Over the course of the legislative session, we have been hearing the usual appeals by lawmakers for policies that stimulate economic growth and create jobs. And yet, earlier this year, the Colorado Senate missed one of the best opportunities it could have hoped for to achieve that end.
Late in January, a Senate committee killed legislation that would have eased a big burden that lawmakers had placed on Colorado businesses and consumers during the recent economic recession. Senate Bill 104 would have made the state repay the more than $300 million it took from 13 special state funds that are maintained through fees assessed on various businesses. Although the bill’s defeat received little notice, it had profound implications for the economy.
The General Assembly raided the funds after the 2001 recession to balance the budget when it slipped into the red as tax revenues plummeted. Balancing the state budget, however, is not the purpose for which those funds were intended. For example, the Real Estate Recovery Fund exists to provide compensation for victims of fraudulent real-estate transactions.
Moreover, several cash funds have provisions that increase their fee level if the balance in the fund falls below a certain solvency level. When the legislature drew down these funds, five of them either imposed higher fees on business or were forced to collect an already high fee longer than planned.
And as we all know, any fee hike imposed on business gets passed along to consumers or reduces profits. So, the longer we wait to replenish the cash funds, the costlier it will be for businesses and consumers.
The economic consequences of these fee increases – let’s be candid and call them back-door tax hikes – cannot be overstated. Just four of the funds will have imposed close to $330 million in increased fees without voter approval by the year 2011 if nothing is done.
This indirect tax increase represents a significant burden on our economy. Some of the damage is already done. The raids on the Real Estate Recovery Fund and the Unemployment Insurance Trust Fund have already triggered close to $40 million in new fees, with about $4 million more yet to come.
The vast majority of the damage looms in the future. Over the next six years, two of the funds will take a staggering $296 million out of the private sector as a direct result of the legislature’s fiscal practices.
To the extent that we can pay back some of the money that we took from these two funds, we can avoid at least some of this tax increase. Repaying these two funds quickly becomes even more imperative when you consider the exact way in which they are funded. The state imposes a “surcharge” on workers’ compensation insurance, which is a tax levied on every business for every worker. This surcharge is what fills the cash funds. The surcharge was scheduled to be reduced this year as the funds gained solvency, but now that won’t happen until 2011.
This is, in essence, a tax on hiring workers that holds a double-edged sword over businesspeople. Businesses must either hire fewer people or pass the cost along to the consumer – or do a little bit of both. No matter what, both sales and employment are likely to decline. For those of you keeping score, this represents going 0-for-2 on the politicians’ pledge to “create new jobs and grow our economy.”
For the last three years, legislation has been introduced that would require the state to pay back the money it took from these 13 cash funds. For the third year in a row, this legislation has been rejected. The subject of repaying the cash funds arose again just this month as the state’s annual budget was debated in the Senate. Yet again, attempts to address the issue, by amending the budget, were blunted.
Given the fiscal turmoil that the Colorado budget has undergone since 2001, the legislature, of course, can’t commit hundreds of millions of dollars to repay the funds all at once.
It would be prudent, however – in terms of both the state economy and fiscal policy – to at least require this money to be paid back over time. It would certainly be a clear signal by the Colorado General Assembly that it is serious about stimulating the economy and encouraging businesses to retain and create jobs.
Republican state Sen. Ron May represents District 10 in Colorado Springs. Chuck Berry is president of the Colorado Association of Commerce and Industry and former speaker of the House.
