One dumb idea that isn’t dead forever

Filed under: Hazlehurst |

For sheer economic illiteracy, it’s hard to beat State Rep. Chris Romer’s gushing embrace of a recent proposal to sell the Colorado Lottery.
Giddily contemplating the prospect of a $2 billion windfall from such a sale, Romer reportedly announced that he’d polled his fellow legislators and every one of ’em had agreed that if they won the lottery, they’d take the lump sum, not the annual checks.
According to the Denver daily newspapers, the Legislature was all set to jump on the bandwagon and whoop through a privatization referendum, until they found out that for arcane legal reasons, it would have to be described as a multi-billion dollar tax increase if put on an odd-year ballot.
With that, Romer temporarily abandoned the idea, promising to bring it up next year.
“I may be a rookie, but I’m no fool,” he was quoted as saying.
Well, maybe not, but let’s examine the proposal.
There’s a big difference between state revenue streams and lottery payouts.
Lottery payouts have a defined payout period, usually 25 years. If you’re lucky enough to win, you’ll base your payout decision on your age, prevailing interest rates, present financial situation, comparative rates of taxation, expected investment returns, etc., etc. These are quantifiable — any competent investment adviser can prepare a simple spreadsheet showing the consequences of either decision.
Maybe you should take the lump sum, maybe not.
But selling the lottery is a sucker bet, one that will come up snake eyes for the state.
Since the lottery was instituted in 1992, its annual earnings have increased steadily, if not spectacularly. It’s a sleepily managed state monopoly — one which, with better, more interactive products and shrewder marketing, could expand its earnings substantially, judging from the experience of other states.
These earnings will continue indefinitely, not just for 25 years. And unlike mere mortals, states don’t die. Colorado will be here 10, 20, a hundred years from now — and future Coloradoans will still be gambling away the rent money.
Gambling, like drinking, might not be socially desirable behavior, but we humans have enjoyed it for millennia, and it’s not going to disappear. The revenue from a state gambling monopoly is as sure as death, and surer than taxes.
No wonder that private equity sharks are ready to make a deal with the state. They’re licking their chops about the prospect of owning a state-enforced monopoly with unlimited growth potential, no competitors, no expiring patents and little possibility of technological obsolescence.
And let us be just a little bit realistic when considering the fate of the $2 billion-plus that Colorado might get from the private equity boys. The legislature will make brave noises about creating a “trust fund” or a “rainy day fund” with part of the loot, but that won’t last.
As soon as our intrepid pols can agree on worthy projects, they’ll fund ’em. So in two, five, 10 years at the outside, it’ll all be gone.
Like spendthrift heirs wondering where the inheritance went, we’ll be out of luck. And as for Romer and his fellow suckers, they’ll be out of politics, maybe even lobbying the legislature to raise taxes to make up for the “unanticipated shortfall.”
Meanwhile, our feuding politicos under the Capitol Dome are fighting about Gov. Bill Ritter’s complex proposal to freeze property tax rates, thereby increasing local public school funding for most school districts. Republicans say it’s a tax increase; Democrats say it isn’t. Ignoring complaints from the GOPsters (who had backed an identical plan in 2004) the Dems passed it. Is it a tax increase?
I dunno — and I don’t think that there’s a definitive answer to that question, nor do I think that it matters.
It’s just another effort to patch up our state tax system, an absurdly complex, irrational, self-contradictory and inefficient structure that might have been designed by Rube Goldberg.
Think about it. Thanks to multiple voter-approved initiatives and referenda, the Colorado Constitution mandates both increasing funding for K-12 education (Amendment 23) and decreasing tax collections (Taxpayers Bill of Rights). The Gallagher amendment fixed the ratio between residential and commercial property tax collections, thereby sticking it to commercial property owners.
Other initiatives have earmarked specific revenue sources to benefit the popular kids on the block, like historic preservation and open space. The unpopular kids — higher education, water storage, passenger rail — have to fight over what’s left.
And even if you can maneuver past a quarter century’s worth of misbegotten initiatives (by, for example, passing Referendum C a couple years ago), the system’s still a mess.
It might have been well-adapted to 1950s Colorado, when the dominant economic sectors were tourism, retail sales, agriculture, ranching and mining, but in today’s vastly different economy, it’s antiquated and senseless.
Entire segments of the economy are scarcely taxed, while others are grossly overtaxed. Services are largely untaxed, while anything tangible draws tax collectors like flies, encouraging buyers and sellers alike to migrate to the tax-free Internet.
Is the system fair? No. Can it be fixed? Doubtful.
Any legislative fix, for example, would require scores, even hundreds, of different actions, all of which would have to be approved separately by voters. Thanks to the “single-subject” requirement, they couldn’t all be bundled together for a single up or down vote.
Clearly, voters wouldn’t even read hundreds of referred constitutional amendments, much less vote for them.
The only other systemic fix involves a Constitutional Convention.
By law, the legislature may authorize such a convention, by a two-thirds vote of both houses. Then the voters have to approve the call. If approved, convention delegates are elected, two from each senatorial district.
Delegates then meet for a specified period, agree on any amendments, and then Colorado voters decide whether to accept it or reject the updated constitution.
That’s going to happen? Good luck!
And if by some miracle it did, such a convention would become a lobbying free-for-all, a bizarre circus where every special-interest group in the state would work to protect existing tax breaks or get new ones. And if the delegates came up with a fair, reasonable, and logical document, would it survive the fierce anti-ratification campaigns that would surely be mounted against it?
Probably not, so we might as well resign ourselves to the status quo.
It’s a dumb, illogical system, and it will continue to spawn dumb, illogical fixes, like selling the lottery and re-jiggering property taxes. So maybe Romer isn’t such a dumbo after all, just a hapless would-be handyman, trying to fix the unfixable.
Thirty years ago, my westside neighbor parked a ’57 Chevy in his side yard, intending to restore it. It’s still there, decaying gradually, sunk to the axles in the yielding clay soil.
I asked him when he was going to begin the restoration.
“I don’t know, but I’ll get around to it soon,” he said. “Maybe this summer.”
Smart guy. Don’t admit failure, but don’t try to make a bad situation even worse.
Romer and Ritter could learn from him.
John Hazlehurst can be reached at John.Hazlehurst@csbj.com or 227-5861.