DENVER–In an editorial published last Thursday, the Denver Post editorial board (the Post) opposed Proposition 118, which would create a new bureaucracy that imposes a levy on employee salaries to fund paid family and medical leave. The ‘no’ endorsement by the state’s largest newspaper only adds to the uncertainty around the proposed program, which at least one economic analysis says could end up financially insolvent in it first year of operation, if enacted.
The Post said, “What Colorado needs right now are jobs — not better-paying jobs, or better benefits, just jobs.”
The proposition amends Colorado statutes to create a new state enterprise called the Division of Family and Medical Leave (Division).
The proposition exempts the Division from the Taxpayer’s Bill of Rights (TABOR), stating that the premiums levied against employee pay to fund the program are not subject to voter approval by the public under TABOR.
The new bureaucracy can extract whatever percentage, from an initial 0.9% up to 1.2%, of an employee’s paycheck the Division’s director deems necessary to fill the enterprise’s coffers, “at the rate necessary to obtain a total amount of premium contributions equal to” 135% of the previous year’s benefits payout plus 100% of the costs of administration.
As a statutory change, Proposition 118 can be amended by the legislature at will.
For example, the 2023 General Assembly (which is when the program begins) could remove the 0.9% to 1.2% cap on employee premiums if the payouts and administration costs exceed the amount collected by the Division in a given year, leaving employees to pay whatever premium the agency decides is needed to reach the 135% of payouts plus 100% of administrative costs metric.
“We think the future threat of a .9% fee on employee salaries (split evenly between employers and employees) would slow business growth,” says the Post’s editorial.
Perhaps, but the bigger problem is that the program may not even be financially solvent past the end of the first year.
In a recent interview, Kristin Strohm, President and CEO of the Common Sense Institute (CSI), a “non-partisan research organization dedicated to the protection and promotion of Colorado’s economy,” told Independence Institute* President Jon Caldara that the levy, “effectively equates to a 10% to 18% state income tax increase for an individual. And on the employer side its even bigger, it’s effectively a 200% corporate income tax increase.”
Strohm says that the program “would be the most generous plan passed in the nation,” and for that reason it is unlikely to remain solvent.
“After year one, what our model showed is that the program will likely be bankrupt, so they are going to have to raise that rate,” said Strohm. “If the claims rate goes over 6.5%, so only six and a half percent of people are using the benefit, for an average of nine and one-half weeks, it’s going to be bust.”
Strohm said CSI studied the economics of other similar state programs to come up with the projection for fund bankruptcy.
“Governor Polis even understood that the math didn’t add up, and that’s why the last few legislative sessions, this didn’t pass,” Strohm said. “When you look at Colorado, the wage replacement starts at 90%. Other states that have this, Rhode Island, California, New Jersey, they range between 60% and 70% wage replacement, and that’s key, because when you talk about the utilization rate, I think a lot more people will use the program if they are getting 90% of their wages replaced.”
In an August opinion piece in Colorado Politics, State Representatives Faith Winter, D-Westminster, and Matt Gray, D-Broomfield, who support the proposition wrote “Additionally, small businesses with fewer than 10 employees won’t have to pay anything to cover their workers, but employees will still be able to access the benefit.”
Progress Now, dedicated to “progressive values and issue-aligned organizations in Colorado,” repeats this claim in its voter guide, saying “businesses with fewer than 10 employees are exempt from paying the premium, but their employees are still covered.”
This claim is not quite true, even though the actual ballot language says, “with an exemption for employers with fewer than 10 employees.”
The proposition actually says employers with fewer than 10 employees, “may deduct up to 50 percent of the premium required” from the employee’s paycheck but “shall remit 50 percent” of the required premium to the Division. (emphasis added)
This means that small employers must remit half the premium to the state, but that they can either pay that half themselves, for their employees, or make the employees pay it out of their paychecks.
Tony Gagliardi, Colorado State Director of the National Federation of Independent Businesses told Complete Colorado, “Small employers are exempt only from the employer’s contribution. The employees still must be enrolled and contribute the employee’s share of the required contribution. The employer maintains the responsibility of enrollment, and collection and submission of the required premiums.”
Financial support for the proposition comes almost entirely from out-of-state special interests. Only 17 individual small-amount donors have contributed.
Contributions in cash or non-monetary services to the registered issue committee in favor of the proposition, Colorado Families First, include:
- $3.1 million from the Washington D.C.-based North Fund, a dark money “non profit ‘fiscal sponsor’ organization that often serves as an incubator for new non-profit advocacy projects” formed in 2019,
- $2.9 million from the Sixteen Thirty Fund, a 501(c)(4) organization that supports “nonprofit leaders and advocates” to “confront a wide range of challenges, from confronting climate change and safeguarding America’s lands and waters to expanding economic opportunity, advocating for criminal and racial justice, and strengthening our democracy.”
- $253,310 from the Service Employees International Union (SEIU).
- $870 from 17 individual donors.
Amounts are as of the committee’s October 14 Colorado Transparency in Contribution and Expenditure Reporting (TRACER) report.
*Independence Institute is the publisher of Complete Colorado.