New Democrat Update - April 2007
GROWING COLORADO’S ECONOMY
State Rep. Cheri Jahn (D-Wheat Ridge) is pushing two reforms that will significantly improve Colorado’s business climate. The first intensifies competition among retailers and the other makes the state more attractive for investment.
Late last year, some gasoline retailers in Montrose found a 70-year-old state law which prohibited “predatory pricing,” sued Kroger (owner of King Soopers and City Market) for selling gas below cost and received $1.4 million in damages from a federal court. The lower prices were discontinued across the state.
To grow the economy and raise living standards, Colorado must promote the kind of competition that lowers costs and results in greater consumer choice. In addition to giving working families a break, today’s economy creates another critical reason for maximizing competition - it drives innovation in the marketplace, a key ingredient of economic growth.
The public interest is always better served when consumer choices, not vested interests colluding and using the political or judiciary process, determine the winners and losers in the marketplace. In any business, entrepreneurs and shareholders take a risk. If their venture succeeds, they are rewarded with generous profits. If it does not, they suffer losses, and ultimately may go out of business. Public policy does not intervene to limit profits on the upside, it should not intervene to limit losses (or even closures) on the downside.
With all that in mind, Jahn has proposed legislation to protect the economic interests of consumers over those of the select few. Should her bill become law, retailers will be allowed to sell products below cost. Companies could still be prosecuted if they intend to use unfair pricing as a means to monopolize the market.
More competition and lower prices will mean higher real wages for working Coloradans. Just as important, it will preserve the rights of consumers to choose the kind of economic transactions they want.
Promoting competition and battling counter-productive forms of protectionism is also the fair thing to do. Shielding businesses from competition at the expense of consumers, many of them low-income individuals, is protecting the wrong group.
In addition to promoting more competition, Jahn is considering another reform that promises to make Colorado a better place to do business. Currently, companies that have presence here and in other states determine their corporate taxable income based on the portion of business they do here and in each other state. In Colorado, that portion is calculated by a complex combination of the company’s sales, property and payroll.
When property is included as a part of the calculation, that is effectively a tax on capital investment. When payroll is included as a part of the calculation, that is a tax on jobs. It is an economic fact of life - anytime something is taxed, expect to get less of it.
Her proposal would eventually allow qualified companies to apportion their taxable income solely based on the percentage of sales generated in the state. If neither capital investment or payroll is used as a basis for taxation, Colorado is sure to get more of each.
That’s an excellent formula for a healthier economy and many more employment opportunities.
KEEPING CONSUMERS IN CHARGE
Prior to 2003, Colorado had a “no-fault” auto insurance system. For 30 years, each driver involved in an accident paid his or her medical expenses from their own insurance, which was designed to reduce the number of lawsuits filed by motorists against each other. Many thought that squeezing litigation costs out of the system would help keep the cost of auto insurance low for consumers.
Unfortunately, the law of unintended consequences kicked in. Over time, the legislature repeatedly added legally mandated coverages that paid for many costly and unnecessary medical treatments - without realizing any savings from less litigation.
Compared to other states, Colorado motorists were required to purchase the third most expensive medical benefits package in the country - coverage that often was not needed, wanted or affordable. The large majority of drivers who already had health insurance were unnecessarily required by law to pay for another medical policy.
All of that cost Colorado motorists dearly. In 2002, the state had the 8th highest premiums in the country, according to the National Association of Insurance Commissioners. Rates were climbing at a pace nearly double the national average of eight percent.
Those high premiums also motivated many Coloradans - an estimated one-fourth of all state drivers - to violate the law and avoid carrying auto insurance. Other incentives to maximize the number of people with insurance were also upside down.
If hit by an insured driver, uninsured motorists could sue and get compensation from the insurance company of the insured. However, if an uninsured motorist hit an insured one, the insured got nothing - unless he or she had paid an additional premium. No-fault was effectively rewarding those who avoided purchasing insurance!
The legislature replaced that deeply flawed system in 2003 with one that provides consumers with more opportunities to pick and choose the coverage that makes the most sense for them - based on what they need, want and can afford. Those who want to purchase additional medical insurance as part of their auto insurance policy still can (each driver is still required by law to purchase liability coverage to protect their personal assets). Just as important, it holds responsible motorists accountable - the insurers of those who cause the accidents now pay the bills.
The results have been impressive. Empowering consumers with coverage choices, combined with intensified competition from 25 new car insurance companies that have entered the market since the end of no-fault, have turned double-digit rate increases into double-digit rate decreases. Premiums in the state are now much closer to the national average.
Lower costs and tougher enforcement have reduced the number of uninsured motorists by over 20 percent, according to state government. Consumer complaints are down by more than 50 percent.
This more streamlined system, along with the ever-rising cost of emergency medical care has yielded one unfortunate result. Many trauma care providers, especially in rural Colorado, are hurting financially. That has prompted some to call for bringing the old no-fault system back.
That is like using a sledge hammer to kill a fly. Instead, lawmakers should consider a more targeted strategy - providing subsidies to those trauma centers that need the help. The state could get the money from increased fines for speeding and driving while intoxicated - which would further encourage safer driving on Colorado’s roads and put more downward pressure on auto insurance rates.
Democrats and everyone else should resist the political pressure coming from those special interests who benefitted from the old system’s overly-loaded coverage package. Today’s reduced premiums have meant extra cash in the pockets of middle-class families and more financial protection for those lower-income folks who can now afford the coverage.
Colorado should keep it that way.