In the grand scheme of public subsidies for professional sports teams, the $19,306.19 the state gave the Colorado Rockies in 2013 probably isn’t enough to get worked up about.
Neither is the $948.57 credit claimed in 2014 by a Walgreens for $31,000 invested in a Pueblo pharmacy. Or the $529 McDonald’s received in 2016 through its restaurant in Greeley.
But when upwards of 75% of the state’s land is classified as an economic development zone, a hundred dollars here, a thousand dollars there adds up. And while the vast majority of the 16,000-plus tax credits claimed through the program in the last few years were worth less than $10,000, at least 42 companies have been awarded more than $1 million each in public subsidies through the program since July 2013.
As Gov. Jared Polis and the Colorado General Assembly conduct the state’s first broad review of tax breaks in recent memory, there’s perhaps no program that better illustrates the heated debate over tax incentives than the Enterprise Zone program. The sprawling economic development initiative was designed to spur investment in the state’s most needy areas but has expanded to the point that even some supporters question whether it’s fulfilling its intended purpose.
A Colorado Sun analysis of $223 million in tax credits awarded from July 2013 to June 2018 found that the state is often doling out taxpayer dollars without much evidence that each tax credit is producing economic activity that wouldn’t have occurred without public subsidies. In some cases, the state is also pursuing conflicting goals, explicitly incentivizing renewable energy in order to fight climate change on the one hand, while giving nearly twice as much to the fossil fuel industry that cleaner energies are meant to replace.
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The program has been lauded for lifting up small-town economies and revitalizing run-down urban centers. But it also gave tax dollars to the Colorado Rockies, and continued to subsidize popular bars and restaurants in its up-and-coming Denver neighborhood for years after LoDo had up and come.
And, while it has put money in the pockets of thousands of family farmers, it has given out far more lucrative tax breaks to corporate giants like Walmart, Amazon and Verizon, The Sun’s review of department data found.
The Enterprise Zone program is not the largest tax break the state provides. But its broad scope has made it a top target of state policymakers as they seek to crack down on corporate giveaways in the state’s tax code. The Office of Economic Development and International Trade is evaluating the program at the governor’s request. And state lawmakers told The Sun it’s one they plan to examine closely for possible changes.
An interim study committee met for the first time this summer to begin reviewing the more than $6.6 billion in annual tax breaks on the state’s books. In that context, the Enterprise Zone, worth anywhere from $40 million to $80 million annually in recent years, is a drop in the bucket.
But no matter their size, the sheer volume of the tax credits being handed out begs an important question that state lawmakers are just now starting to consider: Why?
“A question this committee needs to ask themselves is ‘Does Colorado really need to be playing these types of games?’ ” Katherine Loughead, a policy analyst at the conservative Tax Foundation, told lawmakers at the committee’s first hearing in July. “Colorado is thriving.”
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Economic stimulant or corporate welfare?
Created by the legislature in 1986, the Colorado Enterprise Zone’s main purpose is to encourage businesses to invest in economically distressed parts of the state.
And because of how the state legislature defines “distressed,” these economic development zones now cover an estimated 75 to 80% of the state’s geography, according to OEDIT, including nearly every rural community in Colorado. To qualify, a region has to have at least one of three things: 25% higher than average unemployment, 25% lower than average per capita income, or 25% slower than average population growth.
In all, around 17,000 credits were issued to businesses that invested more than $6 billion in capital projects and job training in the five-year period analyzed by the Sun, according to state data.
Still, despite their wide expanse, the zones include only about 20% of the population, which is heavily concentrated along the Front Range.
In that sense, it serves a top priority of top policymakers in both parties: spurring development in rural Colorado, which is increasingly falling behind the state’s booming urban centers.
“The rural folks are, I would say, the staunchest defenders of the program,” said Jeff Kraft, director of OEDIT’s business incentives division. “It’s one of the few tools they have to compete.”
Indeed, small town Colorado is where the bulk of the money flows. In the 2018 fiscal year, the five enterprise zones in the Denver metro area made available $17 million in credits, according to the state’s latest annual report. Businesses across the rest of the state claimed $37 million in that same period.
The vast majority of the tax credits are for investments in business property, but smaller amounts are available for things like job training and hiring. The state also offers a 25% tax credit for contributions to nonprofits or government entities for projects that meet certain economic development criteria.
Greg Thomason, the executive director of the Morgan County Economic Development Corporation in northeast Colorado, said the program was essential to securing the region’s first memory care center at Eben Ezer Lutheran Care Center in Brush.
Until Morgan County created an economic development program of its own last month, the Enterprise Zone credit was the only incentive he had to lure businesses to a community of 28,000.
“Had we not been reauthorized (as an Enterprise Zone), I would’ve taken that as being a huge loss for MCEDC and the work that we do here in Morgan County,” Thomason told the Sun. Until July, “it was the only tax incentive that I could reliably count on.”
The “but for” question
State Sen. Dominick Moreno, a Commerce City Democrat who serves on the study committee, said he thinks the program has had “some level of success” in spurring development in distressed areas. “But moreso,” he says, “I think you just have big corporations in economically depressed areas taking” tax credits.
For example, it’d be laughable to suggest that the $145 tax credit that JPMorgan Chase received in 2016 for investments in a Lakewood bank branch created jobs, or that telecom companies would simply stop providing cellular and internet service in Colorado without the $7.7 million that Verizon, AT&T, CenturyLink and Vaiero Wireless together have received from the program since 2013.
But lawmakers say it’s not clear how you draw the line between economic stimulant and corporate welfare. In tax nerd speak, it’s the “but for” question.
“But for this incentive would this happen anyway? We don’t know,” said Sen. Lois Court, a Denver Democrat who serves on the study committee. “We hear developers tell us when these bills come forward, ‘Well if we don’t have this incentive then this economic activity won’t happen.’
“Maybe,” she said, but it’s hard to know for sure — “which is probably why so many (tax breaks) have been in place forever.”
In the case of Enterprise Zones, economic development officials say it’s not just about convincing companies to invest — it’s where they invest. And tax credits can help convince a company to locate in a distressed area instead of a thriving one.
Kraft points to Denver’s broader LoDo neighborhood — home of Coors Field and the Colorado Rockies — as a success story. Many of the popular businesses there, including Great Divide Brewing Company and Denver Beer Co., received enterprise zone tax incentives in recent years. Now that the area is booming, much of downtown, including Coors Field, has “graduated” from the program because it no longer meets the qualifying criteria for incentives.
“It’s past the tipping point,” Kraft said. “I think the Enterprise Zone program was helpful in revitalizing some of those areas.”
By law, OEDIT is required to recertify the zones once-a-decade, but local administrators also adjust boundaries on an ongoing basis, Kraft said.
Incentivizing renewables — and fossil fuels
For the most part, Kraft says, the program is agnostic on who it benefits, doling out incentives regardless of how big a company is, or what industry it’s in.
As a result, the program touches virtually every part of Colorado’s economy, giving tax relief to almost any business you can think of — farms and ranches, restaurants and breweries, ore mines and steel factories, even yoga studios and pet grooming salons.
But there are a few exceptions to the rule. The state does give special treatment to a handful of industries, the largest targeted beneficiary being renewable energy.
This, too, invites questions about the program’s purpose. On the one hand, the state has provided $27.5 million since 2013 to wind, solar and other renewable forms of electricity through the program, the Sun’s analysis found. But at the same time the state is trying to incentivize renewable energy to cut down on carbon emissions, it gave the fossil fuel industry even more through the same program — $54.3 million in the period.
The largest recipient of any company was Suncor Energy, a Canada-based oil and natural gas giant that received $11.2 million in credits.
Court says it’s a little like “talking out of both sides of our mouth.”
And, she said, it’s not just a matter of renewables vs. fossil fuels. “It’s all of these $7 billion worth (of tax breaks). What are we trying to accomplish? What is the good to the state of not collecting these taxes? That to me is the fundamental question we’re grappling with.”
Moreno says he doesn’t envision using the tax break study to influence climate policy. The big question for him is whether every industry is paying its “fair share.”
Still, when you look at the industries receiving the largest breaks, a fight over climate politics may be inevitable. In addition to the enterprise zones, oil and gas production also received a $272 million property tax credit in the last year data was available.
Another recipient sure to draw scrutiny from the Democratic-controlled legislature? The Corrections Corporation of America, the private prison operator paid by the state to manage some of its inmates, also took home nearly $60,000 in enterprise zone credits.
Sen. Jack Tate, one of two Republicans on the study committee, said he hasn’t examined the enterprise zone program closely enough to form an opinion. And unlike his Democratic colleagues, he doesn’t have any particular tax breaks in mind as a likely target.
When asked for comment through a spokeswoman, Gov. Polis, a Democrat, did not say what changes, if any, he might want to see from the program.
An office spokeswoman issued a statement saying the governor “supports incentives that bring new investment and jobs to rural Colorado and distressed neighborhoods.” Polis is also “looking broadly” at the tax code to “get rid of special interest tax breaks that do not benefit the people of Colorado,” the statement said.
A lawsuit is likely
The state auditor’s office, which is producing reports evaluating each tax break the state offers, hasn’t completed its review of the Enterprise Zone program yet. But the committee later this month is expected to propose the drafting of its first bills, which could tweak or eliminate some of the 39 tax breaks the auditor has reviewed so far.
Legal complications abound.
Under the Taxpayer’s Bill of Rights, legal experts say eliminating a tax break could be construed as a tax increase, which would trigger a vote of the people — something committee members would prefer to avoid.
There’s historic precedent for doing so without an election. The legislature in 2010 repealed a number of sales tax breaks under former Gov. Bill Ritter. But the courts were never asked to weigh in on whether it was constitutional.
“It’s interesting that we’re back in this point in time, because it was not resolved in the past,” said Mike Feeley, a shareholder at the Brownstein Hyatt Farber Schreck law firm in Denver. “There is no guidance right now.”
Historically, though, the Supreme Court has erred on the side of flexibility for policymakers as they try to govern under TABOR’s restrictions. For that reason, said Feeley — a former Democratic lawmaker who is among a group of attorneys challenging TABOR in federal court — “my gut tells me that the court would probably be a little more expansive than what the TABOR supporters would like.”
The courts have provided something of a threshold, ruling in 2018 that the Denver-area Regional Transportation District and a cultural taxing district could make tax policy changes that resulted in a “de minimus” amount of new revenue without a vote — in that case, less than 1% of the districts’ budgets. Moreno says that ruling may serve as a guide for how aggressive the committee will be.
Even if lawmakers can do so legally, don’t expect the state to address its public spending needs by eliminating tax breaks. If the state got rid of all $6.6 billion in tax breaks tomorrow, it wouldn’t enable Colorado to spend any more money, because the government is already collecting as much revenue as it’s allowed under TABOR’s spending cap.
Polis has proposed replacing corporate tax breaks with an across-the-board income tax cut for everyone. But that, too, has never been tested in court. It would effectively raise taxes on some taxpayers in order to reduce them for others.
“I think there may be litigation regardless of which direction we decide to go,” Moreno said.