The Case Against FAMLI

Colorado can't afford to pay for the wants and needs of those not prepared to provide for their own situations. It's not an issue of morality or denying those who claim to be in need. It's an issue of not letting progressive politicians rob hard-working small business owners and other employers to bankroll a socialist fantasy.

As we head into the 2020 Colorado General Assembly legislative session, three things are for certain: the progressives running the show will be working feverishly against time and weather to advance their radical agenda; Liberty in Colorado will die a little bit more, as it does every year; and they will introduce another paid family and medical leave insurance (FAMLI) bill.

While most industrialized countries have paid family leave programs, only eight states in the United States do. I strongly oppose implementation of a similar program in Colorado, and in this opinion piece we’re going to look at the following areas:

  • Prior family and medical leave bills introduced in Colorado
  • FAMLI plans in other states
  • Economic and other results in those states
  • The moral case against FAMLI

By the time you’ve finished reading this, hopefully you will be better informed on the subject and better able to communicate your opposition to elected officials. Make no mistake: if a FAMLI bill passes this year, we will be stuck with it FOREVER. Once a government entitlement program is created, it is all but impossible to repeal it. We must fight against and prevent the passage of FAMLI in 2020.

FAMLI bills in Colorado

The champion for FAMLI in Colorado is Faith Winter, a former representative and current state senator from the Westminster area. Ms. Winter, who from what I can tell has never held a private-sector job, would crush the private sector with her Ferrari of a family and medical leave insurance plan.

Before 2020, Senator Winter had sponsored four paid family and medical leave bills. All four of them failed, except SB 19-188 which was re-written to authorize a “study”, which then passed. (Note to Senator Winter: If your idea elicits significant opposition every time and has failed four times, maybe it’s not such a great idea. Only your hubris allows you to think it is.)

The table below reviews the key aspects of each bill. They all have elements in common, and presumably, the 2020 bill will look substantially similar to these. Note the absence of limits on the taxes (premiums) that you can be charged in year one or subsequent, the solvency surcharge, the lack of limitations on the number of revenue bonds that can be issued; and the substantial burdens placed on employers.

 

 

A few aspects of this proposed idea merit further discussion. First and foremost, the taxation dimension is troubling. Under the Colorado constitution (the “Taxpayer’s Bill of Rights” amendment, or “TABOR”), the state may not impose new taxes or raise taxes (or issue debt) without a positive vote of the people. I’ve written about this in Why TABOR Matters. The problem with TABOR is that it has a loophole that the Democrats are going to sail an aircraft carrier through – the carve-out for “fees”. When TABOR was being debated in the early 1990s, one concern was that it didn’t make sense to have a library, for example, go to a vote of the people to raise their late fees. By declaring a government program as an “enterprise”, and charging “fees”, Colorado Democrats are dishonestly evading the spirit and intent of the Colorado Constitution. Here’s why: by definition, ANY money taken by government force to fund government programs is a TAX. I call upon the proponents of FAMLI to put it to a vote of the people. If it’s what the people of Colorado really want, they’ll vote Yes.

Secondly, the program as conceived above has almost no limits to what it can do. Under any variant above, after the first year of the program, the director would be required by statute to set the tax at a rate that would generate a targeted amount of revenue, essentially giving a government bureaucrat the power to tax Colorado citizens with virtually no oversight. What’s worse is that if the program is overutilized (which it will be, as all government handout programs are), the director can levy an unlimited “solvency surcharge” (SB 19-188 left that out). Think about that. Say the director mandated that every salaried employee had to pay an additional 5%, 10% or 20% of their earnings in mandatory payroll deductions. It could happen. There is NO limiting language in the first three bills.

Another problem area is revenue bonds. Revenue bonds are a form of debt that is repaid through the revenues of a government program. If the FAMLI program issued revenue bonds, it would incur debt issuance costs (likely in the millions of dollars), have to pay interest, and have to repay the bonds eventually. This debt service places an additional burden on the program and creates an incentive to raise premiums taxes as time goes on.

The proponents estimated a lower utilization rate than would likely be experienced in real life. An excellent paper by the Common Sense Policy Roundtable analyzes this very aspect, and the results are shocking. It found that the estimated utilization rate in the Fiscal Note for SB 19-188 was lower than the actual rate experienced by the few other states that have similar programs. Further, they posit the following estimates of the negative impacts on Colorado’s economy:

 

The final, and maybe the most troubling aspect of this progressive fantasy is the impact it will have on Colorado businesses, large and small. While larger employers (many of whom already offer paid family leave benefits as part of the compensation packages they negotiate with employees) can probably handle the additional burden more readily, it could be a death knell for small businesses across the state.

Think about a small business – say, a local bistro. It employs about 15 people, some full time, some part-time. The owner, in order to attract top talent, pays for health insurance for her employees. One of them, a shift manager, has a baby and takes maternity leave. Before FAMLI, the owner and the employee would most likely have worked out a mutually beneficial arrangement between themselves. Now, with FAMLI, the employer has to backfill a key position for up to 16 weeks, continue to pay that person’s health insurance and can’t require the employee to use any other paid time off benefits. If the employer inadvertently (or otherwise) does anything wrong, she can be sued by the employee and the division can levy unlimited fines against her business. How long will her bistro survive? What will her customers do when she goes bankrupt? (And if she’s in Denver, she has the double-whammy of higher minimum wage laws to deal with).

Scenarios like this are why some observers say paid family leave programs are bad for women – because it gives employers incentives to not hire them. This video by John Stossel talks about this.

FAMLI Plans in Other States

Only five other U.S. states currently offer a paid family and medical leave program. Three other states, Connecticut, Massachusetts and Oregon recently passed FAMLI programs which are going into effect in the next few years.

The proposed Colorado program is clearly more lavish than any other state’s even though California and Oregon have higher maximum weekly benefits. (Side note: as I was researching these programs, I saw that the newer states to implement the program are vying to be more “generous”. I can see the next Colorado FAMLI bill be even more lavish than the prior four bills. Because it’s “for the kids”).

As the table below shows, the proposed Colorado plan under SB 19-188 (as originally written) would have been an extremely generous program, with the longest paid leave benefit term of up to 16 weeks. It would also have been the most expensive for employees and employers, with a combined tax rate of 1.28%.

 

All of the states (except Colorado, because of TABOR) are honest about the funding mechanism: a payroll tax. Oregon’s law, the most recent to be passed and the one hailed as the “most progressive”, offers very generous benefits as well.

All of the states have significant penalties for employers who violate the law, whether intentionally or accidentally, and allow for workers to sue their employers. Oregon’s law – the most progressive – is particularly chilling in that it says that an employer’s officers, members or partners can be held PERSONALLY liable for civil or criminal penalties.

All of the states allow self-employed people to “opt-in” to the program (one wonders how many actually do) and Oregon and Washington allow employers (note the word “allow”) to offer voluntary plans only if they are as or more generous than the state plan.

New York’s plan, which just went into effect in 2019, is already raising its employee tax rate by 76%, from 0.153% to 0.270%, and increased benefits and added farmworkers to the benefit pool.

 

This clearly demonstrates the principle that government programs always grow, they never stay within budgets or projections, and they are impossible to get rid of. There’s no reason to believe a similar plan in Colorado wouldn’t grow out of control quickly as well.

Economic Results in Other FAMLI States

One of the great things about the United States is that we have 50 “laboratories of democracy”, where we can see – in the real world – how various policies work (or don’t work). Here’s a look at various economic facts about the eight states with currently operating or new paid family leave plans and how they compare to Colorado. (Obviously, the effects of paid family leave won’t affect the economic results of the newer states.)

Analyzing the economic strengths and weaknesses of the 50 states is a topic far beyond the scope of this blog post. Fortunately, a group of distinguished economists perform an annual analysis of the economic strengths and weaknesses of the 50 states in their “Rich States Poor States” review, which measures state economic performance in terms of 15 different policy variables. Much of the table below is drawn from the 12th edition of their publication, covering the year 2019. To learn more, read my blog post Taxation and Wealth. To really dive into the topic, read the book entitled An Inquiry into the Nature and Causes of the Wealth of States: How Taxes, Energy and Worker Freedom Change Everything by Arthur Laffer, Stephen Moore, Rex Sinquefield and Travis Brown.

The table below shows that Colorado is doing better economically when the measures shown are taken as a whole. We don’t have the best state economy in the United States, but we certainly are near the top. We won’t stay there long, however, with the onslaught of progressive legislation we’re seeing in the Capitol these days.

 

The key takeaway is that Colorado is ranked 17th in the ALEC ranking for Economic Outlook, far ahead of the nearest state of Massachusetts, ranked at 28. The rest of the states offering paid family leave (PFL) are ranked as the worst states in the Union, with California, New Jersey and New York ranking 47, 46 and 50.

Colorado has by far the lowest unemployment rate of the PFL states, at 2.6% or 5th best in the nation. Except for Washington, with a 0.0% personal income tax rate, Colorado has the lowest income tax rate, and it’s a flat rate, which is the fairest method.

Colorado has the biggest net in-migration number, but it’s interesting how all of the other PFL states have net out-migration over the 2008-2017 time period with the exception of the Pacific Northwest states.

Note also the utilization rates. Rhode Island’s program is at almost 14% utilization. By comparison, the Fiscal Note for SB 19-188 estimated a utilization rate of only 3.5%, which is most likely a gross underestimate. New York’s program is in its infancy yet had an estimated utilization rate of 1.6%. California, with its generous benefits and New Jersey with its sparse benefits, still have utilization rates of 4.8% and 3.2%, respectively. I think it is safe to assume that the more “progressive” a Colorado plan would be, the higher the utilization rate would be. This means higher benefit payouts and more claimants, which will put upward pressure on tax rates, a higher incentive for the program to issue revenue bonds, and higher “solvency surcharges”.

In Year One, by the author’s estimation, FAMLI would have been a $2 billion program. And while the proponents will be talking about all the wonderful benefits, they play down or ignore the funding side: taxation and borrowed money. The table below shows what the impact of SB 19-188 would have been had it passed in its original form – and what it would have done to YOUR paycheck.

Colorado cannot afford this progressive fantasy.

 

The Moral Case Against FAMLI

The proponents of FAMLI will try to claim the moral high ground to defend this program, saying that people need help when certain life events happen, like having a new child. Or caring for an aging parent. Or recovering from an illness. They will go in committee and bring people with truly heart-wrenching stories to try to convince lawmakers this program is not only necessary, but a moral imperative. They will say that it is government’s job to create a program so that people can get help.

Except it’s not.

Morality, in the context of public policy, is that which promotes human flourishing. Morality is the protection of our right to self-ownership, and the corollaries of that right: Life, Liberty and the protection of property.

Using the argument of “need”, anyone can walk up to anyone else, put a gun to their head, and say “Give me your money. I need it.” Is that moral? No, actually it’s aggravated robbery, which in Colorado is a class 4 felony.

In the case of paid family leave programs, proponents say that their “need” trumps everyone else’s right to keep the money they earn, which is their property. It’s simply asking the government to not only legalize armed robbery, but to act as the actual armed robber.

Under the principle of self-ownership, which is intrinsic to us as human beings, we own the product of our minds and our productive labor. Using the force of government to deprive us of what we earn is immoral and wrong. Saying your “need” gives you the right to my earnings and property is not just immoral, it’s evil.

People have been coping with life events like new babies (God bless them), sick and aging parents and family members, and others for as long as humans have lived on this planet. People cope with these events by saving money and PTO, by doing without things for periods of time, by asking friends and family (and churches and private charities) for help. Some are more able to cope than others, this is true. But nobody has a “right” to somebody else’s earnings or property based on their “need”.

Say NO to FAMLI

By now, we’ve seen that paid family and medical leave programs are only offered in a handful of states in America. We’ve seen that those states are mostly doing poorly economically and more people are leaving those states than moving to them (with two exceptions). We’ve seen that paid family leave programs create significant burdens on employers and probably contribute to higher unemployment as well as creating disincentives to hire women.

There is not a single government program in history that has stayed within the estimates, budgets and boundaries that the proponents used to create it. Government programs, especially those involving redistribution of earnings, only grow and become bloated, wasteful and prone to fraud and misuse of funds. There is no reason to believe that a FAMLI program in Colorado would be any different.

Colorado cannot afford FAMLI. If such a program is enacted into law, over time, our state will suffer economically. We will join the ranks of the economically disadvantaged states, and people will wonder what happened to the Colorado they loved as they’re packing their boxes and moving away.

Don’t let it happen here. Stand strong against FAMLI. Let everyone know that you oppose it and tell every single representative and senator under the Gold Dome to vote NO. It’s YOUR money. It’s YOUR life.

 

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