Business/Economy, Dave Kopel, Taxes

Gaylord-style corporate welfare violates Colorado Constitution

(Editor’s note, this op-ed was originally published in June, 2012 and is being re-published in response to recent news regarding the Gaylord hotel project.  While the amount of “incentives” may have changed, the corporate welfare remains unconstitutional)

Gaylord Entertainment is offered $81 million in Colorado taxpayer money for its proposed 1,500-room Denver International Airport hotel and other projects. By what authority can the state government take tax money out of your pocket and give it away to a private corporation? The answer is that corporate welfare schemes, such as so-called “public-private partnerships,” flagrantly violate the Colorado Constitution.

Article V, section 34, of the Constitution states: “No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state … .” Very easy to understand.

Part of the Gaylord welfare scheme, and similar subsidies to developers, is that the developer gets to collect and keep Colorado sales-tax revenue, and then spend the tax money on the development. This violates the next section of the state constitution:

icon_op_ed“The general assembly shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property or effects, whether held in trust or otherwise, or to levy taxes or perform any municipal function whatever.”

When a developer collects sales-tax money, and then spends that money to build roads, sewers, and so on, the developer is plainly levying taxes to make “municipal improvement.” The Colorado Constitution says that is illegal. Governments — not private corporations — are supposed to levy taxes and perform municipal functions.

Another provision of the Colorado Constitution requires that the government treat people equally. The government cannot pass laws giving a particular corporation special privileges: “The general assembly shall not pass local or special laws in any of the following enumerated cases, that is to say; … granting to any corporation, association or individual any special or exclusive privilege, immunity or franchise whatever.” Article V, section 25.

Yet giving Gaylord the special power to tax, and the special power to spend tax money on certain projects, is certainly a special privilege that is denied to everyone else.

Simply giving taxpayer money to a corporation is also illegal: “Neither the state, nor any county, city, town, township, or school district shall make any donation or grant to, or in aid of … any corporation or company … .” Article XI, section 2.

Back in 1991, United Airlines asked Colorado and Denver taxpayers for hundreds of millions to build an aircraft maintenance facility in Colorado. State Attorney General Gale Norton explained to the legislature that the bill to provide corporate welfare to United “would not pass muster under the Colorado constitution.” Yet she predicted that the Colorado Supreme Court would probably rule in favor of the United welfare bill.

She was correct. For decades, the Colorado Supreme Court has ignored the plain text the Colorado Constitution, and allowed taxpayer money to be donated to corporations.

In the case of United, the welfare from state government coffers would be laundered through the Colorado Housing and Finance Authority. The CHFA is a corporation created by the legislature in 1973, for the ostensible purpose of providing money to homebuyers and to small businesses.

Fortunately for Colorado, United found an even bigger sucker in Indianapolis. Funded by lavish corporate welfare, the United maintenance facility in Indianapolis opened in 1994. United abandoned the facility in 2003. Corporate promises about how the taxpayers will get rich by giving their own money to big business rarely come true.

While the Colorado Supreme Court has refused to do its duty to enforce the many anti-corporate welfare clauses of the Colorado Constitution, citizens have their own remedy: They can vote for state and local candidates who will uphold the Colorado Constitution. Under our constitution, big businesses are supposed to pay their fair share of taxes.

Fred Holden is a senior fellow and David Kopel is research director at the Independence Institute, a free-market think tank in Denver.  This op-ed originally appeared in the Denver Post.


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