The Perfect Storm

Colorado’s state government, controlled by progressive Democrats in the House, Senate, and Governor’s mansion, is heading toward a fiscal storm of unprecedented magnitude.

Between the government’s response to COVID-19 shutting down Colorado’s economy, the progressive wish list of ever-increasing government programs and expenditures, the hostility to the oil and gas industry and radically reduced tax revenues, Colorado governments and especially the state legislature are facing some tough choices.

The coronavirus came to Colorado in early March of 2020. As the number of cases mounted, the government concern about it mounted as well. On March 11, Governor Jared Polis (D) declared a state of emergency.  On March 16, the governor issued Public Health Order 20-22 which ordered certain “non-essential” businesses to close. On March 26 he issued PHO 20-24 which ordered Coloradans to “stay at home” except to purchase essential supplies or work in “essential businesses”.

As a result of these orders, Colorado’s economy – formerly one of the strongest in the country – went into a nosedive. Unemployment claims surged to over 451,000 claims since early March, representing over 14% of the state’s workforce. Indeed, the state unemployment fund – which is funded through “premiums” paid by employers and borrowing money – is expected to run out of funds by July, with the state government planning to borrow money from the federal government to continue to pay benefits. It’s highly likely that the state could raise premiums or impose a “solvency surcharge”, putting even more financial pressure on businesses across the state.

While we cannot foresee the full extent of the damage to the state’s business community yet, we do know that many businesses including some iconic Denver names are closing their doors forever. Clay Markwell, owner of Scratch Burrito told The Denver Post “We fought as hard as we could and realized that having a solvent business would not be possible…Our sales have been cut down by 52 percent, and in an industry where people run on single-digit margins, the math just doesn’t add up.”

More Government Isn’t The Answer

As I’ve observed social media traffic since the inception of the pandemic, I’ve noticed that progressives are all too eager to have elected government officials like Jared Polis and unelected bureaucrats like the Executive Director of the Tri-County Health Board issue government “orders”, “mandates”, “directives” and “restrictions”. It truly makes no difference if any of these are allowed under the law and the Constitution and the progressives are giddy with glee at the expansion of government’s power and scope and the tanking of the economy (which they think will hurt President Trump’s re-election prospects).

And, because this is the way they think, we see renewed demands for everything from paid family leave to expanded unemployment to demands for all mail voting. In fact, not being content with the $2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES Act), the Democrats in the United States Congress have passed a $3 trillion bill – a 1,800-page abomination called the “Heroes Act”. This cynically (and completely inappropriately) named act contains $1 trillion in handouts for state, local and tribal governments. It contains another round of direct payments to individuals of up to $6,000 per family and includes payments to undocumented immigrants. Representative Chris Stewart (R-Utah) called it “nothing but a socialist wish list”.

[Sidebar: It’s worth remembering that the federal government does not create wealth. It may print money, but it doesn’t create the value behind the money. All government expenditures are funded in one of two ways: by taking money from productive citizens BY FORCE or by borrowing. This is why we have a $25.2 trillion national debt and our nation is heading toward bankruptcy.]

We’ve also seen activists demanding the government impose rent and mortgage freezes and moratoriums. While it’s certainly a problem for someone who has lost their job through a governmental action, the government has no power to interfere in contracts between renters and landlords or mortgagors and mortgagees. It also has no power to interfere in the property rights of the owners of rental properties. In fact, one of the proper and legitimate functions of government in our constitutional republic is the PROTECTION of property rights.

Nevertheless, eight United States House Democrats led by Ilhan Omar (D-Minnesota) and Alexandria Ocasio-Cortez (D-New York) have introduced the Rent and Mortgage Cancellation Act which would vastly degrade property rights in this country. Under the bill, a government “relief fund” – using taxpayer money – would be established in the Department of Housing and Urban Development (HUD) to cover landlords and mortgage holders to cover losses from cancelled payments. That’s the shot. Here’s the chaser: Those who participate would need to agree to several governmental restrictions, including agreeing not to raise rents for five years, and to give tenants a 10% ownership stake in the property!!

Hostility to Oil and Gas

One hallmark of the progressive Left is their unreasoning, childish hatred of the oil and gas industry. After the defeat of Proposition CC in November 2018, the newly elected progressive majority in Colorado’s General Assembly rammed through a highly restrictive bill aimed at the oil and gas industry in Colorado.

Senate Bill 19-181 was introduced on March 1, 2019. It was drafted without any stakeholder input from the industry, Colorado consumers or others. It was debated and passed in about a month and signed into law by Governor Polis on April 16, 2019. SB19-181 redefines the Colorado Oil and Gas Commission in an industry-unfriendly way. It expands the power of local governments to regulate oil and gas operations and monitor facilities. It makes it more difficult to obtain “pooling applications” and enacts new, more stringent emissions rules.

As a result, before the coronavirus hit, it was already beginning to be more difficult for oil and gas companies to operate in Colorado, putting financial pressure on operators and lowering severance tax payments to the state government. Now, however, due to the virus and the price war between Russia and Saudi Arabia, oil and gas companies of all sizes are under severe financial stress. The Denver Post reports that Colorado producers sought only 21 permits to drill new wells in April, down from 522 in April 2019. Drilling rigs are down and layoffs are widespread.

This has a double impact on state government revenues. As the oil and gas industry contracts, the state receives less in severance taxes (with $15.8 million forecast for FY 2020-21, down from $241.7 million in FY 2018-2019) individual and corporate income taxes, sales and use taxes from economic activity generated by oil and gas workers. It also puts pressure on the unemployment fund as laid off workers file claims for benefits.

Lower Taxes All Around

Due to the government shutdown of the economy, tax revenues – the lifeblood of the state government – have been severely impacted. Less economic activity translates to less sales and use tax revenue. People being laid off or losing their businesses equates to lower individual income taxes. Lower economic activity means lower property valuations, which results in lower property taxes.

In fact, a report prepared by the Legislative Council Staff for the Joint Budget Committee and presented on May 12, 2020 shows some of the dire consequences of the COVID-19 shutdown. The report is worth reviewing in full, but I want to present just one slide here:

This shows a $3.3 billion shortfall. With a 2019-20 General Fund Budget of $12.2 billion (out of a total budget of $32.5 billion), this represents a 27% cut in General Fund revenues for the coming fiscal year. This is significant. This is why the state government is heading toward a “perfect storm” of fiscal disaster.

On the one side, we see increased demand for government benefits – unemployment, rent forgiveness, and the like. On the other side, we see vastly reduced tax revenues, meaning that the government will be unable to fully fund all of these benefits. When the Colorado General Assembly reconvenes, we will see lawmakers facing some really difficult (for them) decisions.

The Ratchet Effect

What we see happening with government growth during this pandemic is a great example of the “Ratchet Effect”. In his book Crisis and Leviathan, economist Robert Higgs analyzes how the federal government has grown since the beginning of the 20^th century. Daniel McCarthy’s review of the book, published in The American Conservative, sums it up well:

“What made Crisis and Leviathan a milestone was the rigor with which it elaborated upon the logic of James Madison’s 1794 warning against “the old trick of turning every contingency into a resource for accumulating force in government.” Other political economists had studied the growth of state power during times of war, depression and general upheaval before, but none had done so as thoughtfully and thoroughly as Higgs. He took special care in describing the “ratchet effect” – once a crisis has passed state power usually recedes again, but it rarely returns to its original levels; thus each emergency leaves the scope of government at least a little wider than before.” [Emphasis mine]

In my view, freedom dies a little every year under normal circumstances via the mechanism of a legislature that meets for 120 days every year to make laws, most of which go against freedom. What I see happening with regard to the government reaction to the COVID-19 pandemic is unlawful and unrestrained growth of government power, with only modest rollbacks once the “crisis” is over.

The Only Answer is to Reopen the Economy

We know that COVID-19 is deadly. There is debate as to exactly how deadly it is. However, many other things are deadly as well. To put it in perspective, the table below shows the top 10 causes of death in 2018.

We can see that heart disease and cancer combined are far more deadly than COVID-19. Yet we as a society continue to make choices that lead to these outcomes including smoking, unhealthy eating, lack of exercise, and the like. Yes, these diseases are not communicable, but influenza and pneumonia are and we don’t shut down the economy because of them.

All of the justifications I heard for shutting down the economy were to “flatten the curve” and avoid overwhelming the health care system.

By many media accounts as of late April (Google search “have we flattened the curve”), it appears that the strategy was successful. Now, government officials – elected and unelected – are talking about “crushing” the curve, and keeping shutdown, “safer at home” and other restrictions in place until there is a vaccine available, which is several months away at best.

Meanwhile, people are losing their jobs, their businesses, their homes and their savings. Experts fear a rise in suicides due to these factors.

It’s clear this state of affairs is untenable and undesirable.

Let’s try this instead: allow free people to open and operate their businesses as they see fit, with proper regard for customer and employee safety.

Let free people choose which businesses to patronize based on their personal risk assessments and the business’ advertised safety measures – i.e. “social distancing”, mask requirements (Yes or No) and whatever else.

Let the market sort it all out, and let people who may be at higher risk from COVID-19 – those over sixty, immunocompromised and with other underlying health issues – continue to manage THEIR risk as they deem appropriate and continue staying at home as much as they can.

Does this mean returning to the way things were on February 29^th? Of course not. Businesses will have risk mitigation strategies in place. People may choose to stay home more or continue with curbside service, take-out and food delivery. But the important thing is that free people will manage to get through this without the involvement or interference of government.

Let’s re-open. Let’s revitalize. Let’s manage our risks as we see fit. It is not the proper role of government to mitigate or prevent every possible threat in our lives.