February 2010 Archives

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.