Study says Colorado businesses are overregulated. Not everyone agrees on how to fix it.

A new study reports excessive business regulations in Colorado are straining jobs, economic growth and affordability for lower-income residents. Organizations like the Colorado Chamber of Commerce are calling for reform, while others argue deregulating the state could have consequences. 

The 2024 Regulatory Impact Analysis Report identified Colorado as the sixth most regulated state in the nation, thanks to almost half of the state’s business regulations being labeled excessive or duplicative.

“We’re concerned that (overregulating) is threatening our growth, our jobs, our competitiveness as a state, and economic development,” Colorado Chamber of Commerce President and CEO Loren Furman said.

---

---

The Regulatory Impact Analysis comes from a year-long comprehensive study on the state’s regulatory climate and impact on the economy. Released by the Colorado Chamber of Commerce and conducted by a team of economists and experts with StratACUMEN, the report examines the effects of increasing regulatory burdens on Colorado’s economy, businesses and workforce.

In 2022, a Colorado Chamber survey of 150 Colorado business owners determined their top two concerns were the availability of workforce and excessive regulations, which inspired the report.

---

---

Excessive regulations are more than simply repetitive or unnecessary rules. The analysis revealed a 10% increase in industry-specific regulations correlates with notable declines in business startups and employment rates.

Colorado’s labor market has also become one of the most regulated in the country, which the report blames on its high minimum wage, paid family leave and prevailing wage law.

A leader in regulations — for better or worse

One of the study’s key findings revealed Colorado has the sixth highest number of business restrictions in the country with nearly 200,000 state regulations that apply across multiple industries — or 1.3 million business restrictions when combined with federal regulations. Colorado is right behind New York in its number of business regulations, followed by Texas, Illinois, New Jersey and California.

Compared to other states, roughly 45% of Colorado’s regulatory restrictions were deemed excessive, meaning they either became unnecessary over time, are overly burdensome, hinder efficiency and growth, or are duplicative.

“There are plenty of areas around the state that would say that they’re struggling with the number of regulations, and you’re seeing it in the housing market right now,” Furman said. “Certain regions are not able to meet the housing needs in their areas because there are certain rules and regulations, whether those are state or whether those are local.”

Getting rid of unnecessary regulations is a start, StratACUMEN President and CEO Memo Diriker said, though just as important is the goal to lessen the unintended consequences of necessary regulations.

“We believe very strongly that … these restrictions come to pass for good reason,” Diriker said. “The problem happens when these restrictions compound in terms of their burden, their cost, and being deemed repetitive … (or) contradictory.”

The rate at which Colorado implements restrictions has tripled in the last six years. From 2017 and 2020, the 0.7% annual growth rate resulted in a 2% total growth in Colorado state regulations. Between 2020 and 2023, business restrictions affecting Colorado’s private industries grew by 7.1% thanks to a steeper 2.3% annual growth rate.

For comparison, federal regulations increased by 1.3% during the same three-year period.

“Since 2018, our regulations have gone from about 49 pages to double that,” Colorado Assisted Living Association President Janet Cornell said. “For instance, we used to have one page on food safety. Now we have six.”

Regulations range from instructions on employee hygiene, meal times and necessary equipment to precautions for handling mop water. For example, each assisted living residence must have a designated dining area that can comfortably accommodate all residents; what exactly “comfortable” entails is not defined.

Cornell said the constant creation of regulations has made it increasingly difficult to keep up with state and federal requirements. Some regulations have proven especially costly, such as the requirement that assisted living employees using respirators must undergo fit testing, which Cornell said costs small businesses about $150 per employee. Fit testing was already a federal requirement, though the state passed a bill in 2024 forcing each operator of an assisted living residence to require the tests.

“These are mom-and-pop businesses. We’re not like the big ones that have a nurse on staff to do some of the fit testing,” she said. “Most places just aren’t capable of keeping up.”

Penalties for violations can reach up to $10,000. These requirements can be especially difficult to keep up with when not everyone enforcing it agrees on the interpretation.

“We are just living in the ever-evolving regulatory environment where (regulations) are not only written, but they’re interpreted in different ways,” Cornell said. “If you call the state health department and three different people (pick up), you’ll get three different answers.”

Regulations hit workers, low-income families

The data also revealed a direct correlation between job growth and excessive regulations. The requirement of an extra step to open a new business is associated with a decline in new startups ranging from 3% to 7%.

This means Colorado is likely to see a direct loss of 36,000 jobs and 9,000 firms for every 10% increase in state regulations. This translates to losing up to 7.9 jobs per company when combining the cost of complying with business regulations, lost sales and other unintended consequences.

“We’ve heard from investors that they’re a little apprehensive to invest in Colorado because of the ever changing regulatory environment here,” Cornell said. “It’s just vague. The regulations are gray. They’re not in black and white.”

This can spell bad news for a state already struggling to attract workers. Colorado’s unemployment rate has consistently increased by one-tenth of a percentage point every couple months since August 2022 and currently matches the federal unemployment rate of 4.1% for the first time since 2020. This is still within the threshold for what economists consider full employment, however.

“It’s not about specific regulations — it’s just the amount of regulations. And it hurts small businesses more,” Cornell said. “We have about a 60% turnover of staff. All entry level positions do. We’re not alone in that.”

Among the more concerning points of the report was the impact on consumers — more specifically, lower-income residents.

The data suggests that excessive business restrictions increase costs for consumers by 1% annually. This is because regulations are shown to slow productivity and economic growth by 1% to 2%, and firms often attempt to pass the steep costs of regulatory compliance onto their customers through higher prices.

These higher costs have an 18% higher impact on lower income Coloradans, especially when it comes to inflation. A 10% increase in federal regulatory burden is associated with a 1% increase in consumer prices and raises the state’s poverty rate by 2.5%, according to the report.

Furthermore, estimates indicate that the expansion of federal regulations from 1997 to 2015 has contributed to an increase of about 84,668 people living in poverty in Colorado as of 2022.

Colorado leads in environmental regulations

The report found that Colorado has a higher number of regulations related to the environment, health sciences and social assistance compared to the average state.

The 53,550 environmental regulations — which in Colorado surpass the national average by 75% — have brought higher energy costs to Colorado, which can put energy-intensive industries at a disadvantage, affect their profit and harm their sustainability.

“(We) need to figure out whether those rules and regulations are meeting their intent — and do they create a balance between industry and environmental interests?” Furman said. “It’s starting to affect our competitiveness.”

Colorado’s environmental regulations surpass New York in terms of regulatory burden by roughly 5,000 regulations. While the state has not reached the level of regulation seen in California, the report suggests movements in that direction.

This is concerning to some because strict regulations in California have forced a shift toward natural gas — the price of which can fluctuate to become more expensive than coal during winter months and could lead to higher electricity prices for Coloradans if the state follows suit.

These regulations have only continued rising in recent years. However, Northwest Colorado Council of Governments Executive Director Jon Stavney argues that many of these regulations are necessary.

Colorado’s unique landscape places cities like Denver at the base of the Rocky Mountains, where temperature inversions trap pollutants like ozone near the ground so they can’t disperse or diffuse away like in coastal states.

With how many communities rely on water from the Colorado River, the state is in need of extraordinary protection of its air and water quality.

“There is absolutely a need for restrictions. The question is, can we accomplish the objectives of these regulations without some of these unintended consequences?” Diriker said. “If the answer’s yes, let’s do it.”

The road to deregulation: Local business experts weigh in

On Dec. 12, just days after the study was published, Gov. Jared Polis rescinded 208 executive orders going back as far as 1920. Photographs emerged of Polis going as far as to ​​use a table saw to cut through rescinded documents in his office — presumably symbolic of a move toward boosting government efficiency. 

The report outlined some proposed solutions to the issue of overregulating, including setting a total cap on the number of state regulations, setting regulatory sunsets so that regulations expire if not renewed, setting a reduction target of 30% over three to five years and regulatory audits. 

While Stavney said that regulatory sunsets could be a good way to ensure regulations are serving their purpose, he felt a target reduction of 30% could put too much emphasis on eliminating regulations to the point where it could cause more harm than good.

“At some face value, we can all agree that fewer regulations are better. But I think of regulations and I think of seat belts. I think of airbags in a car … which manufacturers really argued against back in the day,” Stavney said. “Now they sell those as innovations.”

“I just take a lot of those numbers with a grain of salt,” he added.

A sunset, on the other hand, forces regulations to be periodically assessed for their function and value in order to be continued. Sometimes, Stavney added, the issue with the regulation isn’t the rule itself but the way it’s being interpreted — especially when it comes to how the state spends its public dollars.

“One of the really poisonous things that’s happened in our country for quite a while is those who are protective of the regulations don’t want to open them up because they don’t want to open up the possibility of them basically being gutted,” Stavney said. “It tends to be this weird dynamic of, ‘Just protect it as it is,’ even though, quietly, we know it really needs a lot of adjustment to modern day.”

Idaho, one of three case studies referenced in the report, was praised for its success with the Red Tape Reduction Act, which applied a “one-rule-in, two-out” principle to simplify or remove 75% to 95% of its regulations. The state now has the fourth-fastest employment growth and 14th-fastest economic growth in the country.

While the report points to Idaho’s deregulation strategies as examples of what works, Stavney argued the two are too different to compare.

“Idaho has a very different political landscape than Colorado,” he said. “When you start talking nationally …  what is lost often is what are the purposes of the regulations and what are the values they may be derived from.”

Stavney also pointed out that there’s been a recent push for federal deregulation, as seen by the Supreme Court’s decision to narrow the scope of the Clean Water Act, which has yet to reveal its long-term impacts in Colorado.

“To me, that’s a huge deregulation that happened (recently), and where’s that in this report?” he said. “We need to see how that pans out.”

Furman said the chamber is preparing a “bold legislative package” to tackle the unintended consequences of excessive regulations in 2025, which will include some of the solutions discussed in the report.

One of the approaches the Chamber would like to pursue, Furman said, involves modeling the regulatory review process after the tax expenditure review process that’s currently in statute.

The Colorado Chamber also announced it will be launching a new Regulatory Affairs Policy Council to engage with state regulatory bodies in hearings and help lead the organization’s advocacy and reform efforts. The council will meet monthly beginning in January.

In addition, the Chamber launched its 10-year strategic action plan in 2023, which focuses on improving the state’s overall business climate and economic growth. Furman said the results of the report will help inform actions taken in that 10-year period.

“We do not want the business community to feel unsafe or consumer communities to feel unsafe because we are now suggesting removal of the regulations. It is only going to be done when it is absolutely necessary,” StratACUMEN Consultant Irina Piatselchyts said.