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Economy

Corporate incentives used to draw companies to Colorado back at pre-pandemic levels

About 80% approved for the job-creation incentives end up calling Colorado home but an estimated 50% never cash in on the tax credits.

PteroDynamics patented plane has wings that fold for a smaller footprint. They also can vertically take off and land -- a category called VTOL. The company left California and moved its headquarters to Colorado Springs in July 2021 because of the available talent and access to suppliers, among many other reasons. It won a contract with the US Navy to provide autonomous deliveries. (Provided by PteroDynamics)
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As some businesses cratered during the pandemic, others not only thrived, they expanded — and moved to Colorado. 

That included vertical-landing aircraft maker PteroDynamics, which touched down in Colorado Springs in late July. Months earlier, the California firm was finalizing a contract for its autonomous aircraft with the U.S. Navy. The deal made CEO Matthew Graczyk realize he’d be hiring rapidly soon and began looking for a location that supported expansion. 

“We did a nationwide search,” Graczyk said. “We hired a company that specializes in this kind of thing for aircraft companies and we looked at many factors including the local economy, cost of living, quality of life, proximity to supply chain vendors, proximity to talent that we can hire, especially in the engineering side.” 

PteroDynamics patented plane has wings that fold for a smaller footprint. They also can vertically take off and land — a category called VTOL. Here is one of its autonomous aircraft, wings folded. (Provided by PteroDynamics)

Graczyk’s list went on. But he pointed to another factor: $2.5 million. That’s how much PteroDynamics could receive from the state of Colorado if it does hire 186 new employees who make an average of $120,645 annually.

“As part of our selection, a key component there was that we were awarded a significant amount of money from the state of Colorado that we earn as we grow our employee base,” said Graczyk, who estimates the company will be at 21 employees by the end of 2022, up from three. “It’s a big number. It’s over $2.5 million if we achieve all the hiring that we expect to do, which we think that we will.”

PteroDynamics patented plane has wings that fold for a smaller footprint. They also can vertically take off and land — a category called VTOL. The company left California and moved its headquarters to Colorado Springs in July 2021 because of the available talent and access to suppliers, among many other reasons. It won a contract with the US Navy to provide autonomous deliveries. (Provided by PteroDynamics)

By state law, Colorado’s economic incentive program only provides payroll tax credits to approved companies that add jobs at wage levels at or above area annual average wages. The strategy seems to be working as incentives offered to companies this year are back to pre-pandemic levels. The Economic Development Commission approved 34 awards for the state’s Job Growth Incentive Tax Credit program this year, which is more than double the number in 2020. It’s also 20% more than in 2019. 

“During the pandemic, it wasn’t like all the business dried up,” said Jeff Kraft, deputy director for business funding and incentives at the state’s Office of Economic Development and International Trade.”Our pipeline continued pretty steadily.”

According to data shared by OEDIT, about two-thirds of the companies awarded incentives picked Colorado, with another 10 undecided. That’s up from 2019 when 28 were approved and 20 picked Colorado but five chose a different state.

“But of the 88 that went through the EDC starting in (July 2018) through today, 64 have chosen Colorado. There’s another 16 that are pending so they could go either way. And there’s another eight that picked other states,” Kraft said. “Historically, we think we’ve got an 80-plus percent acceptance rate for people we offer incentives to and go all the way through the process.”

It’s not just about incentives

While there’s been criticism about whether states should even offer incentives (there’s even an organization that tracks this nationwide), Kraft said Colorado’s corporate incentives are based on performance, so companies often must consider other reasons why Colorado is right. The top reason is usually available talent, along with lifestyle amenities and affordability, at least relative to costs on either coast.

“Everyone has incentives and our incentives have historically been modest,” Kraft said. “Site selectors will keep you off the list sometimes if you don’t at least have some incentives because they’re paid by generating incentives. At least modest incentives bring someone to the table, but you don’t necessarily need to have the biggest incentives. It’s sort of part of a whole mix of different value dimensions.”

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There’s a whole industry of site selectors who vet potential locations for growing companies, said Adam Bruns, managing editor for Site Selection magazine. Scouting the nation didn’t let up during the pandemic.

“Site selection is an ongoing corporate activity that includes investments made when companies are consolidating as well as when companies are rapidly growing,” Bruns said in an email. “As you might imagine, consolidations have occurred during the pandemic, but at the same time, companies have been more cognizant of either reshoring or ‘right-shoring’ manufacturing and other activities in order to diversify their site portfolio and reduce supply-chain risks. They’ve also been ramping up projects in the logistics space. So things tend to balance out in terms of the project numbers.”

But incentives are not as important as they might seem, at least not anymore, Bruns said. 

“It’s a question we ask every year as part of our Business Climate rankings published in our November issue,” he said. “Incentives don’t even make the top 10 though it must be stated that several of the top 10 factors are areas that many incentives programs can help — infrastructure or custom workforce training, for example.” 

Site Selection magazine surveys its audience regularly and asks what criteria matters the most when it comes to recommending a location to a corporation interested in moving its headquarters or expanding operations in a new place. Incentives doesn’t even make the top 10 list. (Site Selection 2021 Business Climate Rankings, November 2021)

Regions that invest in infrastructure to prepare for population and corporate growth also topped the list for corporate moves, with Canada leading the way globally and Texas in the United States, according to Site Selection’s Conway Projects Database. That aligns with Texas being one of the more popular states during the pandemic for corporate relocations, which included Tesla, Oracle and Hewlett Packard Enterprise

Colorado, which saw housing prices skyrocket in the pandemic, didn’t make the top 20 on the infrastructure list. But the state’s social-minded regulations, like the Equal Pay for Equal Work Act requiring sharing wages for job openings, is still important to some companies that are finding themselves adopting more sustainable business practices.

“Even as some company leaders might balk at how such policies could add to their cost of doing business, those same companies are more actively implementing policies that would count those same social-justice-minded policies as positives,” he said. “Colorado continues to rank well in sustainability too, tying for 10th in our annual Sustainability Rankings.”

Not all are eligible, or claim the award

In Colorado, not every company is even eligible or gets approved by the commission. Some don’t make it through the OEDIT vetting process either because the pay is too low or the projects are not deemed competitive with other states. Kraft said the number that don’t make it through “is substantial.”

Getting an incentive is a tedious process that requires approval from the state Economic Development Commission and a signed contract. Some don’t even bother looking for the help and move here anyway. Most notably, controversial data-mining firm Palantir Technologies left Silicon Valley last year, quietly  moving its headquarters to Denver, sans state incentives. 

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To be eligible for the job growth incentive, companies must pay at least the area’s average annual wage or more. For Denver, that’s around $71,000, according to Bureau of Labor Statistics estimates. That often puts a qualified company’s workforce in the upper half of a region’s income, Kraft said.

They also seem to be companies that did well in the pandemic, like technology, aerospace, and advanced manufacturing firms. 

“A most frequent company type would be a software-as-a-service company from California moving here,” Kraft said. “Those kinds of companies continued to do well for sure during the pandemic, so it was sort of a pretty steady flow.”

A handful of aerospace firms joined PteroDynamics in calling Colorado home, including Orbit Fab, which builds a refueling tool for satellites that often become obsolete when they run out of fuel. Orbit Fab, which lists job openings in Broomfield, is eligible for $4.6 million in tax credits if it adds 196 jobs that pay an annual wage of $95,867.

Two Australian technology companies — FileInvite, a digital document collection tool, and consumer financial site Finder, — were approved for $2.3 million and $1.7 million in tax credits, respectively. They could add 342 jobs to the Denver area. 

Years of offering incentives to tech companies to get them to move to Colorado has also made the state stand out for science and tech related jobs. Colorado was recently named the top state for STEM job growth by RCLCO, a real estate consulting firm.

But it’s not just tech. Incentives are offered to other industries as long as they meet the minimum criteria. Online wine seller Naked Wines told officials that it was searching for a “lower cost than the Bay Area.” It received a $4.3 million award to bring 251 jobs to Denver, though many are tech related

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The incentive is also available to companies in Colorado but looking elsewhere. Epicurean Butter in Federal Heights was scouting for expansion locations in South Carolina and Tennessee because those areas offer “lower-cost markets for hiring and for real estate relative to Colorado.” It decided to stay in Colorado and moved to Thornton — and will get $960,840 in credits to add 82 new jobs.

But one pandemic trend that won’t help the applicants is those with remote workers outside of Colorado. Employees must be Colorado residents in order to be eligible for the state income tax credit, which is equal to 50% of the federal payroll tax called Federal Insurance Contributions Act. An incentive for remote workers, called the Location Neutral Employment Incentive, is also available but the jobs must be located in rural areas of Colorado.

Of course, plans and economics do change. Not all companies claim the credits, which can be difficult for OEDIT to determine since companies can request them for several years, Kraft said. Other companies just don’t meet their goals.  

Back in 2011, the state, along with Aurora and Adams County, offered General Electric $28 million to build a solar-panel manufacturing plant in Aurora that would need 355 workers. But GE abandoned the effort two years later, and laid off 50 workers when it shut down an Arvada research center, The Denver Post reported at the time.

Some companies that go through the process move here and don’t ever make a claim, Kraft said. He estimates that about 50% never claim the tax credit. 

Solar company, SMA Solar Technology, closed its Denver manufacturing plant down and laid off 220 employees in 2016. While SMA had gone through the incentive process back in 2009 and was awarded $1 million, it never asked for the money, officials said at the time the plant closed.

“Some of them come in and never get the contract signed. Or once they sign the contract, they don’t ever do the reporting,” Kraft said. “And since we never give them anything up front, if they don’t report and show us they created the jobs and hire them for a year and give us data on the wages, they never earn the credit.”