April 20, 2012
Nearly 8 percent of Coloradans are unemployed and seeking a job, and with numbers like that it’s normal for policymakers to focus on job creation. However a misguided attempt to create jobs through tourism projects might be made worse by the recently passed SB124. The projects were originally approved with strings attached to limit taxpayer risk and lawmakers seeking to cut those strings aren’t considering the consequences.
In 2009, lawmakers passed the Regional Tourism Act, tasking the Colorado Economic Development Commission (EDC) with providing tax increment financing limited to two large-scale tourism projects for out-of-state visitors per year for the next three years. (Tax increment financing is a public finance tool devised in California, where it was recently discontinued under Gov. Jerry Brown, that allows public officials to fund new projects under the assumption that future tax revenue from the projects will cover initial costs.)
Today, SB 124 would cut the strings by removing the two projects per year cap until officials reach the six project total cap. It’s easy to see why this bill receives bipartisan support in the Legislature. Supporters argue it would lead to job creation, while many Coloradans are seeking employment. They also note it wouldn’t cost more money because the revenue has already been committed.
Conversely, the bill faces bipartisan opposition in the Legislature and from the Governor’s office. Officials at the Colorado Office of Economic Development and International Trade have also questioned SB 124, citing uncertainty over whether the program will work. Gov. Hickenlooper’s critique centers around the need for oversight provisions and accountability measures that demonstrate projects will attract out-of-state visitors.
Hickenlooper spokesman Eric Brown was recently quoted in the Denver Post, “We have been, and remain, concerned about the bill unless it is amended.” Accountability amendments died in committee but it’s unclear whether or not the Governor will sign the bill when it lands on his desk.
The merits of using taxpayer money for convention centers, bull riding universities, and/or river walks (to name a few current proposals) are dubious at best; but this is not the place to debate the role of government. Taxpayer money is already committed and will be spent. Instead, today’s debate is over how that money will be spent and accounted for.
The Pew Center on the States published an eye opening report evaluating accountability in state tax incentive programs. Pew concludes that not one state regularly and rigorously tests the impact of tax incentive programs. Suffice to say this is something every state struggles with, but some states are worse than others. Colorado shamefully accompanies the bottom half of states that Pew dubs “trailing behind” in accountability, while being outperformed by neighboring states like Arizona, Kansas, New Mexico and Nebraska.
Pew finds that Colorado officials fail to evaluate every — or even major — tax incentive programs. Officials also fail to measure economic impact of tax incentives and don’t draw clear conclusions about whether or not programs are meeting the state’s goals.
Pew’s findings suggest that project merit aside, EDC is incapable of effectively administering six new large-scale projects at once. Policymakers should be fixing the system by imposing more accountability in state tax incentive programs. The original Regional Tourism Act recognizes that, if nothing else, a gradual approach will limit taxpayer risk by allowing more thoughtful consideration of each project.
Elected officials know that voters care about job creation so bills like SB 124 have undeniable political appeal. However it’s the private sector that provides sustainable job creation, not the public sector. Ultimately, this bill could inadvertently spawn dozens of politically motivated tourism projects to the detriment of taxpayers across the state.
As long as the state is in the business of doling out special treatment through the tax code, taxpayers might as well know what they’re getting for their money. SB124 is an excellent opportunity for Gov. Hickenlooper to flex his famed pragmatism and send a message that now is not the time to cut the strings and set loose Colorado’s flawed tax incentive programs, it’s time to rein them in.
Harris Kenny is a Denver-based policy analyst at Reason Foundation (reason.org). He wrote this for the Independence Institute (i2i.org), a free-market think tank in Denver.