Colorado business leaders worry about new regulations

Colorado business leaders are much less worried about finding new workers than they were a year ago, but they have increasingly soured on the state’s regulatory climate, and a host of new labor laws passed in recent years are cited as a chief reason why.

“Having conducted more than 50 studies of businesses in other states, this is the greatest concern about the regulatory climate that I’ve ever recorded,” said Pat McFerron, president at Cole Hargrave Snodgrass & Associates, which surveyed 156 Colorado business leaders between June 26 to July 28.

McFerron, speaking on a Zoom call to discuss the results, said the high cost of doing business is causing a “striking” number of businesses based in the state to consider expanding and making investments elsewhere.

“Lawmakers need to understand that every new regulatory burden coming from the capitol has a real impact on jobs and economic growth. The data is clear – we’re losing out to other states because of our business climate, which is chipping away at our competitiveness and driving businesses to invest in other states,” said Loren Furman, president and CEO of the Colorado Chamber, which sponsored the survey.

Four in 10 of those surveyed said they believed the state’s economy is headed in the right direction, while the remainder said it is on the wrong track. Last year’s inaugural survey had a closer split, with 46% saying Colorado was on the right track and 53% saying it was on the wrong track.

When asked about the most important issue facing Colorado businesses, nearly half of the respondents mentioned regulations, while only 11% cited workforce needs. That is a big shift from the 2022 survey when the two items were roughly tied at 26% and 27% respectively.

When asked to list the top three issues from a list of 13 items, nearly two out of three business leaders put regulatory compliance in that top bucket of concerns. Most of the worries about regulatory burdens center on state rules, at 64%, versus federal or local government rules, which came in at 15% each.

When asked to name the most costly labor and employment regulation, nearly six in 10 cited the state’s new Family and Medical Leave Insurance (FAMLI) program. This year, employers in Colorado started collecting a premium from employees of 0.45% of pay, with firms of 10 or more employees matching it and forwarding it to the state.

Starting next year, that money will go to fund up to 12 weeks of leave for qualified workers facing a serious medical condition or caring for a family member with one. Up to 16 weeks are offered for parents or guardians welcoming a newborn child, foster child or adopted child.

There is also concern about sick leave mandates, cited by 27% of those surveyed as the most costly regulation, and about complying with wage transparency rules, mentioned by 26%. Those rules require employers to include salary ranges when posting a job.

Scott Wasserman, president of the Bell Policy Center, a progressive think tank based in Denver, offered a counterpoint, saying that “one person’s burdensome regulation is another person’s problem-solving reform.”

Many of the changes in Colorado labor laws reflected long-standing problems that affected businesses and workers alike. In the case of FAMLI, which was hugely popular with voters in the state, the solution was to split the costs between employees and employers, a form of shared sacrifice, he said.

“They are shared problems when people can’t get access to housing or child care or when paid family leave isn’t available,” he said. “To change the status quo, you need to change something. Change is hard for everyone.”

Beyond a growing regulatory burden, business leaders cite relatively more expensive living costs and the mismatch between incomes and housing costs as significant burdens when it comes to attracting and retaining workers in Colorado.

About 85% of business leaders said they would like to see something done to fix the state’s attainable housing problem, which McFerron called a very strong number compared to what his polls in other states have captured.

Just over four in 10 favored a carrot approach to motivate the construction of lower-cost homes, including grants, tax credits and property tax relief. A similar share supported reforms to the new home construction process.

And about 63% described Colorado’s business climate as more costly or burdensome than that of most other states, a share that rose to 72% among those executives who actually had operations based in states outside Colorado. Only 8% viewed it as less costly.

The perception that Colorado is a more costly and burdensome state is not good, given that those sentiments can contribute to employers looking elsewhere for expansion and even to relocating out of state, McFerron said.

All of those concerns combined to create a more dour outlook among business leaders about the direction of the Colorado economy and their willingness to keep investing in it, McFerron said.

Business trade groups have historically decried the government’s regulatory hand, but there is a sense from business leaders in this year’s poll that some of the state’s new policies have become too burdensome.

That said, it is possible that over time business leaders will come to view the new rules as a cost of doing business and come to accept them. Past sources of complaints — like the higher minimum wage, unemployment insurance premiums, and worker’s compensation costs — ranked much lower on this year’s survey, in part because other newer mandates had come into focus.

But it is worth noting that Colorado, which has long taken pride in its ability to create jobs at a faster pace than the rest of the country, ranked 45th among states in July with an annual pace of job growth of 1.4%, according to the U.S. Bureau of Labor Statistics.

The reason for that underperformance isn’t entirely clear yet and revisions should lift the state’s relative ranking. But Colorado is unlikely to regain a top spot even with revisions.

When asked where they will make future investments, only 37% of the business leaders surveyed said it would be in Colorado, another 29% said in Colorado and elsewhere, and 17% said out of state. Among the respondents who already operated in multiple states, 83% said they would be directing future investments fully or partially outside of Colorado.

“That should be a concern. Colorado is at risk of people leaving the state because of the regulatory environment,” McFerron warned.

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