Colorado ranks low on tracking incentives

A new national report ranks Colorado among the nation’s most lax at tracking whether economic incentives translate into jobs — but municipalities in Boulder and Broomfield counties seem to be bucking the trend.

Economic development is a high priority for municipalities across the nation — in strong financial climates as well as now, when businesses have weathered the recent economic storms. Attracting new business as well as retaining and helping to grow existing ones requires establishing strong relationships between town and industry. Businesses may be lured by the Rocky Mountain West’s quality of life, but once they’ve decided Colorado is the landing point, what makes them choose one community over another — or, when the time comes to expand, to stay put or move one town over?

Often it’s the incentive package offered — in the form of business credits, exemptions, deductions and rebates — by a municipality that makes or breaks the deal. Those incentives often are financed by tax dollars. But how does the municipality know when it has made a good investment and that the incentives are generating new, high-paying jobs and additional revenue streams within the community? Are there ways to track how effective the incentive programs are? What is done with the information once it’s been gathered?

The study released in April by the Pew Center on the States, a division of the Pew Charitable Trusts, said the Centennial State is “trailing behind” its counterparts by not having processes and mechanisms in place to evaluate programs.

“Policy makers spend billions of dollars annually on tax incentives for economic development, but no state ensures that policy makers rely on good evidence about whether these investments deliver a strong return,” the report’s summary said. “Often, states that have conducted rigorous evaluations of some incentives virtually ignore others or assess them infrequently. Other states regularly examine these investments, but not thoroughly enough.”

Economic development departments in Boulder and Broomfield counties are not handing out thousands of dollars without checks and balances in place. The incentives, for the most part, are rebate programs. A business wishing to relocate, rebuild or renew generally must invest its own money before seeing any incentive dollars.

Boulder is launching a new “microloan” program “to address the shortage of available capital amidst a cautious financial market,” according to the city’s website. “The microloan fund is intended to supply general working capital to qualifying small businesses and nonprofit organizations in the Boulder market that may not be able to obtain financing through traditional sources.”

The microloan program — a public-private partnership between the city of Boulder, Wells Fargo Bank, First National Bank, US Bank and the Colorado Enterprise Fund — targets minorities, women and low- and moderate-income individuals.

“We’ve recently completed a second round of funding” for the microloan fund, said Liz Hanson, Boulder’s economic vitality coordinator. “It’s been very successful at targeting small businesses ranging from a hairdresser to a restaurant to a specialty engineering firm and an herbal company. A wide variety of businesses have been able to take advantage of this.”

No other area municipalities reported a similar loan program.

Economic development departments offer rebates on building-permit fees, construction use taxes, consumer use taxes, local sales taxes and capital expenditures.

Aaron DeLong, Louisville’s economic development director, points to estimated rebates offered to Pearl Izumi, which led to the company building a new, larger global headquarters building there to replace existing, outgrown offices.

“They were looking at several different communities in the Denver metro area — most notably Lafayette, right across the street,” DeLong said. “We put our best foot forward, and they decided to stay with us. With the estimated costs submitted to our department, the value of the 50 percent building permit rebate is $118,100 and the consumer use tax rebate is estimated at $38,100, making the total value of the incentives $156,200.”

The rebate programs are reactive, meaning companies need to provide proof of investment or meet specified thresholds before receiving payment.

Brad Power, Longmont’s director of economic development, cites minimum qualification requirements for certain rebates, “such as pledging to add a minimum of 10 new jobs at a wage 5 percent over the Boulder County average which, right around now, is about $53,000. If they meet that threshold, they qualify for the rebate programs.”

Companies in all municipalities provide human resources documentation detailing data such as the number of total employees and salaries for each position without compromising personal information.

While the bones of the programs are very similar, how they are fleshed out can make all the difference.

Lafayette “does not have a standardized program,” said Philip Patterson, that city’s director of economic development. “We treat each economic development deal separately, and we craft our incentives according to the needs of each particular project.”

For instance, when Ace Hardware came to town, the city guaranteed a portion of the first year’s rent to the developer as an incentive for not only building the store but bringing Ace in as a tenant.

Patterson’s Broomfield counterpart, Bo Martinez, looks at the big picture of how the potential deal impacts his city and also creates packages on an individual basis.

“We look at total job creation, salary, type of position — primary jobs, service jobs — and that will help determine the type of package at that time. We have provisions in place to ensure these companies perform before any rebates are paid out.”

Officials in Erie and at the Colorado Office of Economic Development and International Trade did not return phone calls for this story.

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