A new report released today by the REMI Partnership, which includes the Colorado Association of REALTORS, the Colorado Bankers Association, Colorado Concern, Common Sense Policy Roundtable, and the Denver South Economic Development Partnership, analyzes the cost and risk of financial insolvency for Senate Bill 188, the paid family leave bill.
Highlights of the report are below (bold added for emphasis):
While the intentions behind the program may be good, the assumptions that support the measure are questionable, raising the risk of a costly failure of the program.
There is reason to believe the authors and supporters of SB-188 have underestimated the potential utilization rate in the taxpayer-funded family leave program, also known as the claims frequency rate (CFR) used by private insurance companies. This is a critical assumption because the number of people claiming benefits under the program drives the total cost of the program.
Rhode Island implemented a similar taxpayer-funded leave program which has a utilization rate 13.7%. But cost estimates for SB-188 depend on a much lower utilization rate, just 3.5%. The same cost estimates, contained in a fiscal note prepared by Legislative Council staff, concede the actual utilization rate could be much higher, up to around 10%. But no cost estimate was prepared for this scenario.
For this report, we examined the likely cost of SB-188 to taxpayers under a range of higher utilization rates… Under a 7% utilization rate, the premiums charged to employees and employers would have to double, from $957 million to more than $1.9 billion.
This would significantly exceed the amount that could be raised by the maximum .99% payroll premium that can lawfully be charged under SB-188.
A budget challenge of this size will not just be felt in state government, it will have broader economic impacts too.
The intentions behind this proposal may be good. But for the program to succeed, it must be based on realistic assumptions about the need for a state-run program, how much that program will cost and where the funds for the program will come from.
There is strong reason to believe the assumptions behind SB-188 are questionable. Left unchecked, the use of these assumptions could set up the proposed paid leave program for failure. The cost of that failure, measured in the hundreds of millions of dollars every year, would be felt across the state budget and across the economy.
There are also legitimate concerns about how much the paid leave program will add to the tax burden of employers and employees in Colorado, since the funds for the program will be taken directly from their payrolls. The additional costs to businesses, and the loss of spending power from employees, could lead to significant job losses and greater job insecurity.
These unintended consequences, along with the impacts of questionable cost assumptions, undermine the good intentions behind SB-188.
SB 188 will be heard this afternoon in the Senate Finance Committee. Click here to view the full list of 70+ public and private entities opposed to the bill in its current form.