Proposition 118 Would Raise Taxes, Hurt Businesses, According to Report
A new ballot initiative Colorado voters will consider this November could cost taxpayers and employers billions of dollars and put additional strain on the state’s already struggling oil and gas industry, according to a recent report.
Proposition 118 would establish a paid family leave insurance policy in the state. If passed, employees could take up to 12 weeks leave from work for their individual medical needs or to help a family member. An additional four weeks would be provided for pregnancy or childbirth complications. According to a study by the nonpartisan Common Sense Institute (CSI), the insurance program could run out of money in its first year and raise taxes on Coloradans by up to nearly two percent.
“If you talk about a stacking effect, we think this will have a devastating impact to our oil and gas partners,” Dave Davia, CEO & Executive Vice President of Rocky Mountain Mechanical Contractors Association, told Western Wire. He explained, “In a period where they are really trying to work to regain from the oil glut and all of the turmoil that happened there plus what the environmentalists are attempting to do here to the oil and gas industry. Then you further add this one, plus next year there is paid sick leave that has to be given to employees on top of this, plus next year unemployment insurance premiums are going to increase.”
Benefits would be paid out in tiers depending on income level. Those making less than $34,000 per year would receive 90% of wages while on paid leave. Individuals making up to $67,000 would receive 70%, and those making $135,000 or more would receive 42% of wages.
Proponents of the measure say it would be paid by a new 0.9 percent payroll tax. Small businesses could apply to opt out, but employees will still be required to pay the tax.
But Davia says that figure will grow rapidly if the policy is adopted. “What it will do is create $1.3 billion in taxes in the first year. It is being masqueraded as a 0.9% increase, but really to the employee it is more than a 20%, almost a 25% increase in their payroll taxes. And for the employers it is about a 204% increase in effective corporate effective tax rate.
The ballot measure would also create a new state department in charge of overseeing the program, which would have the authority to increase the tax rate to 1.2%.
The CSI report, however, says that will likely not be enough to cover the costs of the program.
“If the utilization reaches a rate that effectively reflects a claims rate of 6.2% and with an average week of leave of 9.5 weeks, if that’s how the program starts, then the premiums that were collected to fund those benefits in the initial year would not be sufficient,” Chris Brown, Common Sense Institute, Director of Policy and Research said on a webinar on Thursday.
The Proposition 118 Fiscal Note given to the Colorado secretary of state assumes the claims participation rate would be much lower, around 3.53%. However, similar – albeit less generous – programs in Rhode Island, California and New Jersey see participation rates much higher than that, ranging from 4-7.1%.
Davia says that this could force companies to make difficult decisions down the line when it comes to foregoing raises or other benefits for employees.
“All of those are premiums that get paid that would cause companies to forgo any kind of raise or salary adjustment because now that salary adjustment is going to get paid to the state,” Davia said. “Because you can’t take an industry that is kind of fighting for recovery and then add a whole bunch of new financial metrics to them and expect them to do the right thing to their employees and pay all these increased costs.”
While Proposition 118 would mandate the most generous paid leave policy of any state in the U.S., it seems that the push is coming from outside Colorado.
According to the Colorado Sun, Sixteen Thirty Fund, characterized as a “dark money Democratic powerhouse” is funding the initiative effort. The group is based in Washington, D.C. and is managed by Arabella Advisors and closely affiliated with the New Venture Fund who has ties to billionaire environmental activist Tom Steyer, as well as other activist groups.
As a 501(c)(4) Sixteen Thirty Fund does not disclose its donors, but the Sun reported that the group poured $11 million in the 2018 Colorado elections to favor Democrats. The Fund is funneling their money through the state-based Colorado Families First, who was responsible for getting Proposition 118 on the ballot.