For much of the last two decades, Colorado has ranked very high among U.S. states for being business friendly, but in recent years the outlook has become more nuanced.

While Colorado remains a very attractive place to live and work, and recent job and business formation data provide reasons for optimism, there are also signs that the direct and indirect costs of doing business in Colorado are beginning to threaten our state’s competitiveness. To avoid losing our edge, our state Legislature should employ more rigorous tools to ensure that the aggregate impact of new regulations does not deplete our economic strength.

A recent survey of business leaders by the Colorado Chamber of Commerce found that respondents were “split on whether the state’s economy is headed in the right direction (48%) or on the wrong track (52%),” with “availability of workforce” and “excessive regulations” as their top two concerns. Among regulations, labor & employment and environmental regulations headed the list of concerns. Similar sentiments are echoed in the Denver Metro EDC and Chamber of Commerce’s latest, “Toward a More Competitive Colorado” report, which noted that 14 of the state’s 36 competitiveness indicators declined relative to competitor states.

Two recent studies I wrote as a Fellow at Common Sense Institute took a deep dive on the key regulatory issues impacting Colorado’s competitiveness. The research into the mounting costs

of employment and labor laws, energy and environmental regs, and legal expenses tell a cautionary tale.

Significantly, Colorado’s net in-migration shrank by 80% over the past two years as 76,700 fewer people came to Colorado compared with the five-year average through 2019.

Those who did arrive tended to work in more highly compensated fields, such as professional services, whereas sectors employing more middle-class workers, such as manufacturing, struggled to attract workers. While two years do not make a trend, particularly during COVID, it is notable that during this same period, net migration continued to rise in two geographic peer competitor states: Utah and Arizona. In Arizona, where the manufacturing sector expanded, growth in professional services “barely outpaced the overall employment growth rate.”

If this change in net migration is not an anomaly, and instead is due to a permanent increase in the cost of doing business in Colorado, the impacts are likely to persist or even grow over time. The 2021 and 2022 reduction in Colorado migration is estimated to have reduced employment by 14,000 jobs. Modeling shows that a 1% increase in the cost of business would lead to a reduction in the labor force of 53,000 after two years and 123,000 after 10. The employment impacts are larger—130,000 after two years and 126,000 after 10.

Fewer newcomers

A reduction in-migration could threaten the quality and quantity of Colorado’s workforce, which the state has traditionally maintained by importing talent. In what has long been known as the “Colorado Paradox,” our state boasts the second-highest percentage of workers with a college degree, but its high school graduation rate ranks only 44th in the country. Migration remains extremely important to maintaining our educated workforce. If workers who would previously have come to Colorado instead “vote with their feet” and migrate elsewhere, that could have a dramatic impact on Colorado’s highly regarded workforce. This is especially worrisome in an environment in which there are 2.7 jobs for every unemployed person.

Colorado’s high cost of housing is a well-known drag on inward migration, but the data suggests that it is not the only impediment. While Colorado had the second-fastest growth in the nation in the Homebuyer Misery Index, which represents the cost of purchasing a new home, between 2008 and 2023, between 2020 and 2023 the state ranked just 30th. This suggests that other factors beyond housing affordability were at play, potentially influencing migration over the past two years.

Mirroring the concerns in the Colorado Chamber of Commerce survey, Common Sense Institute research indicates that regulation in the policy areas of labor and employment and energy and the environment has expanded significantly in recent years and is increasing the cost of living and doing business in Colorado.

The combined long-term annual cost of just seven recent laws and regulations analyzed in the report totals at least $2 billion. These include the state’s paid family and medical leave program, passed as a ballot measure in 2020, expansion of unemployment insurance, enacted by the legislature in 2020, restrictions on oil and gas exploration and production passed by the Legislature in 2019, and the new energy standards mandated in 2021 for large buildings.

The $2 billion figure understates the impact of recent regulatory changes. Dozens of other measures included in the report or analyzed separately by Common Sense Institute will add significantly to these costs but cannot currently be quantified. Moreover, the impact of several recently passed measures is just beginning to be felt in the economy.

Additionally, data from the Department of Regulatory Agencies also indicate that an average of 444 rule-making filings occurred annually over the past decade. That is 1.2 new state regulatory filings per day and more than 4,430 over the last 10 years. Because filings can contain either single or multiple rule changes, the actual number of new regulations is even higher.

State-by-state comparisons indicate that Colorado’s recent labor and employment and environmental policies more closely resemble policies in states experiencing negative net migration (including New York, Illinois and California) than those in states experiencing growth (Florida and Texas). Colorado’s policy direction also appears out of sync with at least two of our geographic peer competitors (Arizona and Utah).

Compounding the problem, since 2019, the state Legislature has passed at least 43 bills that create, expand, and/or modify civil causes of action. Small business will bear the brunt of these bills and shoulder costs that will eventually be passed on to consumers. Litigation-related legislation only adds to challenges cited in previous research finding that new policies enacted over the last several years have increased annual taxes and fees by over $2 billion.

A competitive field

Indeed, a recent report by our Common Sense Institute colleagues in Arizona contrasts Colorado’s and Arizona’s economic policies, and illustrates the impact of these diverging policies on economic growth. Since 2019, when Colorado dramatically accelerated business regulation and Arizona rejected similar policies, Colorado has fallen onto a slower growth trajectory, and is nearly 137,000 jobs short of its pre-2019 growth trend (4.7% of its total labor). Arizona, in contrast, has exhibited faster-than-normal growth, and is on pace to return to its late 2010’s job growth trend by the end of 2024.

Since 2019, Colorado has seen the size of its administrative state grow at twice the rate as in Arizona, and Colorado now has over three times the number of administrative regulations (28 per 1,000 persons) as in Arizona (9 per 1,000 persons). According to the Arizona report, if Arizona had enacted 67 bills in 2023 identified as “job killers” by the Arizona Chamber of Commerce, many of which resembled bills passed in Colorado since 2019, it would have resulted in $25 billion in annual costs for Arizona businesses, the loss of 224,000 jobs (7.6%), and a reduction in state GDP of $30.5B (7.7%).

Looking ahead, Colorado should forge its path, not reflexively replicate the policies of Arizona or any other state. But policymakers should also remember that we don’t operate in a vacuum; we are in a competition with other states for businesses and workers — and both will vote with their feet by choosing whether to live and work in Colorado or somewhere else.

Accordingly, Colorado policymakers should continuously be asking whether the policies we enact are accomplishing their stated objectives, and at what cost, and whether the aggregate impact of the cost increases on businesses is eroding our state’s competitive position.

Reason suggests that as

Looking ahead, Colorado should forge its path, not reflexively replicate the policies of Arizona or any other state. But policymakers should also remember that we don’t operate in a vacuum; we are in a competition with other states for businesses and workers — and both will ultimately vote with their feet by choosing whether to live and work in Colorado or somewhere else.

much of this analysis as possible be done proactively, before legislation and rules are enacted.

It is hardly a secret that the current process for conducting cost-benefit analyses of individual bills and rules needs reform to accurately forecast the impact of legislation and rule-making prior to enactment. Most glaringly, the system of fiscal notes studies only how each proposed bill impacts the state’s finances, not what it costs employers and how those employer costs cascade through the economy.

In 2021, through efforts by the business community, HB21-1230 established a publicly accessible website with information about regulations across topics and agencies.

Through iterations of this platform, it could serve as a critical analytical tool for assessing the full body of recent reforms in particular policy areas prior to developing new rules. More significantly, policymakers should work to develop a process for analyzing the aggregate costs of existing and proposed regulations and how they impact Colorado’s competitive position relative to other states.

This year, Gov. Jared Polis challenged us to look toward the 150th celebration of our state and answer the question, “How can Colorado’s example shine a bright light for the nation?” Although each of us might have different answers to this question, the prosperity required to achieve many of our dreams depends on our state remaining competitive nationally.

There is time to establish Colorado as the gold standard in the region and the nation, but the work starts today.