The business economist at work: the economics function at the Colorado Legislative Council

Business Economics, Jan, 1992 by Nancy J. McCallin

The analysis took into account direct and indirect job creation, and the amount of in-migration that would be necessary to accommodate the job growth. It was then necessary to quantify the revenues and costs associated with the project. Income, sales, use, cigarette, liquor, and gasoline taxes were the primary revenues to be received. Meanwhile, new residents would have increased demand for education, public safety, and social services. Hence, the increased cost of government service provision as well as the cost of the job tax credits were analyzed. Not surprisingly, the original request for tax credits indicated that Colorado would suffer a net revenue loss. Meanwhile, the original request was also found to be in conflict with the state's constitution, hence a different, less costly deal was crafted by the legislature.

Unfortunately, the state lost its bid for United's maintenance facility to Indianapolis, Indiana. Although Indiana's bid was nominally valued somewhat lower than Colorado's, Indiana has a large pool of unemployed auto workers nearby that can be retrained to accommodate the maintenance facility. Consistently, labor pool availability and productivity rank at the top of the list of factors that businesses cite as key to their location or expansion decisions. Colorado does not have a large pool of unemployed industrial workers.

Examples of other research projects are as follows:

1. Construct a model of worker's compensation

claims to see how various changes in the

worker's compensation law affects the cost of doing

business in Colorado.

2. Analyze the effect of various tax limitations on

the state's budget.

3. Ascertain the revenue loss associated with

indexing capital gains income with inflation and

the effect on investment in the state.

4. Investigate the revenue implications of

extending the sales tax to various services.

5. Examine the income and price elasticity of

various taxes for modelling purposes and for

the purpose of investigating how federal tax

changes affect state revenue receipts.

6. Provide the budget committee with inflation

estimates for the important cost categories of

state governments.

7. Update the General Assembly monthly on the

economic events in the state and national

economies.

To date, much of our work is in the field of revenue estimation and economic analysis. Currently, however, the state's budgetary problems are evolving from unexpected expenditures, not fluctuating revenues. As a result, in the future, we may be analyzing and forecasting the volatile expenditure categories. The two problematic spending areas are Medicaid and school funding. Unexpected increases in Medicaid caseloads caused an $80 million shortfall in this fiscal year. Meanwhile, public school kindergarten through twelfth grade school enrollment increased 12,200 in fiscal year 1990-91 and 15,600 in fiscal year 1991-92. This comes after two decades where annual growth was less than 5,000 students. Because Colorado funds education on a per pupil basis, such large enrollment gains are a significant hit to the budget. Large, unanticipated fluctuations in expenditures squeeze state budgets and are a natural area where the economics function can lend its forecasting expertise.