Prop 103 foes roll out campaign; Tax hike to fund schools at issue
By Ernest Luning
The Colorado Statesman
Opponents of a statewide ballot measure that would raise an estimated $3 billion in new taxes to fund education launched an attack against the proposal this week, claiming it will cost Colorado 119,000 jobs after five years and deal a "crushing blow" to the state's struggling economy.
But backers of Proposition 103 charged that opponents don't understand how to interpret their own data and countered that it's cutbacks to school funding, not higher taxes, that will harm the state's economy.
At the same time, the authors of a study brandished by the measure's opponents cautioned against misinterpreting their economic projections.
With just 45 days until the November election, organizers spoke to reporters at the state Capitol on Thursday to gear up campaigns on both sides of the proposed tax hike.
The initiative would increase the state's income tax rate from 4.63 to 5 percent for five years and bump the state sales tax from 2.9 to 3 percent for the same period, restoring rates that were in effect in the late 1990s. The additional revenue would be earmarked for state spending on education, from preschool through college, although lawmakers would be able to determine how to divvy up the additional revenue.
"Proposition 103, if passed, would be one of the largest tax increases in Colorado history," said former state Rep. Victor Mitchell, a Douglas County Republican, who is heading Save Colorado Jobs, an organization formed to oppose the measure. "Unfortunately, it could not happen at a more inopportune time."
Mitchell held a press conference at the Capitol to preview a campaign he said would spend "whatever it takes" to defeat the initiative, though he declined to suggest how much.
The ballot measure's sponsor, state Sen. Rollie Heath, D-Boulder, said supporters plan to spend about $300,000 on their campaign, which has already spent about half that getting the question on the ballot. Heath and Bell Policy Center president Wade Buchanan spoke to reporters in a nearby hall after Mitchell wrapped up his press conference.
Mitchell – flanked by Republican lawmakers Jim Kerr, Ted Harvey, Kent Lambert, Mark Scheffel, Bill Cadman, Amy Stephens and Chris Holbert – disputed Heath's contention that Colorado needs to raise more money for education following nearly $500 million in cuts to state K-12 budgets over the last three years.
"K-12 is not lacking funding," he said. "K-12 is lacking structural reform."
Mitchell said the state should "fully fund" education "once the system is working properly," but added that he believes it's impossible to know what the right funding level is because public schools don't have enough competition. He proposed vouchers, charter schools, performance pay for teachers and a longer school year as possible fixes for public schools.
"I'm all for fully funding K-12, but I'm not for putting good money after bad," he said.
Primarily, though, Mitchell said Proposition 103 must be defeated because it's a "jobs killer," citing an economic study released in April that predicts a higher tax rate will lead to slower job growth in the state.
The effects of the temporary tax increase would be "significant," Mitchell said, pointing to the results of a study commissioned by a conservative think tank, the Colorado-based Common Sense Policy Roundtable. According to a study conducted this spring by Dr. Eric Fruits, who teaches at Portland State University and runs a firm called Economics International Corp., by 2017 the state could have 30,500 fewer jobs than it otherwise would have if voters defeat Heath's proposal.
The higher tax rates under Proposition 103 "would kill nearly 119,000 jobs over the next five years," says a Save Colorado Jobs release. It's a figure Mitchell used repeatedly during his press conference, though critics say the number counts the same jobs as many as six times and grossly overstates any economic impact.
According to Fruits' study, the state should wind up with roughly 2,556,000 jobs by 2017 but will only have about 2,525,000 – 30,500 fewer – that year if the tax rates under Heath's proposal go into effect. Those numbers are up from the estimated 2,236,000 jobs that exist this year in Colorado, according to figures compiled by the nonpartisan Legislative Council, which Fruits relied upon for his study.
Fruits asserts in his study that higher taxes will act as a drag on businesses, leading to 5,500 fewer jobs next year, compared with what the Legislative Council predicts. The following year, the number of jobs in the state will be 14,300 lower than projected, and so on.
Mitchell and other Proposition 103 foes arrive at the 119,000 figure by adding up each year's projected shortfall, a method the measure's supporters called "just fuzzy, fuzzy math."
"My opponent will tell you we're double counting," Mitchell said. He defended adding up each year's missing jobs as "a compounding effect."
Fuzzy math? But on which side?
But that's not the way the study's chief author says he would interpret the data.
Asked by The Colorado Statesman whether his study shows that Heath's proposal would cost the state 119,000 jobs by 2017, as Mitchell claims, Fruits grew silent for a moment and took a breath.
"This happens every single time," Fruits said with a sigh. "I let my clients do what they want with it. My understanding is, they added it up. To be fair, a lot of people do that."
He acknowledged that different economists treat job numbers differently – with some talking about so-called "job-per-year" – and that he's seen "quite a few instances where they add up all those numbers."
But how does he make sense of the projections in his own study?
"Five years out, here's what the number would have been if we did have the taxes," he said. "Some people then take all those numbers, years one through five and say that's the total deficiency in jobs. It's not the way I like to do it, but a lot of people do it that way," he said.
Put another way, asserting that the study shows Colorado would have 119,000 fewer jobs – on a cumulative basis – through 2017 only makes sense if the state can count more than 14 million "cumulative" jobs by 2017, a number achieved by adding up each year's total employment. (Colorado's population is just over 5 million, according to the most recent U.S. Census figures.)
Fruits also said he wanted to make clear his study doesn't predict Colorado will lose any jobs if Heath's measure passes, despite what Mitchell and other opponents are saying.
"It's not quite correct to call it a job loss," Fruits said. "It is a difference in employment levels. If you don't have the taxes, you'll have one level; if you have the taxes, you'll have another that's lower."
It was a point made by Buchanan and Heath, who disputed Mitchell's claim that the ballot measure would cost the state jobs and accused their opponents of practicing "fuzzy, fuzzy math."
"The numbers they've come up with are really quite questionable and I think it raises a serious question about their credibility," Buchanan said.
"What will cause loss of jobs is not investing in education," Heath said. He said businesses are rightly concerned about finding educated employees and whether the state can support training efforts.
Instead of making projections from iffy assumptions, Buchanan said, voters should look to the state of the economy when Colorado taxpayers paid the same rates as in the Heath proposal.
"The best model for understanding what happened under these tax rates is what happened under these tax rates," he said, pointing out that Colorado's economy was booming the last time the proposed rates were in effect.
"People have not said they're not coming to Colorado because it doesn't have even lower tax rates," Buchanan said. "They have said they're not coming to Colorado because the education might not be so good."
The Fruits study attempts to answer that question using tax rates as a measure.
The study also predicts that – while Colorado's population will continue to swell by an estimated 16,000 new residents annually – roughly 3,500 net fewer people will move into the state every year if Heath's higher tax rates go into effect. That includes both more people leaving the state than would be expected and fewer people moving in. All told, it could mean $218 million in "potentially taxable income" won't show up in Colorado, the measure's opponents said in a statement.
That's according to an economic model that looks at differing tax rates between states, a method the author of that portion of the study acknowledges doesn't account for numerous other factors that lead people to move.
Measuring relative tax rates and economic conditions can explain in the neighborhood of 80 percent of the reasons people switch states, said Randall Pozdena, president of QuantEcon, who prepared the study's section on net migration. "The rest of it we can't explain with those variables alone," he added. He conceded that the condition of a state's education system no doubt influences some migration but pointed out that it's impossible to measure that using the data he had at hand.
"Most people don't migrate," he said, "but what does seem to finally shove people over the edge is comparative employment prospects – no job in Colorado, lots of jobs in Idaho – or if the after-tax money you can take home after working all day long changes."
Still, he counts himself among the share of Oregon residents who aren't swayed by cold, hard finances.
"I live in a state that has the highest marginal tax rate on individuals and, by rights, my study would say I should move. But there are things that offset that – my sons live here, I don't like hot weather," so a move to a low-tax state such as Texas isn't in the cards.
But make no mistake. The Oregon economists conclude in their study that higher tax rates will hamper the economy, discourage job creation and lead to fewer people moving into Colorado, costing the state both revenue and talent it might otherwise gain. Citing economic literature that warns against the "risks" of increasing tax rates, Fruits is clear: "Research demonstrates that doing so slows economic growth, investment, formation of new firms, and numerous other processes necessary to jump-start a weakened economy."
Even so, Fruits told The Colorado Statesman that Heath's measure would have a less dramatic impact than other, more ambitious proposals floated at around the time he conducted his study.
"It's a modest measure," he said, noting that the revenues raised by Proposition 103 probably won't be enough to move the needle much when it comes to school funding. "But, to be honest, the job impacts are relatively modest."
Fruits went on to say he was surprised that the ballot measure's backers hadn't commissioned an economic study of their own.
He said he didn't embark on the study with a conclusion in mind but added that a similar study he conducted in his home state – predicting the effects of a tax hike approved by Oregon voters – has tracked remarkably close to the eventual numbers.
"I had no idea how this was going to turn out – each state is different," Fruits said. "I'm not afraid to disappoint my clients with something they don't want to hear."