Economic Outlook Special District Association of

ColoradoSeptember, 2010

Real Gross Domestic Product Growth

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f

4.1%

1.1%

1.8%

2.5%

3.6%3.1%

2.7%

1.9%

0.0%

-2.6%

2.9%

Source: U.S. Bureau of Economic Analysis.

Colorado Personal Income Growth Rate

Sources: U.S. Bureau of Economic Analysis.

U.S. Personal Savings Rate (quarterly through 3Q09)

Sources: U.S. Bureau of Economic Analysis.

Consumer Confidence Index

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160

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-10

Mountain Region U.S.

Source: The Conference Board.

Dow Jones Industrial Average

6,0008,00010,00012,00014,00016,00018,000

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2007: 18% of U.S. families have stocks; 53% have retirement accounts

Residential Mortgage Loans in Foreclosure or Delinquent

Sources: Mortgage Bankers Association, National Delinquency Survey

Where We Are Today

•Colorado’s economy is the in the top three or four states for diversification. Result of 25 years of effort to more resemble the U.S. economy (world’s most diverse). Coefficient of correlation today is .82 (very high).

Where We Are Today

•Still facing another year of state and local budget cuts. Government is a “lagging indicator” of economic health.

•Higher education and K-12 will take the biggest hits in State’s budget again this year.

•Biggest challenge is to find and lock-down a permanent funding source for our research universities.

The Federal Government• Federal government continues to deliver

“uncertainty” into the marketplace. November elections might help sort this out.

• D.C. policies that will help or hurt Colorado economy▫Hurt – aerospace and bioscience▫“commercialization of space” is code word for

“funding cuts.”▫Bioscience/instruments taking big regulatory

hit. Time to market for instruments is moving from four years to 10 years. This compares to 12-14 years for pharma products.

▫These bio industries grew at 3.4% annually for past five years.

Help from Washington in Clean Tech•Clean Tech: Employment growth at 3.6%

annually for past five years. “A” in wind, “B+” in solar. Texas is best in wind and Arizona is best in solar.

•Big attraction is 30% RPS. Colorado is 8th in installed wind capacity and 8th in solar capacity.

Regulations will increase….

•Increased regulation in banking is now, and will in the future make borrowing more difficult – “Get ready to start paying checking fees again.”

Employment growth “up”

•Workers are being stressed to the max – new hires across the board are occurring but in small numbers

“Movin’ to…well, maybe not…”

•Less mobile labor force (older and can’t sell houses to make a move) has resulted in fewer people “moving to where they think the jobs will be”.

Outlook still looks good….not great•Colorado will rank among the fastest

growing states in this recession.

Our Competitive Position

1982•9th in per student funding of K-12•13th in higher ed funding•Highways ranked in Top Ten for age,

productivity and condition•Income tax was “progressive” ranging

from 5%-6% based on “federally adjusted income”

•Sales tax was 3.0%

Today• Income tax has been cut four times•Sales tax cut once•Residential property has been reassessed

14 times; 12 times the assessment ratio has been cut (from 27% to 7.9%)

•24th in per student funding of K-12•49th in per student funding for higher

education•“Bottom 10” in road quality with over 50%

of roads in ”Poor” condition

Colorado has become a low cost place for state taxes, but not local

•Lowest income tax rate of any state that has one

•Lowest sales tax rate of any state that has one (5 states don’t)

•2nd lowest per capita welfare payments (no “welfare cheaters” allowed)

•2nd lowest in state revenue per capita•3rd lowest in state expenditures per capita•2nd lowest residential property tax

Question is: “With dropping government revenues are we still

competitive?”

Per Capita Personal Income U.S. Bureau of Economic Analysis

0

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35

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Rank

CT NJ MA MD NY CO MT NM AR WV MS

2000

2003

2008

12th Highest

Colorado’s high personal income level is due mainly to its ability to attract and retain highly educated people with high-paying jobs. Strong population growth in Colorado in 2008 contributed to Colorado’s decline in rank.

Employment Growth U.S. Department of Labor, Bureau of Labor Statistics

Employment growth in Colorado improved from 2003 - 2008, then slipped again in 2009. The employment growth rate in Colorado from 2008-2009 (-4.7%) was better than all of its competitors except Texas (-2.9%) and New Mexico (-4.2%).

33rd Highest

Annual Population GrowthU.S. Census Bureau, Population Estimates

Population growth tends to be higher in those states where jobs are perceived to be more available. Although Colorado’s job growth rate slipped in 2009, the state remained a magnet for job-seekers. Strong population growth in the state is also linked to an inflow of baby boomer parents.

4th Highest

Venture Capital Investments per $1,000 of SGDPPriceWaterhouseCoopers MoneyTree Survey

Fig. 9Venture capital investments made in a state are an indicator of an economy with strong entrepreneurial and inventive elements. With 100 completed deals in 2008, venture capital investment in Colorado was nearly $846 million.

3rd Highest

Small Business Innovation Research GrantsU.S. Small Business Administration; U.S. Bureau of Labor Statistics

Colorado’s strong research and development sector is a major contributor to its high ranking compared to its competitors.

2nd Highest

Fig. 4

Economic Outlook American Legislative Exchange Council

Economically competitive states attract people from less competitive regions around the nation. High ranking states are projected to have positive levels of in-migration, employment growth, and higher personal incomes due to their competitive tax environments, fiscal health, and strong legal systems.

2nd Best

High-Tech Employment per 1,000 WorkersTechAmerica

Colorado’s favorable wage structure, high quality of life, and diverse technology-based industries lead to one of the highest concentrations of high-tech employees in the country.

3rd Highest

State Business Tax Climate IndexThe Tax Foundation

The State Business Tax Climate Index Rank published by the Tax Foundation offers a holistic measure of state business tax burdens and climate than is measured in many other studies. Colorado has the 13th-best tax climate in the country, meaning taxes are lower.

13th Best

State Tax Revenue per Capita U.S. Census Bureau, Government Finance Series

10th Lowest

Colorado has a decentralized tax structure with low levels of state government taxation.

State Sales Tax RatesThe Sales Tax Institute

The state sales tax rate in Colorado (2.9 percent) is among the lowest in the country. States ranked higher than Colorado charge no sales tax. States ranked in the bottom four have rates of seven percent or higher.

6th Lowest

Residential Property Tax Rate in Largest City in Each State

District of Columbia, Office of the Chief Financial Officer

Passed in 1982, the Gallagher Amendment has kept the assessment ratio of residential property in Colorado low, resulting in the second-lowest residential property tax rate in the nation. Fig. 49

2nd Lowest

Lowest Total State Expenditures per CapitaIncludes General Fund, Federal Funds, Other State Funds, and Bonds Kaiser State Health Facts

State spending in Colorado, like the state’s tax burden, tends to be low compared to the rest of the nation.

3rd Lowest

Lowest per Capita State and Local Government Expenditures for Public Welfare Programs

U.S. Census Bureau, Government Finance Series

New Mexico has one of the nation’s lowest per capita personal income levels. As a result, the state spends high amounts on welfare-related programs.

3rd Lowest

Basic Building Blocks of an Economy•Education•Infrastructure/transportation•Health Care

Percent of Public School Fourth Graders Proficient or Better in ReadingNational Center for Education Statistics

Colorado not only has a high percentage of proficient fourth grade readers, it exceeds every other western state in the percent of fourth graders who read at advanced levels. Fig. 69

6th Highest

Highest ACT (25 or above) and SAT (1780 or

above) Scores per 1,000 High School Graduates NCHEMS Information Center

1st Highest

Colorado excels at educating bright students and offers outstanding public college prep schools.

Student/Teacher Ratio in Public Elementaryand Secondary SchoolsNational Education Association

With an average of 16.8 students per teacher throughout the state, Colorado’s student-teacher ratio ranks as one of the 10 highest in the country. The national average is 15.2.

10th Highest

Percent of Public School Eighth Graders Proficient or Better in ReadingNational Center for Education Statistics

Colorado’s eight grade reading rankings have not been as consistent as its fourth grade rankings since 2003. Colorado’s rank has fluctuated in the second quartile, but the state’s percent of eighth graders proficient or better in reading has been trending down since 2003.

26th Highest

Public High School Graduation Rates NCHEMS Information Center

29th Highest

The north central states continue to graduate the largest shares of high school students. Colorado’s rank has shifted slightly from 27th highest in 2000 to 29th in 2006. Colorado’s graduation rate was 70.4 percent in 2006.

State and Local Public Higher Education Support per Full-Time StudentNCHEMS Information Center

3rd Lowest

Colorado continues to offer one of the lowest levels of support per full-time higher education student. Colorado spends 6.4 percent less than its 2001 peak in the level of support per student.

Health…..

Lowest Obesity Prevalence Among AdultsTrust for America’s Health

Colorado was the only state in 2008 and 2009 with obesity rates below 20 percent. Healthy workers are more productive, require fewer health services, and enjoy longer working lives. Fig. 95

1st Lowest

Fewest Retail Prescriptions Filled per Capita

Kaiser State Health Facts

With low rates of obesity, cancer, diabetes, and other diseases, Colorado residents require fewer drug prescriptions than any other state except Alaska. Fig. 99

2nd Fewest

Fewest Cancer Deaths per 100,000 PopulationKaiser State Health Facts; United Health Foundation

Western states–including Colorado–have the lowest incidence of cancer deaths in the nation.

4th Fewest

Fewest Diabetes Deaths per 100,000 PopulationKaiser State Health Facts

Colorado’s low obesity rate is reflected in the low number of diabetes deaths. Louisiana and West Virginia are among the nation’s most-obese states.

4th Fewest

Health Insurance Costs Penton Media, Inc.

Colorado’s health insurance costs rank as some of the highest in the nation. While Colorado is one of the nation’s healthier states, its low affordability may reflect the higher number of physicians per 100,000 residents or the increased demands on the medical industry made by Colorado’s well-educated and comparatively wealthy citizens.

7th Highest

Infrastructure/Transportation

Percentage of State Funding for Transportation (1980 vs. 2010)

8th Lowest State in Federal Highway

Funding

Clusters and Where They’re Headed in 2011

•Aerospace – job loss, waiting on D.C.•Aviation – growth in passengers, drop in freight•Energy – Fossils –

▫some growth in NE Colorado with big discovery▫Clean tech – continued growth

•Bio Science – waiting on D.C.•Financial Services – job loss, waiting on D.C.•Broadcast/Telecom – slow growth•Software/IT – increasing growth with small firms•Tourism – continuing, but slow growth•Ag – another year of solid growth as prices hold

Public Policy and Taxes Matter•Over 50 corporate headquarters have moved

to Colorado since 2003. Over 80% have been in “innovation” clusters

•Clean tech companies have expended over $1.2 billion on Front Range for new facilities

•What changed?▫Income tax apportionment formulas▫Increased incentives▫Policies that eliminated “uncertainty” in the

market

Wind and Solar are good examples•From nowhere in national and international

leaders•Bill Owens and Ken Salazar create “Co-

Laboratory” – federal funds create research incentives

•30% Renewable Portfolio Standard ensures market within state borders

• Income tax changes increase profitability for “export” companies

• Income tax “credits” make Colorado competitive

Percent of Electricity Generated through Renewable SourcesU.S. Energy Information Administration

Fig. 119

Increased private and public sector interest and a renewable energy portfolio standard have improved Colorado’s ranking. Colorado’s percent of electricity generated through renewable resources increased 75 percent from 5.7 percent in 2007 to 10 percent in 2008.

14th Highest

Total Wind Energy Net GenerationU.S. Energy Information Administration

Top 10 States and Colorado

Only 11 states reported energy generated from wind in 2000. That number jumped to 35 states in 2009, with Colorado ranking seventh.*2009 data is preliminary.

Fig. 123

7th Highest

Total Solar Energy Installed CapacitySNL Financial Operating Capacity Dataset

Top 10 States

0

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CA NV FL NJ NC CO TX AZ OH

Rank

6th Highest

2010

Large scale solar operations are still new in the United States and require significant amounts of land and sunshine. In 2010, 27 states had quantifiable solar operations.

Fig. 127

When Will It End?•All signs point to a “good” 2012, but last half

of 2011 should point the way•Major construction projects from AARA will be

either underway or nearing completion•Governments’ budget slashing completed and

near the end of “washing out” •Strong sales tax recovery•Housing industry finally sees its own recovery•Congress will have sent the tax bill to business

and citizens – reformulating balance sheets

But……………there’s these things on the ballot…..•Proposition 101•Amendments 60 and 61

Will voters decide to “send a message” and start a “voter approved” recession?