When Secretary of Education Arne Duncan came to Denver to discuss President Obama’s proposed new early learning initiative, he may have discussed the long-term potential of the program and the importance of the state’s commitment over the next decade to ensure its success. What may have been overlooked in this town hall discussion with Lt. Gov. Joe Garcia and Denver District Attorney Mitch Morrissey is how expensive this initiative will end up being for every state that participates. While no one questions the importance of the initiative, state officials should question whether Colorado can afford a program that expects the state to shoulder 75 percent of the cost in Year 10 — a large shift from the 10 percent that states are asked to contribute in Year 1.
The benefits that the state could receive relative to the low cost upon entry into the president’s proposed program may seem enticing, but the state budget could be drained trying to keep up with the cost of this $75 billion initiative as the years progress. The obligations put on the state could also be even greater than projected, considering that the federal government plans to use a notoriously unpredictable revenue source in the form of a 93 percent increase in the federal excise tax on cigarettes to pay for it. In 2009, the last time the federal government increased the excise tax on cigarettes, total tax-paid sales declined by over 8 percent the following fiscal year, compared to an average decline of about 4 percent during the previous decade.
Bear in mind that our state already faces significant challenges funding public schools and that Colorado citizens will vote this November on a ballot measure that would raise $950 million in new taxes to fund those schools. Given our state’s precarious financial situation, it may be unwise to pursue more federal obligations when there are looming budget decisions to be made in the coming months.
What’s more, I believe that the questionable funding source for the president’s otherwise worthy program could have serious economic repercussions for the state’s retailers. Our membership represents over 1,500 retail locations throughout Colorado, and our members employ some of the hard-working family members, friends and neighbors in your communities. And for some of our members, the lawful sale of tobacco products to adult consumers is an important source of revenue.
If this tax hike is enacted, retail stores in Colorado could face a considerable competitive disadvantage, contributing to diminishing sales. Faced with increasing cigarette taxes, adult tobacco consumers may seek out cheaper alternatives in neighboring states or other retail channels with lower, if any, tobacco taxes.
A serious downturn for the state’s retailers could reverberate throughout Colorado’s economy and similar effects could occur in other states, jeopardizing our nascent economic recovery. Moreover, an increase in black market tobacco sales that subvert the appropriate state and federal taxes could diminish the government’s projected revenue from the cigarette tax hike, potentially disrupting the financing for this new initiative.
While expanding education opportunities for young children is an earnest endeavor that many of us support, we must carefully design and implement these programs to ensure their long-term viability. That requires a prudent source of funding unlike a shortsighted federal cigarette tax increase that has the potential to disrupt segments of the local and national economy.
Former state Rep. Mark Larson is executive director of the Colorado Wyoming Petroleum Marketers Association.
