Study finds Colorado regulations among highest in nation, costing jobs | The Sum and Substance

Colorado’s sharp rise in new regulations over the past four years is costing the state tens of thousands of jobs while elevating costs for consumers, and reform is needed, according to a study released Tuesday by the Colorado Chamber of Commerce.

The number of new regulations affecting private industries that went into law between 2020 and 2023 increased 7.1%, or 2.3% annually, according to Maryland-based market-research and regulatory-analysis firm StratACUMEN group, which did the study for the Chamber. Pipeline transportation, personal services (ranging from pet groomers to funeral homes) and chemical manufacturing all saw at least 50% growth in the number of regulations governing those sectors in the four-year period, the report found.

That surge in new rules ranked Colorado as the state with the 12^th-highest number of regulations by the end of 2023 but leaves it on pace to rank sixth by the end of this year, with businesses facing more than 200,000 distinct regulations, the study found. Some sectors have more than three times as many regulations as the median U.S. state, including manufacturing of nonmetallic mineral products from glass to cement (7.67 times the median rules), pipeline transportation of natural resources (6.16 times) and ambulatory health-care services (4.02 times).

Costs and benefits to regulations

The sharp increase in regulations corresponds with Democrats taking full control of the state House, Senate and governor’s office at the start of 2019 and then pushing for laws to protect the environment, workers and the state’s unemployment insurance program. Supporters say new regulations protect residents from air and water pollution, employer exploitation and the impact of new technology (on subjects like data privacy), among other things, and they argue that gains in those areas outshine economic drawbacks.

The StratACUMEN study acknowledges that while most regulations are proposed with good intentions, their overall impact can create unintended consequences, particularly for locally owned businesses dealing with the barrage of rules. Using figures from other studies, it argued that each 10% increase in regulations can lead employers to divert resources from growth to compliance, stopping some 9,000 businesses from moving forward and costing 36,000 jobs.

“The findings indicate that while regulations are essential for ensuring safety, environmental protection and consumer rights, their cumulative burden can pose significant challenges, particularly for small- and medium-sized businesses that are vital for the state’s economy,” the study concluded.

Regulatory reform a Colorado Chamber priority

Colorado business owners have complained increasingly about regulations in recent years and listed the jump in operating rules as by far their biggest impediment to growing jobs locally in a 2023 Chamber survey. Chamber President/CEO Loren Furman identified the reduction of regulatory burden as one of the organization’s key pillars in its Vision 2033 10-year plan released last year.

Since 2019, legislators and regulators added rules to cut greenhouse-gas emissions in sectors from energy to buildings, launched a voter-approved paid-family-leave program, boosted rules around employer hiring and allowed local minimum-wage hikes.

Colorado has a notably higher number of regulations related to the environment (53,550 rules versus a national average of 30,553), health sciences and social assistance (such as the paid-family-leave program), the study said. Much of the environmental push has come as the U.S. Environmental Protection Agency has reclassified the Northern Front Range as a severe nonattainment area for ozone and the state has sought to rein in emissions from drilling rigs, industrial plants and others.

Oil pumpjack against snowy mountains in Colorado.

Are regulations stunting emissions-reduction innovations?

The explosion of regulations also has added more requirements to get air-quality permits and slowed the state’s consideration of permit applications, resulting in backlogs that can stretch for years, said Scott Hutchings, government-affairs director for recycling and disposal firm Waste Management. And that’s led to situations where the company has been stunted in efforts to get permits for new carbon-reduction tools like flaring devices, meaning the onslaught of regulations can work against environmental goals, he said.

Facing the fallout of increasing rules, national companies like his look increasingly to other Western states to pilot their new technologies, knowing they can get quicker approvals and better use of investment, Hutchings said. He thinks leaders should know that states like Arizona, which require one-third as many permit approvals for landfill equipment as Colorado does, can benefit both environmentally and economically when they clear the regulatory path for companies.

“It would speed up the ability for us to reduce emissions,” Hutchings said of any regulatory rollback that could cut the permitting backlog for new equipment and allow more use of new technology. “We feel like the goalposts are being moved every year.”

Economic impact of regulations quantified

To put Colorado’s four-year burst of regulations from 2020-23 into context, the 7.1% increase in rules came even as federal regulations, largely under President Joe Biden’s administration, grew only 1.3% during that time, the study noted. Colorado’s pipeline-transportation and personal-services sectors experienced boosts in regulation that exceeded 100%, the study noted.

Increasing regulations also cost jobs by raising the prices of goods produced by businesses in order to cover the rising cost of meeting regulations, which in turn lowers sales volume, the study argued. Transitioning from a lightly regulated economy to a heavily regulated economy can cut growth between 1% and 2% annually while, at least on the federal level, a 10% increase in regulations can lead to a 1% boost in consumer prices, StratACUMEN leaders wrote.

Impacts of regulating one industry can extend beyond that sector, particularly in the case of environmental regulations that boost energy costs as the state transitions away from coal to natural gas and other fuels, the study argued. If the state were to mimic California’s energy policies and lead to a 90% increase in electricity prices, the reduction in employment, investment and disposable income could cost 65,000 jobs.

State legislators have said that environmental regulations also bring down costs by cleaning up air and water and reducing the public-health costs associated with asthma and other pollution-exacerbated conditions. And Democrats who have supported increased labor regulations — particularly Rep. Javier Mabrey of Denver, appointed Monday as chairman of the House Judiciary Committee — have said economic concerns should not outweigh the need to protect workers.

Unintended consequences?

Downtown Denver buildings that are subject to new emissions regulations reflect in the window of another structure.

But Stephen Shepard, chief staff officer for Denver Metro BOMA, said the building-management industry is a poster child for unintended consequences of regulation like rules the state passed last year to lower emissions from large commercial buildings. At a time when building operators are having a hard time bringing workers back to offices and are looking to raise capital to upgrade their properties, the added costs of meeting the new rules is turning away potential buyers and lenders.

As a result, some buildings are going to foreclosure and some others are under consideration for demolition and conversion to industrial property — two scenarios that won’t help to bring workers back to urban core areas. Thus, the new regulations are contributing to reverberations that include the closing of nearby restaurant and retail businesses as the density of workers wanes, and the new rules are having negative effects their backers likely didn’t intend, he said.

“The cost to get these buildings to compliance with new regulations does not make a sound investment decision, so potential buyers have backed out,” Shepard said. “If you have vacant space in your building, you’re not going to be able to get loans for the capital needed to upgrade. And if you can’t get capital, you can’t comply.”

Potential reforms listed

To address these issues, the study proposed several potential regulatory reforms. It also argued that with 45% of Colorado’s regulations being duplicative, redundant or “excessive” — beyond the level of most other states — there is room to roll back regulations without hurting public health or safety.

Colorado could, for example, establish a hard limit on the number of state regulations while simultaneously setting a short-term regulation reduction target, typically around 30% over three to five years, the study suggested. Idaho, which sports one of the country’s fastest-growing economies, has benefitted from a law establishing a “one rule in, two rules out” policy that’s led to removal or simplification of more than 75% of regulations, it said.

Colorado also could mandate periodic reevaluations of older regulations, to examine their effectiveness or continued necessity, it said. The state established a similar policy in which auditors have examined all tax expenditures such as credits or breaks that are available in state law and has recommended changes or repeals of a number of them.

“Ultimately, a more thoughtful regulatory framework, with reductions in the growth of the number of laws, regulations and related business regulations will not only benefit businesses but will also enhance the overall quality of life for Colorado residents, paving the way for sustainable economic growth and a thriving community,” the report said.