Research and the Real World

Retail Sales Taxes: Risk or Reward?

2010-02-17T20:27:33Z

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's That Time of the Decade Once Again

2010-02-10T18:01:32Z

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.

To Blog or Not to Blog - That is No Longer the Question

2010-02-01T17:55:22Z

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.

Run, Jump, and Make Money?

2010-01-22T00:31:25Z

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.

Head 'em Up, Move 'em Out - the National Western

2010-01-11T00:19:09Z

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.

DigitalGlobe Captures CPIA Company of Year Award

2010-01-01T00:07:45Z

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.

2010 Colorado Economic Forecast--An Editor's Perspective

2009-12-14T17:57:59Z

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.

Thank You and Economic Outlook Highlights

2009-12-10T16:42:01Z

Thanks to everyone for making the 45th annual Colorado Business Economic Outlook Forum one of our best events ever! More than 600 attendees braved the snow and frigid temperatures to learn where the Colorado economy is headed in 2010. Dr. Wobbekind shares the highlights in the video above.

If you were unable to attend the event, check out the presentations on our website, leeds.colorado.edu/outlook.

Economic Outlook to Address Labor Volatility and Path to Recovery

2009-12-02T19:21:53Z

Managing Director Gary Horvath shares how the Economic Outlook Forum will address labor volatility.

Join us December 7th at the event to learn more. Our 45th annual forecast of the state's economy includes snapshots from specific counties and regions around the state, as well as updates on international trade, population, labor force and personal income growth, and a general outlook on the national economy.

Learn More >

Looking Ahead - Colorado Employment Growth

2009-12-01T16:07:51Z

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.

For more information, visit: http://leeds.colorado.edu/brd.

45 Years of the Business Economic Outlook Forum

2009-11-30T23:18:55Z

Leeds Professor Emeritus John Lymberopoulos describes the origin of the Business Economic Outlook Forum and the new features to anticipate this year. He spearheaded the project, along with late Dean Bill Baughn, as a way to bring together state business leaders, scholars and professionals to provide a holistic snapshot of the Colorado economy.

Learn More about the 2010 Outlook >

Colorado Business Economic Outlook Forum - Break Out Sessions

2009-11-17T19:16:46Z

In the video, I discuss the three, promising to be dynamic, breakout sessions:

Heroes Wanted: Fixing the Mess in State and Local Government Budgets.
What Do Capital Markets Have in Store for Real Estate?
The Future of Uranium, Renewables, and Coal--Impacts on Colorado's Economy.

Learn More >

What Lies Ahead for 2010? Improving Economy?

2009-11-11T17:24:43Z

The BRD staff research team is busy compiling and editing data and reports from the members of the Steering Committee for the 2010 Colorado Business Economic Outlook Forecast (BEOF). Unlike many forecasts, which are developed from econometric models, the BEOF is derived from the expert opinions of public and private leaders across the state. In addition, the BEOF is unique because it details the factors that that will drive each of the sectors in the state economy.

The Steering Committee and BRD research team have a series of challenges when forecasting the outlook for 2010. First, they must evaluate the monthly employment pattern for 2009 to determine if there are signs that the downward trend has reversed. In addition, they must take into consideration the magnitude of future revisions to the data series (the 2009 monthly data will be revised in March of 2010 and 2011). The 2009 forecast will be prepared based on the analysis of trends, expert opinion, and possible revision. It will serve as the foundation for the 2010 forecast. The trick will be to determine the turning point in the loss of jobs and when employment patterns will return to normal.

On a positive note, the feedback from the committee suggests that the economy is improving. Preliminary data suggests that the largest employment declines and the extreme volatility of the past 12 months appear to be behind us. At the moment, it remains to be seen whether this will produce annual job gains or job losses in 2010.

Stay tuned! Check out the 2010 BEOF on December 7 at the Grand Hyatt for further details.

Is the Stimulus Package Doing What it is Supposed to Do?

2009-10-31T20:15:05Z

I recently had a discussion with Miles Moffeit, a reporter for the Denver Post, about the recent announcement that about 8,100 jobs had been created or saved in Colorado through funding from the American Recovery and Reinvestment Act (ARRA). Some highlights from the discussion, which led to an article in the Post, follow in the subsequent paragraphs.

The federal government requires recipients to report the number of jobs saved or created. Based on our experience conducting federally-funded research, there are significant challenges associated with quantifying the impact of any public or private assistance funding efforts. One of the challenges is accurately attributing the impact for the assistance, relative to other internal or external funding. For example, a company may receive a total of $10 million in funding, with $1 million in funding coming from the ARRA program leveraged against $9 million from other sources. If 50 jobs are retained or created because of the total $10 million in funding, what portion of those jobs should be attributed to the investment from the ARRA program?

A Return on Investment (ROI) analysis of jobs created or retained should also account for the differences in worker type and their varied impact on the economy (salaried, hourly, commission, part-time, temporary, full-time, and contract workers). Because each type of worker impacts the company and economy in a different manner, they should be accounted for differently.

Job growth and retention are essential for economic expansion and stability. When final revisions are made to the 2009 employment data, it is likely that Colorado jobs losses will exceed 100,000 jobs. If the ARRA program has helped create or retain jobs, that is good for the state. This is the upside. (Based on recent trips to the mountains and Southwest Colorado, it seems apparent that a number of construction jobs have been created throughout the state as a result of the ARRA.)

The downside is that the ARRA program is an incredibly expensive tool for creating jobs. The expense for job creation is further heightened by the costs of administering the program and tracking the ROI. Time will tell whether or not the ARRA investments effectively deterred further erosion of the economy and a case can be made that the ARRA should not be measured based on the cost of a job created, but rather on impact the program had on preventing a major depression.

For further information on the ARRA reporting, click here.

Supporting Successful Businesses Provides Stimulus

2009-10-18T04:26:50Z

BRD blog readers recently received a sneak preview of a report, IS! Phase I, Final Report, jointly released by our research team and Dr. Ron Rizzuto from the Reiman School of Finance. The plan would provide stimulus for successful companies that are having difficulty securing credit. The basic parameters of the concept is that the federal government would provide 80% loan guarantees to successful firms, with additional workforce training incentives to retrain workers and reduce unemployment rates. In a nutshell, the report indicated that over a five-year period, the process of providing assistance to firms with a proven track record would add about 1 million workers to the nation's payrolls.

This past week, the report was officially released to the media, which resulted in a variety of inquiries about the general concept. One of the most frequently queried topics was the risks associated with the potential adoption of this concept.

Overall, the plan has much more upside potential than associated downside risk. Risk could increase if the following four items are not properly addressed:
• The program should be simple to understand and easy to implement.
• The program should be attractive to successful companies that have been unable to acquire funding for new product development, capital investment, expansion into new markets, or other growth opportunities.
• The program is intended to increase the availability of funds, not the number of government workers, thus it becomes essential to select a government agency with a proven track record to administer the program. Most likely that agency would be SBA (Small Business Administration). If immediate stimulus is to be felt, the loan review process must be thorough and timely.
• The total loan portfolio of the program must remain balanced to manage the anticipated default rate. If a disproportionate number of companies from high-risk industries are accepted, then it is likely that the program default rate would increase.

In the weeks ahead additional research will be conducted to fine-tune the present analysis and evaluate various variations of the concept. At the same time, interested parties will further test the merits of the concept with members of Congress.