'Bumper crop' of Colorado tax credits proposed by state legislators

02.18.2014

"We see quite a few tax credits every year," said Sen. Pat Steadman, D-Denver. "This year we seem to have a bumper crop.".(AP Photo/Ed Andrieski)

DENVER - Colorado lawmakers say that they don't want to give away the farm this legislative session, but a slew of bills propose selling the milk cow.

It's an election year with a growing economy, and lawmakers have responded with proposed tax credits, tax exemptions and private grants galore.

More than $75 million in giveaways have been proposed in the 2014 General Assembly - almost equally split between Republican and Democrat lawmakers, according to an analysis done by The Gazette.

Some measures, such as a proposed $11.6 million tax credit for parents who send their students to private schools, have been killed.

Others, including a $1.4 million tax credit for homeowners who do wildfire mitigation, are working their way through the process with bipartisan support.

"We see quite a few tax credits every year," said Sen. Pat Steadman, D-Denver. "This year we seem to have a bumper crop."

Steadman has served on both the Joint Budget and Appropriations committees since 2011. The tax expenditures and grants will likely land in one of those committees.

"Every single one of these would reduce general fund revenue," Steadman said. "It all adds up. It's going to be a challenge this year to prioritize. I'm afraid by the end of the year members of the Appropriations Committee are going to be unpopular with our colleagues because we're going to have to tell some people no."

The Colorado Fiscal Institute called it the "tax credit Oprah" session.

"Tax incentives are handed out the way Oprah gives away cars to her audience members," Tim Hoover, communications director for the fiscal institute, wrote in a media release. "You get a tax credit! You get a tax credit. Everybody gets a tax credit."

The fiscal institute released a tax credit guide, noting it supports policies that are "effective, efficient, equitable, transparent and accountable."

Rep. Mark Waller, R-Colorado Springs, agreed that all tax credits are not created equal.

"We have to look at each one individually," Waller said. "I'm not here advocating for tax credits universally."

But Waller said that tax credits are an important tool, especially for helping economic development that Republicans have supported for years.

"The idea here is that the economy is doing very well and tax credits don't grow government," Waller said. "It's a great thing when, especially in these economically good times, we can take some of the dollars out of the state budget."

The biggest criticism of tax giveaways is that they pick winners and losers.

"A lot of people do say that, but I would look back and say 'You know what? We've already picked winners and losers and we've decided that Colorado businesses are the loser every time,'" Waller said. "When we give tax credits, it's truing the system up."

All these giveaways - except for the grants - are known collectively as tax expenditures.

They spend taxpayer dollars before they technically even reach state coffers.

According to a 2012 tax expenditure report, Colorado revenue was decreased by $2.7 billion during the 2009 tax season due to credits, exemptions and deductions. Those include such things as a sales tax exemption on grocery store food and a sales tax exemption on seeds used for farming and livestock feed.

That report was demanded by lawmakers a couple of years ago, and a bill proposed this session by Steadman and Rep. Millie Hamner, D-Dillon, ensures that the report will be produced every two years.

Steadman said the biggest risk with tax expenditures is that they aren't revisited every year as part of the budget. It's likely no one would know how much money goes to each tax expenditure without the expenditures report. Even then, with some tax expenditures, the dollar amount isn't reported.

"We sit here and argue over every line item and there's a lot of scrutiny every year," Steadman said of the budget, which is referred to as the Long Bill. "We budget on an annual basis and that's not so with tax expenditures. Once you embed these giveaways in the tax code, it's a decision that expends that money into the future without any oversight."

Rep. Dickie Lee Hullinghorst, D-Longmont, scrutinized the Enterprise Zone Investment Tax Credit and found "people were taking advantage" of the incentive.

The investment tax credit was one of the largest tax expenditures on the books, Hullinghorst said, and the state wasn't getting back in economic development and jobs what it was spending.

A bill last year capped the incentive at $750,000 per company, and a bill this year fully implements that cap and is expected to save the state about $6.4 million.

"One of the things that I've tried to do since I've been in the Legislature is to try to make sure that the tax credits, particularly that we give to special interests who can afford to hire fairly expensive lobbyists to get their special exemption or tax credit, that those are adequately reviewed and there is an accountability measure in those to make sure they are doing what they are supposed to do," Hullinghorst said.

Linda Gorman, an economist with the Independence Institute, balks at the term tax expenditure.

"I prefer to call them special interest tax breaks," Gorman said. "Colorado had a pretty fair tax system and there wasn't a lot of special interest carrying on, then they started doing economic development grants and all that does is create special interest lobbying in government."

Those grants are most often run through the governor's Office of Economic Development and International Trade. An independent board decides which companies qualify for which grants.

This year, the economic development office stands to be a big winner in the allocation of growing revenue. The Gazette found four bills that have been introduced that would increase funding by $14 million. Most of that would be used for incentive programs for various types of businesses.

"It's because jobs and the economy are a very high priority for us," Hullinghorst said. "And yes, I think they have targeted a number of programs that do create jobs and they can actually show the number of jobs that are being created."

Whether those are passed, Hullinghorst said, will depend on a serious analysis of how much money there is this session and what kind of an impact the investment will have.

"None of these tax expenditure bills will pass without having scrutiny by first the finance committees in both houses and then the appropriations committee," Hullinghorst said. "They will no doubt hang out in the appropriations committee until the long bill is completed and until we have an opportunity to determine: 'Is this worth the amount of money that goes out of state revenue?'"

Steadman said he supports tax credits when it's clear where the money goes.

For example, he said a bill proposing a tax credit for some of the state's lowest income families' child care expenses is pretty cut and dried.

"When we help the working poor families make ends meet, we help them avoid public assistance," Steadman said. "When you're talking about people in that stratum of the economy, they are putting that money back into the economy. We know where those dollars go: heat and utilities and school supplies and rent."

Tax expenditures

Tax expenditures collectively refer to policies that allocate state revenue before it is officially collected. There are several types of tax expenditures.

• Tax exemptions and deductions: These reduce the amount of taxable income or property a person must declare. For example, a bill this year proposes exempting deployed military from paying taxes and title on their vehicles. While in Colorado, taxpayers are allowed to deduct charitable giving from their taxable income.

• Tax credits: These give taxpayers a credit on their taxes that is paid out as a tax return. So a very lucrative income tax credit can result in a person getting back all money they had paid to the state through the year, and sometimes more, depending on the credit.

• Tax holidays: These are special dates, or sometimes weeks, when the state doesn’t collect sales tax — lawmakers are considering a bill this session to create a sales tax holiday in August for back-to-school items.

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