off the same number of jobs created a decade ago.

While Q1 2009 total wages were down more than a billion in Colorado year over year, wage growth over the decade has been substantial, growing at a compound annual rate of 3.7% from 2001 through 2008, and outpacing population and employment growth.  During this period, average wages increased 3% per year, employment increased 0.7%, and population at 1.7% (half of which came from in-migration), annually from 2001 to 2008. Regardless of the strong wage performance of the decade, the quick drop in both total and average wages have been a shock to state and local government funding, which relies heavily on income taxes and consumer spending (sales taxes).

Residents and business have undoubtedly been strained in this remarkable recession. Households have experienced wealth shocks (homes and investments), debt shocks (home equity loans, mortgages, credit cards), and job losses. Businesses have seen markets dry up and consumers shrink. The interconnectedness of economies and industries has become ever more apparent (e.g., architects and engineers are pipelines for commercial construction, which is impacted by consumer spending and industrial growth; and as industry grows, population grows thus more rooftops, schools, and infrastructure).

Colorado's industry diversity, innovation, quality of life, and skilled workforce are sure to help state return to growth. Given the state's mix of goods-producing and services-producing industries, and export and domestic markets, the state is clearly a player on the greater national and global economies.

On December 7^th, the Business Research Division at the Leeds School of Business will release our projections for 2009 and 2010 employment in the state at the Colorado Business Economic Outlook Forum. This consensus forecast will be based on the thoughts and expertise of industry leaders on the ground in Colorado, with their comprehensive stories surrounding the numbers. Come listen to the economic intricacies that will impact your community in 2010.