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Aiming for the Middle 2011: Benchmarks for Colorado's future

Click here to read the full report, including appendices, in a .pdf file.

Colorado’s investment in key public services lags far behind nearly every other state. State spending on schools and colleges in Colorado ranks 49th in the nation, for example. The state also ranks near the bottom for state funding of vital services including highway maintenance and construction, and health care. Based on the most recent comparison data available, 2009, an increased investment sufficient to bring state spending in line with only the median of other states (meaning half spend more and half spend less) would require an additional $7.2 billion annually.

Public investment that equals or exceeds other states’ spending is not a prudent policy goal in and of itself, but comparisons to other states provide useful benchmarks for policymakers and the public. The benchmarks indicate the level at which Colorado residents are investing in their own future. From that perspective, Colorado’s status as one of the lowest-investing states in the country should raise troubling questions about the future of the state’s economy and quality of life for residents.

This report, the third in a bi-annual series called “Aiming for the Middle: Benchmarks for Colorado’s Future,” shows how Colorado’s spending on public services compares to other states by a variety of measurements and analytical approaches. Previous reports were issued in 2007 and 2009.

The core issue that spending comparisons raise is the resources the public sector needs to sustain basic services and foster broad-based prosperity. While some see a threat of “big government” in Colorado, this analysis shows Colorado’s state government is comparatively small. If Colorado continues to invest at such low levels, the risk is a public sector so starved of resources that it cannot sustain the conditions necessary for thriving communities, economically stable families and a strong private sector.

Public services provide more than infrastructure for the economy. They facilitate opportunities for families to realize their potential and for communities to enhance the quality of life afforded by the state’s natural environment.

Cross-state comparisons don’t provide the answer for how much Colorado needs to invest; they provide a point of comparison for critical conversation about the state’s future.

Colorado spending ranks near the bottom by key measures
State spending in Colorado is well below the middle for key services including kindergarten through 12th-grade education, colleges and universities, the Medicaid health care program for people with low incomes, the Child Health Plan Plus (CHP+) program for children in low-income families, and highway maintenance and construction. The graphs show state spending per $1,000 of personal income, compared to the state ranked at the middle.

A widely recognized problem, and some action to fix it
Recent history indicates Coloradans are not categorically averse to supporting public services.

• In 1999, voters approved Referendum A, enabling the Colorado Department of Transportation to issue bonds to advance completion of several key transportation projects. The highest-profile project funded under that measure was the T-REX project on Interstate 25 in the Denver area.
• In 2000, voters approved Amendment 23 to the Colorado Constitution, requiring state funding for kindergarten through 12th-grade education to increase by inflation plus 1 percent from 2001 to 2011, and by inflation in subsequent years.
• In 2004, voters approved Amendment 35 to increase the excise tax on cigarettes and other tobacco products to fund state health programs.
• In 2005, voters approved Referendum C, allowing the state a five-year timeout from spending and revenue caps imposed in the state constitution. The money was used for education, health care, roads, bridges and other strategic transportation projects, and retirement plans for firefighters and police officers.
• In 2010, voters rejected Amendment 60, Amendment 61 and Proposition 101, which would have reduced local and state support for public services, in particular transportation and education, cut local support for schools, restricted investment in infrastructure and governments’ ability to manage finances.

Moreover, other recent developments show diverse groups are paying heightened attention to state spending levels.

• A grassroots group of Colorado parents and other residents promoted passage of Proposition 103 on the state’s November 2011 election ballot. The measure would have increased the state’s income and sales tax rates for five years, generating more than $500 million annually devoted to public education.
• A high-profile lawsuit, Lobato v. Colorado, asserts Colorado has cut education spending to the point that it is violating the state Constitution’s mandate to provide a “thorough and uniform” system of free public schools. District Court Judge Sheila Rappaport agreed with the plaintiffs and ruled "The public school finance system is irrational, arbitrary, and severely underfunded."
• A study issued Aug. 31 by the Center for Colorado’s Economic Future at the University of Denver offered a grim projection for the future of state spending levels: “Twelve years from now, Colorado will generate only enough sales, income and other general-purpose tax revenue to pay for the three largest programs in the General Fund – public schools, health care and prisons. There will be no tax revenue for public colleges and universities, no money for the state court system, nothing for child-protection services, nothing for youth corrections, nothing for state crime labs and nothing for other core services of state government.” The study was conducted at the behest of the Colorado General Assembly.

Colorado’s rankings have changed little in recent years
Colorado’s relatively low investment in key public services is not a new phenomenon. At least since 2007, when the Aiming for the Middle study was first produced and relied on data from 2005, Colorado’s spending per $1,000 of personal income has ranked near the lowest among the states.

The only key public service measured in the report that has moved significantly in the rankings is state spending on Medicaid. As a result of the recession, most states experienced unusually high increases in Medicaid enrollment between December 2007 and December 2009. Colorado’s increase in Medicaid enrollment during that time was 30 percent, the fourth highest among the states¹.

How the numbers stack up
This analysis focuses on comparisons of state spending as a share of each $1,000 of state personal income. The appendices also offer rankings of state spending per person.

The preferred measure by the US Census Bureau is share of personal income. Measuring revenue and spending as a share of personal income shows the relative effort states are making to fund public programs.

By contrast, measuring revenue and spending on a per capita basis does not take into account the differing abilities of states to raise revenues and fund programs. Two states with large differences in average income levels could raise the same amount of revenue per resident, but the poorer state would be taxing its residents at higher rates. In addition, both the cost of living and wage levels might be higher in states with above-average incomes. Thus, wealthier states might be required to spend more per resident than poorer states to provide the same level of services. Finally, ranking state spending as a share of personal income allocates taxes to those who pay them, in proportion to how much is paid, but a taxes-per-capita approach spreads total taxes across the entire population, including children, institutionalized populations and other people who don’t pay taxes.

In some program areas, the analysis includes alternative methods of measuring spending. The alternatives are included because experts have suggested alternative measures they feel more accurately describe the state funding picture. Each section discusses the additional comparison analysis in more detail.

In most cases, the analysis does not include local spending. Local governments in Colorado collect and spend a high percentage of public dollars. According to the Center for Tax Policy, Colorado was one of four states in which the state government generated less tax revenue than local governments. While Colorado does rely heavily on local revenue to support public spending, the state and local spending combined still ranks below the national average as measured per capita (25th) and per $1,000 of personal income (44th)2. This analysis focuses on the state spending component because the state is a dominant partner in funding for many of the services discussed.

This report’s rankings are based on revenue data compiled by the U.S. Census Bureau. Some organizations use other methodologies to compare education spending among the states. A variety of those data are included in Appendix 2.

Colorado ranks 48th in total spending
Colorado spends $118.22 per $1,000 of personal income in the state on public services. That figure includes many services this report does not address in detail such as child welfare, child protection services, environmental protection, parks, job training, courts and prisons. Most of the state’s money comes from an income tax of 4.63 percent, a sales tax of 2.9 percent and various forms of federal transfers.

Colorado ranks 49th in spending on kindergarten through 12th-grade education
Colorado has 178 school districts ranging in size from fewer than 100 students to more than 86,000. A free, public education is required by the state Constitution. The financing of a system of free public schools has traditionally been the shared responsibility of the state and local school districts. School districts raise revenue primarily through local property taxes, and the state share is raised through general taxes, such as income and sales taxes.

Since 2009, Colorado school budgets have been reduced dramatically. Colorado spends about $2,000 less per student than the national average³.

Colorado ranks 49th in spending on public colleges and universities
Colorado has 24 public colleges and universities that serve more than 250,000 students. Those institutions receive funding through General Fund appropriations to the College Opportunity Fund Program and for financial aid. The College Opportunity Fund Program provides a stipend to eligible undergraduate students for a portion of in-state tuition

Higher education funding through fee-for-service contracts and as a percentage of the state general fund has decreased from more than 20 percent to 9 percent in the past 20 years. The cost of funding higher education has shifted to students and families, resulting in the cost of tuition doubling in the same period.4 Since 2006, tuition at all Colorado public universities and colleges has increased on average by 43 percent5.

In 2010, Senate Bill 003 temporarily delegated authority to higher education governing boards to increase resident undergraduate tuition rates up to 9 percent per year for five years. As a result, in 2011, university and college tuition increases hit record highs with one university increasing tuition 23 percent (Metropolitan State College of Denver).

Colorado ranks 43rd in spending on the Medicaid insurance program
Colorado’s Medicaid program provides public health insurance to low-income families, children, people with disabilities and the elderly. In 2009, Medicaid served over 380,000 Coloradans⁶. Today, in 2011, more than 600,000 Coloradans receive Medicaid.

As a result of the 2007-09 recession, the increased cost of health care and population growth, state Medicaid enrollment took an unprecedented jump. From December 2007 to December 2009, Colorado’s Medicaid enrollment increased 30 percent, the fourth highest among the states. Since enrollment drives costs, state spending in Colorado for Medicaid increased disproportionately compared to other states.

Since 2009, when the data were collected, several changes have been made that effect Medicaid in Colorado. Effective 2010, Colorado passed House Bill 09-1293, which created a Hospital Provider Fee to generate additional federal Medicaid matching funds. The additional federal money pays for an increase in Medicaid eligibility, which extended Medicaid benefits to roughly 15,000 families that were previously ineligible⁷. The effects of that legislation are not reflected in the rankings.

Colorado ranks 32nd in spending on the Child Health Plan Plus program
Child Health Plan Plus (CHP+) is public health insurance for children and pregnant women who earn too much to qualify for Medicaid but cannot afford private health insurance. In 2009, there were more than 63,000 children enrolled in CHP+ in Colorado⁸. In 2011, enrollment increased to over 75,000.

House Bill 09-1293 expanded eligibility for CHP+. Since its enactment in 2010, more than 3,800 previously uninsured children have been enrolled in CHP+⁹. That change occurred beginning 2010 and is not reflected in the data from the Census Bureau, nor in the rankings.

Colorado ranks 46th in spending on highway maintenance and construction
Transportation in Colorado is primarily funded through the Highway Users Tax Fund (HUTF), fed by motor fuel taxes and various motor vehicle fees. Colorado has the lowest motor fuel tax among surrounding states ($0.22 per gallon) and has not increased the motor fuel tax rate since 1992. The national average for state motor fuel tax is $0.29 per gallon¹⁰. Transportation typically does not receive state General Fund appropriations.

In 2010, only 48 percent of roads in Colorado were considered in “good” or “fair” condition, and 127 bridges across the state were found to be in “poor” condition¹¹.

Contact: Ali Mickelson
Tax policy analyst
303-573-5669, ext. 304

Read the full report in a .pdf file, including appendices.

Released Dec. 15, 2011

End notes
1 Medicaid Enrollment Growth During the Economic Recession: December 2007 to December 2009, The Henry J. Kaiser Family Foundation, December 2010 at http://www.statehealthfacts.org/comparemapreport.jsp?rep=73&cat=4

2 Kirk, Ron, How Colorado Compares in State and Local Taxes, August 31, 2010, at http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application/pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251653454036&ssbinary=true

3 Public Education Finances: 2009, United States Census Bureau, May 2011 at http://www2.census.gov/govs/school/09f33pub.pdf

4 The Degree Dividend - Building our economy and preserving our quality of life: Colorado’s Strategic Plan for Education, Colorado Department of Higher Education, November 2010 at http://highered.colorado.gov/Publications/General/StrategicPlanning/Meetings/Resources/strategicplan_final_nov0410.pdf

5 Tuition and Fees Report: Fiscal Year 2010-11, Colorado Commission on Higher Education, December 2010 at http://highered.colorado.gov/Publications/Reports/Budget/FY2011/2011_tuitionfeesreport.pdf

6 Budget in Brief: Fiscal Year 2008-09,Colorado General Assembly, Joint Budget Committee, 2009 at http://www.state.co.us/gov_dir/leg_dir/jbc/FY08-09BIB.pdf.

7 Colorado Healthcare Affordability Act Annual Report 2010, Colorado Department of Health Care Policy and Financing, January 5, 2011 at http://www.colorado.gov/cs/Satellite/HCPF/HCPF/1251570031621

8 State of Colorado Department of Health Care Policy and Financing 2009 Annual Report, Colorado Department of Health Care Policy and Financing, 2009 at http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251643751614&ssbinary=true.

9 Children’s Health Plan Plus State Fiscal Year 2010 Annual Report, The Medical Services Board, 2010 at http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251691152174&ssbinary=true.

10 Transportation Facts 2011, Colorado Department of Transportation, 2011 at http://www.coloradodot.info/library/FactBook/FactBook2011/view

11 Ibid.