Enterprise Zone rules merit close review

The debate about enterprise-zone tax credits is back and at full boil, with the legislature being asked to consider bills that would severely restrict the availability of these credits.

Thankfully, cooler heads prevailed when the House Finance Committee rejected a cap of as little as $250,000 a year per company. But other bills are still working their way through the statehouse, and a lot of damage could be done between now and the end of this year’s session.

These tax credits are aimed at helping revitalize economically distressed areas.

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The Northern Colorado Legislative Alliance, Northern Colorado Economic Development Corp., the Colorado Oil and Gas Association and the Colorado Dairy Farmers are among those aligned in the fight.

Whether your business is located in one of these zones or not, this is a battle that deserves your support.

That said, reforms of some sort might be in order.

For the uninitiated, these credits are worth a lot of money. They’re not like deductions that change the amount of income that is taxable. Instead, each credit is deducted dollar for dollar from the income tax a company owes. They’re available in exchange for capital investments, expansions as well as new hires.

Here’s the problem, at least as I see it. The organizations lobbying to keep the enterprise-zone rules unchanged are, unfortunately, relying on figures that could be viewed as exaggerating the value of these credits.

The Colorado Association of Commerce and Industry, in an article being distributed around the state, points out that enterprise zones helped retain 130,551 jobs in 2010.

Job retention is unquestionably part of the reason these zones were created. But the heart of the legislation is job-creation, not retention. No company can seek job-retention tax credits. They just don’t exist.

The job-creation numbers, however, are far less impressive, totaling 564 in 2010.

The Denver Post last year put pencil to paper on this and calculated that the program was costing $133,000 per job, given the $75 million in tax credits sought by the companies that created those 564 jobs.

Business groups have assailed the Post’s math, saying it grossly under-estimated the benefits provided by the program and created a perception that it is a waste of tax dollars.

No doubt. But the average-cost-per-job cited by the state, while considerably lower, isn’t that impressive, either: an average of $7,499 for fiscal years 2000-2009.

Perhaps the Post’s calculations were off. But the numbers being offered in defense of maintaining the status quo seem suspect, too.

Rather than put in place what sound to me like a bunch of arbitrary caps, a legislative committee in late February voted to create a task force to study enterprise-zone tax credits and place new limits on the program. These limits primarily would subject them to review every five years to guard against abuses.

That sounds like a reasonable approach. There have been too many questions raised and too many tax credits awarded to potentially undeserving companies to leave things as they are.

Allen Greenberg is the editor of the Northern Colorado Business Report. He can be reached at 970-232-3142 or agreenberg@ncbr.com