If you don’t understand how Colorado Springs’ City for Champions (C4C) projects are being paid for you’re in good company, because few people do. The state’s Regional Tourism Act, passed by the Legislature in 2013, is both unique and hard to understand.
What it is not is a loan from the state to the city that has to be repaid. But it is a tax-based subsidy program to help build private tourist venues.
Tax Increment Financing (TIF) is used to encourage development by reimbursing developers for some or all of the costs of development. It does so by redirecting sales tax revenues generated within a specified district, in this case the City of Colorado Springs, to the developer directly or to repay bonds issued for the development. Local TIF funding uses local sales tax revenues attributable to the district above a base amount generally set by pre-development tax revenues.
Developers use the dedication of future tax revenues to obtain financing for their development and sometimes cities issue bonds for that purpose to be repaid by future tax revenues.
So, hypothetically a city that has been collecting $5 million in sales taxes within a district might offer a developer 10 percent of all revenues over that amount for a long period of time, with the other 90 percent still going to the city. This subsidy is meant to encourage development anticipated to increase overall city tax revenue.
But it also has the effect of reducing the availability of local sales taxes for use on other local projects for the term of the TIF agreement. It also can pose a risk that if the increases in sales tax revenues don’t materialize the city may be responsible for coming up with the money to pay off the bonds out of its general fund revenues.
This is the risk that has raised many questions from the public about C4C. Other complaints more generally address the core issue of “corporate welfare” and government subsidies for preferred private projects.
Regional Tourism Act funding is a bit different
The Regional Tourism Act was passed by the state Legislature to fund projects that would bring more tourists, and their money, to the state. Applicants had to present plans to the Colorado Economic Development Commission (CEDC) showing that the projects were likely to achieve that goal.
Colorado Springs submitted a proposal for four different venues, including a new visitor’s center at the Air Force Academy, a sports medicine facility affiliated with the U.S. Olympic Committee, a museum dedicated to the U.S. Olympics, and a sports stadium.
As currently approved, the CEDC is redirecting a maximum of $120.5 million in state sales tax revenues generated over the next 30 years within the City of Colorado Springs to fund those projects. Total TIF funding comprises about 48 percent of the total costs of the projects. The balance comes from private investment.
The base amount was set by the Colorado Department of Revenue on Dec. 16, 2013 at $169,503,177.64 per year. This amount is based on tax revenues collected from Dec. 1, 2012 to Nov. 30, 2013.
Of state sales tax revenues collected over the next 30 years the C4C project will receive 13.08 percent of revenues over that base amount, the rest goes to the state as usual.
Since 2013, $9,289,091.00 has been redirected by the state to the Colorado Springs Urban Renewal Authority, which is the designated financing entity that holds and distributes the funds.
All funds are held in 5 separate accounts, one for each of the projects and one flexible sub-account. Each account gets a specific percentage of the funds as follows: Olympic Museum – 42 percent; Sports and Events Center – 23 percent; Sports Medicine Center – 14 percent; Air Force Academy Visitors Center – 5 percent and the flexible sub account – 16 percent.
Controls on what funds may be spent for include a requirement that any funds improperly spent must be paid back to the state.
The risk to city taxpayers
Claims have been made that city taxpayers could be on the hook for millions in bond defaults if the plan doesn’t bring in sufficient new sales tax revenue to pay back the cost of construction.
But that’s not how the resolution reads. The real risk is that revenues won’t exceed the base long enough to finish construction, leaving venues uncompleted. No incremental revenue, no redirection to the projects.
All of the projects must be completed by 2023. If a project isn’t completed by then, for whatever reason, or if a project is abandoned, the resolution requires that the Urban Renewal Authority must pay whatever it has left in that project’s sub account and recall the bonds, sticking the bond-holders with the loss.
But should such an unlikely event occur, the city might decide to inject general fund money to complete the project.
Mayor Suthers says that no general fund money will be used to build the venues and that taxpayers will not be responsible for paying on defaulted bonds.
Bob Cope, Economic Development Officer for the city said, “Any bond purchaser would be purchasing those bonds subject to that revenue coming in. If revenue wasn’t sufficient it would be the bond holders that are at risk.”
But make no mistake, over the next 30 years city taxpayers will be paying $120.5 million in sales taxes to complete the projects. But instead of coming out of local sales taxes that could be spent on other city needs, it’s coming out of state tax revenues, which makes it pretty painless for city residents. But it also spreads the pain out over the whole state by reducing revenues available at the state level.
One issue yet to be resolved
One fly in the ointment is that the resolution authorized “a world-class multi-use indoor and outdoor sporting venue, designed to host national Olympic and amateur sporting events such as competitions, qualifiers and trials. The outdoor venue can accommodate long field competitions while the indoor venue will flexibly configure to accommodate hard-court sports.”
Unable to find sponsors for a single stadium, the city decided to build two separate venues in cooperation with private investors.
A 3,000-seat arena built by Colorado College on its campus would host their hockey team and other indoor sports and special events.
An outdoor sports stadium/concert venue seating up to 20,000 people would be built by the Colorado Springs Switchbacks, a professional soccer team, in cooperation with Weidner Apartment Homes on the CityGate property at Cimarron and Sierra Madre streets.
This split-venue plan differs from the original single-venue concept and raises questions about whether the new plan is authorized by the CEDC resolution.
Jeff Greene, Mayor Suthers’ Chief of Staff said, “The application never specified that it had to be one facility. There may have been some assumptions made that it specified that it would be one facility. So, what we are doing at this point in time is reviewing all of the requirements associated with what was stated in the application for each of the four elements.”
Of the single-stadium proposal, Roger Noll, emeritus professor of economics at Stanford University and Stanford Institute for Economic Policy Research fellow said, “This project is a classic example of corporate welfare. The stadium could not possibly succeed as a tourist attraction.”
Noll continued, “Even major league sporting events do not draw many tourists, and minor leagues or minor sports do not attract tourism at all. Eighty-five percent of attendees to sporting events come from within 15 minutes away.” This might differ somewhat here because Colorado Springs hosts the U.S. Olympic Committee and Training Center, so Olympic trials and events might draw more tourists than Noll predicts.
But when locals spend money at a sporting event that’s money they don’t have to spend at other community businesses like theaters and restaurants, says Noll, meaning that spending doesn’t increase sales tax revenues.
Noll’s statement suggests that neither of the two stadiums meets the statutory requirement that all elements of a project be “primarily for use as a tourism or entertainment venue that is reasonably anticipated to draw a significant number of regional, national, or international patrons.”
“We gave a briefing to the state last week,” Greene said. “Next month will be a full briefing to the state Economic Development Commission regarding the sports and events center.”
Greene is optimistic that the CEDC will green-light the dual-stadium plan since it approved a single-stadium venue in 2013. While Councilman Merv Bennett said that the updated plan was “favorably received” by the CEDC at the briefing, the Commission can change its mind and disallow funding for either or both stadium projects.
Jeff Kraft, Director of Business Funding and Incentives at the state Office of Economic Development and International Trade said, “The Colorado Sports & Events Center business plan has not yet been submitted. Once received and reviewed, the plan would be advanced to the CEDC for consideration. The Economic Development Commission is the entity that determines project commencement and compliance.”