If all 35 companies approved in 2023 take Colorado up on its offer of a tax credit to move or expand here, they’ll create more than 12,700 new jobs in the state in the next eight years.
The past year’s slate of approved job-creation tax credits is valued at $146 million, or double the amount approved in 2022 — and for twice the potential new workforce. From startups like Alquist, which plans to 3D-print houses in Greeley, to lithium-ion battery manufacturer Amprius Technologies in Brighton and several space- or semiconductor-related firms weighing a move to El Paso County, the new cohort joins more than 300 past awardees that have qualified for $1.45 billion of tax credits and created around 20,000 jobs in 14 years.
But so far, most awards have gone untouched. In a Colorado Sun analysis of the state’s Job Growth Tax Credit, available since 2009, companies have requested $244 million as of 2022. But only about $66.3 million has been used to offset state tax revenue, according to Colorado Department of Revenue and Office of Economic Development and International Trade data. State tax data was only available through 2021, so by the end of 2021, about 5.4% of the total tax credits approved in 14 years had been used. That rate is expected to rise as more companies hire new workers. But many just haven’t met their goals.
“What I really love specifically about the Job Growth Tax Credit Program is it is based on the company’s projections over an eight-year period,” said Sean Gould, deputy director of financial analysis at the state’s Office of Economic Development and International Trade. “And it’s performance-based so some businesses never reach their employment goals that they projected and that’s OK. Then the amount they earn (in tax credits) is much less.”
Public incentives that use taxpayer revenues to support corporations are closely watched by government-accountability organizations like Good Jobs First, a critic of economic development subsidy programs. While the amount redeemed in Colorado job-growth credits is lower than what was approved, that’s still $66.3 million claimed.
“It’s long been our opinion that at a minimum, they (incentives) are too expensive relative to the benefits,” said Jacob Whiton, a research analyst at Good Jobs First. “To the extent that we’d ever think these programs can be effective, it’s about improving job quality and creating better jobs than would have otherwise existed, whether that means higher wages or better benefits. … But it’s all relative to the cost. Even a program that does target high-wage employment and steers it into places where it doesn’t currently exist, that comes at the expense (of) investments in public education in those places, on transit services and whatever the need may be.”
While Good Jobs had concerns with other state subsidies, it called Colorado’s job-growth incentive the one “redeeming aspect” because “job projections and outcomes are well-disclosed for each recipient.”
For growing companies, utilizing incentives is part of due diligence, said Chris Petersen, cofounder of RADICL Defense, a Boulder cybersecurity startup approved last January for a $2.4 million job-growth credit.
“I think every entrepreneur should try to find the most efficient ways to capitalize the business as best they can,” he said. “If there are grants and economic development programs or partnerships that allow them to acquire capital or resources at a lower cost to the business … it’s a very important consideration.”
Petersen had every reason to pick Colorado. It’s where he built his last company, LogRhythm, an IT firm, in 2003. Private equity firm Thoma Bravo acquired a majority stake in 2018 and he left a year later. He still lives in the area. He grew up in Fort Collins and has family here. He’s also connected to the local security and tech community. But his wife was getting tired of cold winters so Florida was considered, too.
He said he hadn’t looked at incentives in the past but felt he had time to do so with RADICL, which aims to provide better cyber defenses for small businesses. However, he’d forgotten that LogRhythm had benefited. In 2016, the company was approved for a $2.2 million credit based on plans to create 74 new jobs. LogRhythm has shown up only once on the list of tax-credits issued, for $84,085 in 2017.
Since getting the tax credit a year ago, RADICL has doubled its staff to 15. Getting to 491 jobs to receive the maximum tax credit may seem like a long shot, but he’s been there.
“It’s hard to say if that’s the goal or not, but that certainly could be the outcome,” Petersen said. “We modeled it after the growth rate of LogRhythm that was realized. At LogRhythm in 2006, I think we were around 10 or 12 people or so, if my memory holds. Eight years later, we were around 500 people.”
Why redemptions are a fraction of what’s been approved
The low amount claimed is partly due to the long process to qualify, state officials said. Companies have 18 months to start and eight years to claim the credit.
Not all applicants make it that long. Some don’t stick around after the Economic Development Commission approves the offer. Or they don’t let the state know their choice. Some who’ve been approved don’t ask for any credit.
And some just don’t make their goals. Comcast Corp., which has received several job-growth awards in the past decade, didn’t take advantage of its latest one, $8.1 million for 635 new jobs at a new call center in Fort Collins in 2016. The facility closed in 2019 and never reached that number, a spokeswoman confirmed.
Others are trying again. “Project 14er,” a company developing better battery storage for vehicles and mobile devices, was first approved in July 2021 but didn’t meet the 18-month deadline to get started. It applied again in November, as “Project Solitaire” and was approved for $7,607,743 in credits if it creates 631 new jobs.
And there are other scenarios like United Airlines, which was awarded a $3,790,995 job-growth credit last February for 240 new jobs. The airline plans to use the credit toward expanding its flight training center in Denver. But the campus isn’t expected to be completed until 2027 so those tax credits won’t be touched for a few more years.
According to OEDIT, 72.8% of the 356 approved companies since 2009 did pick Colorado. But 14.9% have not moved forward or are inactive, 3.7% picked another state and 8.7% are still undecided. Again, not all companies keep the office in the loop.
“We don’t know what the actual (breakage) number is, but we’ve guessed only 50% of the tax credits we issue end up actually offsetting revenue,” said Gould, with OEDIT. “A lot of them expire, especially with capital-intensive businesses. They just don’t pay any state income tax. I mean huge, huge companies, or for that matter, huge companies that have their headquarters here but sell their products outside of the state — they are not going to pay state income tax. And so we can give them a $4 million tax credit certificate for creating 1,000 jobs but if they only have $60,000 in state income tax liability because they sell outside of the state, then most of that is going to go away.”
During the 2000 tax year, OEDIT issued the highest amount of tax credits, at $47.8 million. It fell the following year and was down to $25.9 million in 2022. OEDIT has no idea if companies take the maximum credit because that taxpayer data is considered confidential and not shared by the Department of Revenue.
But Gould said changes are made to existing years depending on when requests are filed. It’s also a complex process to vet new hires, wages paid and other requirements. He said he’s working on a 2021 claim right now.
But the revenue department also saw a decline in redeemed job-growth credits, too. Data lags with 2021 out only this month. The revenue department shows just $10.6 million worth of job-growth credits was used in 2020, or 1% of the total amount the Economic Development Commission has approved to date. In 2021, that fell to $9.7 million. The annual public totals exclude non-resident tax returns due to taxpayer confidentiality on smaller amounts. But in a state auditor’s report, about 2.4% of the job-growth credits in 2018 was from this “composite” group.
Likely, companies weren’t eligible for the full amount, said Derek Kuhn, a DOR spokesman.
“This credit is not refundable, so that means the business must have owed some tax in order for all or a portion of the credit to be applied,” Kuhn said in an email. “Amounts of credit that were awarded but not used in a tax year (for example, if OEDIT awarded $100,000, but the taxpayer could only use $20,000 because they only owed $20,000 in tax) may be carried forward and applied to tax owed in future years subject to the statute.”
In the state auditor’s report in 2022, auditors deemed the job growth incentive “likely had some effect on businesses’ decisions” to pick Colorado, but found that one-third of 210 companies approved between 2014 and 2020 didn’t move or expand here. While 135, or 64%, picked Colorado, 18, or 9%, chose to move forward in Colorado but later canceled their contracts. And 57 companies, or 27%, did not pick Colorado.
The audit acknowledged there’s a lag in claiming credits. With OEDIT issuing between $7 million and $47 million a year from 2014 to 2020, “This suggests that the revenue impact of the credit may increase substantially in future income tax years,” according to the audit.
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Read moreAttracting new companies and adding new jobs to replace those that leave is a responsibility of the economic development office, Gould said. According to OEDIT’s count of the job-growth incentive, 259 companies have moved to Colorado or expanded their headquarters in the past 13 years. By requiring proof of performance before issuing any tax credit, Colorado is more fiscally responsible than other states even if companies don’t claim the credit, he added.
“In every single way, I believe it’s a valuable incentive,” Gould said. “There was one EDC commissioner that said, ‘You know, if you’re going to invite somebody over to your house, you at least got to offer him a cup of coffee or a glass of water,’ and that’s sort of what this is.”
The price of public incentives
Public incentives have been used for years to lure corporations to a region. But splashy packages in the past decade to woo Amazon’s second headquarters or Wisconsin’s $3 billion bid for Foxconn Technology Group’s high-tech manufacturing plant had critics calling public incentives “a race to the bottom.” Those two events in particular created criticism of corporate tax breaks, but really it was just publicizing what happened all the time, said John Buhl with the Tax Policy Center, part of the Urban Institute and Brookings Institution, which analyzes tax issues. Excessive incentives have, though, led to a rethinking of what’s offered.
“We’re seeing some movement to at least do a better job of tracking the results,” Buhl said. “What actual jobs are being created? Are expectations being met? What other independent analysis can we do to at least make sure that we are holding people getting taxpayer dollars accountable and making sure the proper oversight exists.”
Colorado is rated higher than other states when it comes to evaluating tax incentives it offers for economic development, though it’s not among the top 10, Buhl said. According to a report by his previous employer, Pew Charitable Trusts, Colorado landed in the upper half of the 50 states and was “making progress.” The state’s job-tax-credits incentive came about in 2009, with updates made in later years to add some guardrails to reward incoming businesses only if they produce the jobs.
But despite research that typical public incentives aren’t usually the deciding factor for a company’s location decision, Buhl said he doesn’t think they’re going away anytime soon.
“I think we’ve made progress there, but as far as economic development incentives and giving money to specific projects, I think it’s just going to keep going up,” he said. “There’s nothing really to stop it because essentially the only way you can stop it is one state has to unilaterally disarm and say we’re not going to do this anymore. But then their neighbors are going to keep doing it and they’re going to think their neighbors are winning everything.”
Multiple incentives available
Colorado offers more than just the job-growth tax credit to businesses. Strategic funds provide cash to businesses that are expanding or relocating, though they’re required to create new jobs, too. During fiscal year 2022-23, strategic incentives, which require a local match, totaled $6.1 million in cash incentives to fund 1,019 new jobs.
In addition, federal policy, such as the CHIPS and Science Act to attract computer chip manufacturing back to the U.S., has supplemented state support, said Michelle Hadwiger, OEDIT’s director of global business development.
An unnamed company, code-named “Project Hydrogen,” didn’t get the job-growth incentive from the state last month but was approved for $10 million as part of the CHIPS Refundable Tax Credits program. The new credit was created by lawmakers in last year’s House Bill 1260 because federal funding requires a state contribution. Earlier this month, Gov. Jared Polis announced that the company was Microchip Technology, which has an existing manufacturing plant in Colorado Springs and employs about 1,000 people in the state. The semiconductor firm said it would use the $90 million grant from the federal program to expand its fabrication plant in Colorado Springs, hire 400 more workers and triple production.
“We see significant investment in large, sticky industrial assets, which make it harder to move out of a state once you have that investment here. Whereas a typical headquarters that relocates, it’s easy to pick up and move overnight and take those employees because they’re butts in seats,” Hadwiger said.
Other awards were part of multiple programs, such as strategic incentives, which require city and county governments to provide a match. Alquist 3D, which specializes in building houses using 3D-printed technologies, was approved in August for $1 million in job-growth tax credits if it creates 79 new jobs in Colorado by 2031.
But it also received a $335,000 award from the state’s Strategic Fund Incentive, which matched a similar amount from the city of Greeley and requires proof that Alquist raised $1.5 million in capital for the project.
“The incentives were certainly a factor in us deciding to choose Colorado,” said Zach Mannheimer, the company’s founder, who’d considered Iowa, where he lives, and Virginia, where the 3-year-old startup already handed over keys to new homeowners of Alquist’s first 3D-printed houses. “But there were two major factors that put it over the top for Colorado.”
The city of Greeley, which provided another $2.4 million in incentives, also hired Alquist for infrastructure projects, such as 3D printing sidewalk curbs and planters, which began in December. But also important, the startup partnered with Aims Community College to create a workforce program. In December, the college announced the $25.5 million Aims Workforce Innovation Center at its Greeley campus. The 45,000-square-foot facility will include lab and office space and train students for careers in 3D construction. Opening date is “early 2026.”
“This is key to us,” Mannheimer said. “To me, providing housing is important but the workforce development opportunities that are going to grow out of this 3D world are astronomical. That’s a big focus for us — how many jobs can we create? … It was really the best package that we could see for what we wanted to do.”