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House of subsidies, part three

Note: This is the third of three stories outlining The Colorado General Assembly鈥檚 attempts to spur economic growth by giving tax credits to businesses and industries.听听CU News Corps found that many of the programs put in place don鈥檛 always work as well as lawmakers intend. Today鈥檚 focus: HB14-1014, the modification of the Job Growth Incentive Tax Credit. A fourth story looks into federal crop insurance.

The job growth incentive tax program isn鈥檛 something lawmakers came up with just this year. In fact, it was implemented in 2009, and it allows businesses that created and maintained at least 20 net new jobs in any given year (five if they are located in an enhanced rural enterprise zone) to receive a tax credit equal to 50 percent of what the business paid as payroll taxes to fund social security and health care measures for its new employees.

The bill passed both the House and the Senate without major opposition. House legislators added an amendment that requires the OEDIT to take new steps in finding ways to evaluate how well the most sought-after business incentive is actually working, but the Senate deemed that portion unnecessary and discarded it. Either the House or the Senate version of the bill will become law once Gov. John Hickenlooper signs it within the next month.

This year鈥檚 amendment extends the period in which the tax credits can be claimed from five to eight years and changes the bill鈥檚 language, requiring the tax credits to be only a 鈥渕ajor factor,鈥� rather than the only one, in a business鈥檚 decision to locate or retain in Colorado instead of moving to another state.

The bill also lowered the minimum wage-match requirement of a job to qualify for the tax credit from 110 to 100 percent. That means the wage for the newly created job must at least match the average yearly wage of the county in which the business locates. That way, lawmakers hope, companies will bring more medium-paying jobs to Colorado instead of providing opportunities solely for highly-skilled job seekers.

鈥淥ur economy is slowly getting better, but to get back to a robust state, we need to bring companies and jobs to Colorado,鈥� said state Rep. Tracy Kraft-Tharp (D-Arvada), one of the bill鈥檚 co-sponsors, during a break from a legislative session on April 17.

While the approved bill was among Gov. Hickenlooper鈥檚 top priorities in this legislative session, there remains considerable resistance against the measure.

that the bill could cost the state an additional $55.2 million within the next 14 years.

University of Colorado Boulder economist Jeffrey Zax is convinced that鈥檚 money thrown out of the window. He questioned the government鈥檚 general ability to create jobs.

鈥淚s there a net gain for the economy?鈥� Zax asked tax credit supporters, only to go on and answer the question himself. 鈥淎bsolutely not. On the contrary. What you did is you put companies who didn鈥檛 need it at a heightened competitive advantage, and there are probably companies elsewhere who are disadvantaged as a consequence and are suffering. But that second level of analysis just escapes everyone in the public sector.鈥�

Kraft-Tharp disagrees.

鈥淥ftentimes, tax credits alone aren鈥檛 successful,鈥� she admitted. 鈥淏ut they are a tool in the toolkit when it comes to the final selection process to give [companies] that final push.鈥�

The state representative said the program already has created 12,000 jobs since 2009.

According to the, in the 2012-2013 fiscal year 16 projects received approval for up to $46 million in tax credits associated with the creation of 4,784 jobs.

Among the funded corporations was Woodward, Inc., an aerospace systems designer, manufacturer and service provider. As the company was looking for a location for its new world headquarters, the EDC approved a $7.26 million tax credit and anticipated a $200 million investment and the creation of 971 net full-time jobs in return. In August 2013, Woodward announced it would build its new headquarters in Fort Collins.

But Carol Hedges said the sole purpose of job incentive tax credit programs was for politicians to appeal to voters.

鈥淚 have spoken to several legislators about these bills, and I have gone into offices and said, 鈥楾his is a dumbass idea, it doesn鈥檛 accomplish what you hope it鈥檚 going to accomplish, it doesn鈥檛 say anything to address the concerns that you say you are concerned about鈥�,鈥� she said.

鈥淭o a person, they have said, 鈥業 understand that. But jobs and the economy is the number-one issue on the voters鈥� minds right now, so we know that these are dumb, we know that these are sending money to the wrong people, but we need to send a signal to the voting public鈥�.鈥�

听found that Coloradans鈥� chief concern remains the state of the economy, which provided fertile ground for tax credit incentive proponents.

听senior fellow Linda Gorman doesn鈥檛 want to hear any of it.

鈥淐orporate subsidies encourage a corrupt government, and that is never good for a democracy,鈥� Gorman said. 鈥淭hey take money from productive people, filter it through the government and give it away. The government shouldn鈥檛 pick market winners and losers鈥�

Zax agrees with both Hedges and Gorman.

鈥淗alf the bills have attached to them, 鈥楾his will create jobs鈥�,鈥� he said. 鈥淎nd this phrase is meaningless, it鈥檚 a flag-waving exercise, putting a bumper sticker on it. It鈥檚 a way to say, 鈥業 care about it, I care enough about it to utter these words.鈥� Whether or not [legislators] care enough to design policy that will actually do that is a wide-open question, and the answer is really, 鈥榥o鈥�.鈥�

The CU economics professor labeled the tax credits government favoritism. 鈥淭hese payments are completely unjustifiable, except as payoffs to political supporters,鈥� Zax said.

His allegations caused some substantial anger on the other side of the aisle.

鈥淵ou can call everything we do in government favoritism,鈥� state Rep. Max Tyler said. 鈥淲e decide what we think works best for the state of Colorado.鈥�