Colorado’s middle class is shrinking, and the lifestyle long associated with it — home ownership, a car, college savings and occasional vacations — is getting harder to achieve.
That’s been the economic trend in the state, and across the country, for decades. But new research suggests Colorado’s public investments — or lack of them — could be better directed to help people climb out of poverty and into a true middle-income lifestyle.
The takeaway from the latest Bell Policy report: When Colorado invests in education or judicial system programs meant to keep people out of prison, people’s ability to buy a home increases. And when the state pours more money into prisons, it declines, at least among communities of color.
The report used 20 years of state budget numbers, U.S. Census data and a sample survey of Coloradans to model various public-funding and economic-mobility scenarios. Colorado State University economics professor Anita Alves Pena, one of the report’s authors, calls it a “thought experiment,” because she plugged in various “what if” scenarios to find out how state funding relates to economic mobility.
An investment of $10 more per person in K-12 education, for example, translates to better economic outcomes for both people of color and white Coloradans, according to the report, called “Economic Mobility for Low-Income Families in Colorado.” A $10-per-person investment in corrections, however, equates to increased probability of poverty.
Colorado’s public spending has been stagnant over the last two decades, when adjusted for inflation and state population, the report found. Investments in higher education from the state general fund have decreased, in fact.
The report’s authors are hoping the research will inform policymakers who spend the state’s tax dollars and are working to restart Colorado’s economy after the coronavirus pandemic.
“The policymakers’ decision now is which bin to dump it in,” Pena said. “It’s not going to have the same impact if you put it in one category versus another.”
Because of the pandemic, she said, “budgets are going to be tighter so those decisions are going to be more meaningful than they were.”
The backdrop of the report is that Colorado is becoming a more expensive place to live; this was true even pre-pandemic. Coloradans are struggling to afford to buy homes and pay for health insurance and child care — and the state’s investments in public aid are failing to help them, according to the report.
“Why is it that so many people are falling into this purgatory?” Scott Wasserman, president of the Bell Policy Center asked, suggesting Colorado needs to expand eligibility for public assistance programs to help those who earn too much money to qualify, yet not enough to pay their bills.
“We are used to talking about people in poverty, people in the middle class and people in the upper class. This report is really showing us that there is a formation of a whole new strata in our economy. People are beyond the reach of public-assistance programs. That’s huge.”
The research dove into the “Big Six” public expenditure categories: health care, K-12 education, higher education, human services, corrections and the judicial system. Though Colorado’s population has grown, public spending — when adjusted for inflation — has not increased, except for in the health care category. Health care spending increased mainly because of the expansion of the Medicaid program in 2013, which lowered eligibility requirements for low-income Coloradans.
On a per-person level, state spending on K-12 education and human services has declined in the last 20 years. Education spending dropped significantly during the 2008 recession and has yet to recover.
“Colorado was already dealing with significant problems and COVID has made them worse,” said Tyler Jaeckel, director of policy and research at the Bell. “It becomes very relevant as we talk about what is happening with COVID.”
The report used a complex statistical analysis of real-world data, based in part on survey responses from the American Community Survey, an extension of the U.S. Census that involves interviews with a random sampling of people in Colorado.
Pena and her graduate student, John Singleton, analyzed yearly state spending on the six big-budget items, and matched them to survey data on real people in Colorado, looking at education level, number of children per household and other demographics. While the reasons a family is in poverty are complex and unique to each family, the researchers could parse out how state spending affected the probability that a family would move up or down in economic status.
In 2018, the Bell reported that the proportion of middle-income families — defined as income ranging from $38,900 to $118,000 — in Colorado had dropped to 49.6% in 2016 from 53% in 2000. Meanwhile, the proportion of state residents in both the upper- and lower-income groups increased.
In more than 80% of middle-income families, both adults were working full time, and in many cases, paying daycare and preschool costs that eat up the family budget.
The new report is not only advocating for more government spending, but more targeted spending, Wasserman said. “What this report is saying is that some investments are better than others,” he said.