Broomfield recently passed a tax incentive deal with Crocs, the formerly Niwot-based shoe manufacturer, which granted them a 50% rebate on Business Personal Property Tax each year for ten years. Rebates and other incentive packages like this are routinely approved at the state and local levels because the benefits are obvious, but what about the drawbacks? There are plenty of them but they’re ignored and never measured. As a Broomfield City Councilmember, I was the lone no vote against the Crocs deal. Here’s why.
Public officials say tax rebates and other incentives are worth the cost because of the resulting increase in jobs, commerce, and tax revenue, but everyone outside of politics sees them as ignoring the fundamental principles of fairness. They see it as a justification of means by ends.
Yes, a new business brings new opportunities, but it could also bring new competition to existing businesses–competition that their very own government gave an advantage to. Should we be risking the future of current businesses to attract new ones?
Deals like this mean small mom-and-pop shops continue to carry the full tax burden while the big rich new guy gets a break. But if tax breaks are good for one business, why aren’t they good for all businesses?
Besides the moral failings of this special treatment (which, by the way, the Colorado Constitution explicitly forbids for just this very reason) there are tangible negatives for the community, and it is these that politicians need to focus on to be better representatives.
Attracting business means more commerce and more jobs–and that can be good–but more people moving to the area also increases the pressure on the goods and services provided by local government and other institutions, and public services are notoriously slow to react.
Take the school system for instance. Last I checked, schools were already pretty crowded, so why should we be bribing companies to move here to crowd the schools even more? If you think that schools always benefit from new business, you’re wrong. Sometimes school districts get partially, or completely cut out of additional revenue streams in yet another type of special tax deal to developers called Tax Increment Financing, or TIF. But don’t worry, the loss of revenue can be “backfilled” from state coffers! The most recent estimate (from 2017) is that state taxpayers’ TIF backfill obligation is $57 million annually.
Or, take a look at the effects on housing. Home and rent prices are already higher than ever before. Why contribute to the problem by artificially accelerating it?
If we’re not measuring the negative impacts to current residents, then we’re sure not keeping track of what happens to the community from where the business was lured. Crocs is moving only 15 miles away, but will there be a negative effect on the businesses and neighborhoods from where it came? If a downturn happens naturally, fine, but why involve public resources in these potentially negative results?
And of course, the whole premise of a subsidy or rebate rests on the assumption that the business wouldn’t move here if not for the tax break. However, these are often relatively small amounts (Crocs is a billion dollar company and their rebate is a total of $70,929) so that can’t be the difference between them moving here and not. Ordinary, rational people will ask: if it’s not necessary, why do it at all? And, if we’re willing to give one company a special deal to get them here, then what does that say about us? What does it say about that company? Is this the proper role of government?
The ability to give away public money and the fervor to attract business can also drive cities and counties to compete against each other in an unhealthy way; essentially engaging in a municipal bidding war with future tax revenues, public funds, and even land. Remember the courtship that Amazon HQ2 received? Some cities have taken to giving away their own land for free to high sales tax-generating businesses, like King Soopers. And we wonder where the mom-and-pop grocers are.
Thankfully, those are extreme examples–and they do serve to bring these deals to light–but new precedents were also set and enterprising, savvy people will always be victorious over the otherwise-occupied and unaware. Even worse, as more of these deals are struck over time the negative effects stack up and prompt even more reactionary policy from governments, which further mask the root cause.
Sadly, the solution is never to stop the interference and gambling with public money that contributed to the problems in the first place–it always includes even more programs that are sold as no-brainers, but essentially just shift revenue from where people are currently spending it into where ambitious, self-interested politicians and government officials think it should go. This helps explain the rapid popularity of subsidized housing programs and the annually-ubiquitous ballot measures for school mill levy increases and bond overrides.
It is true that more people equates to more commerce and that could benefit everyone, but the drawbacks could be serious enough to outweigh the rebate given. This has the oft-neglected effect of ‘dirtying the hands’ of our public institutions when it comes to things like housing affordability, crowded schools, and stressed infrastructure.
I’m not saying government stand in the way of development, just that it should stop incentivizing it with public money, especially when unemployment is low and housing is already being priced like Dutch Tulips.
If representatives would consider more of the potential negative effects of tax incentives and rebates, instead of just how much revenue the new company will bring in, then they would also come to the conclusion that they’re unnecessary, unfair, and come with too many unintended consequences. Please let your representatives know that they should stop giving special deals to new companies and focus their efforts on lowering the burden for everyone, equally. Chances are good that they don’t like giving these incentives, either; but no one is saying no.
Mike Shelton has served on Broomfield City Council for the past 7.5 years.