Like most states, Colorado has a bureaucracy dedicated to doling out taxpayer-subsidized “incentives” to politically favored private businesses that don’t actually need a subsidy in the first place. The most recent example is a “consolidated” corporate welfare pitch to Amazon to bring its coveted HQ 2 to the Denver area.
Several years ago, the New York Times put Colorado’s corporate welfare spending at just under a billion dollars per year. But putting taxpayers on the hook for corporate favoritism isn’t just a state government problem. More and more, such cronyism is being practiced at the municipal level as well.
You might reasonably think that when fees and taxes are paid to a city government, that money is going to pay for city services. But in some Colorado cities, the fees and taxes paid by privileged businesses along with citizen-paid sales taxes actually get “rebated” to those very same privileged businesses for a specified period of time. In other words, the government collects the money, and then gives it to the business.
Last year Westminster doled out $700,000 to an Alamo Draft House Theater. The giveaway included, among other things, a 100 percent rebate of sales taxes, as well as rebates of permitting fees and construction materials use taxes, for three years.
Westminster politicians couldn’t wait to hand over the tax dollars; the scheme passed 5-1 on first reading. This wasn’t Westminster’s first time ladling taxpayer gravy on private business through a rebate scheme, nor is the city alone in this practice.
Also in 2017, the City of Longmont handed over a $6.5 million welfare package for a new Smuckers manufacturing plant. This sweet deal included, among other things, rebates for building permits and plan review fees, city sales and use taxes on construction materials, and some business personal property taxes.
Earlier this year Thornton, Colorado gave a 50 percent rebate of sales and property taxes for 10 years as part of a $3.75 million give-away to a company called Top Golf to open up a new facility.
This is where capitalism gets twisted into cronyism, with planners and politicians picking economic winners and losers by granting special privileges in the form of public subsidy to a few privileged businesses, while everyone else pays full freight.
Susan Kochevar owns a drive-in movie theater in Commerce City, which borders Westminster. Writing in Complete Colorado she explains how this corporate favoritism disadvantages other businesses:
My drive-in theatre has one location. I would like to expand. When I approached Commerce City, I received a four page Excel spreadsheet listing expected licenses, fees and permits that would cost $80,000! Like Westminster, Commerce City also offers tax incentives to large businesses. I have been a stable small business operating for 40 years. Is it really necessary to charge an existing, small business $80,000, but give breaks to big corporations to build something new?
Sweetheart deals like this also almost certainly violate the Colorado Constitution, which specifically bans giving away public dollars to private companies. Article XI, section 2 is quite clear: “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.”
Although Colorado courts used to enforce this clause, today they ignore it. They say that the clause doesn’t apply whenever the government claims that the corporate welfare has a “public purpose,” like helping the economy.
Ideally, the legislature would step in and use its preemption authority to simply ban such practices. But given the state’s own addiction to corporate welfare this seems unlikely.
In the meantime, if cities literally have to pay businesses to open up shop, they may want to consider improving their business environment. Rather than simply giving away tax dollars to a preferred few, they should cut fees and taxes for everyone. Their odds of attracting business without subsidies is sure to improve.
Mike Krause directs the Local Colorado Project at the Independence Institute, a free market think tank in Denver.
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