Tax credits are like tak­ing candy from a baby

The Denver Post - - OPINION - By Me­gan Schrader Me­gan Schrader (mschrader@ den­ver­post.com) is a Den­ver Post ed­i­to­rial writer and colum­nist. Fol­low her on Twit­ter: @Me­ganSchraderDP

I’ve never met a tax credit I liked, not even the one that al­lowed me to live in Ok­la­homa for four years and not pay a dime of state in­come tax.

The aero­space en­gi­neer tax credit was men­tioned to my hus­band when he was re­cruited. As a re­cent grad­u­ate, he could get a $5,000 tax credit per year for five years if he came to Ok­la­homa. It was a sweet deal for us. But not such a sweet deal for the state, I think.

We didn’t change our spend­ing habits, or buy a big­ger house, and we left the state be­fore it ex­pired. Like tak­ing candy from a baby. Sure I felt bad, but the baby asked me to take it (and even pro­vided a one-page form). Which brings me to Colorado. The Of­fice of the State Au­di­tor an­a­lyzed Colorado’s con­ser­va­tion ease­ment tax credit, and in a re­veal­ing re­port re­leased last week found that in 16 years, the tax credit has cost the state al­most $1 bil­lion.

Yes, it has put more than 1.7 mil­lion acres in per­ma­nent con­ser­va­tion sta­tus, mean­ing there are tight re­stric­tions on how the land is used and de­vel­oped in the fu­ture. It is in­tended to pro­tect crit­i­cal habi­tats for wild an­i­mals, en­dan­gered species and open spa­ces used for recre­ation or ed­u­ca­tion. But there is a prob­lem here. “No one in the state has both­ered to eval­u­ate whether what is be­ing con­served is worth the lost tax rev­enue,” the au­dit says.

The typ­i­cal story for tax credits reads: Lofty goal, lit­tle tan­gi­ble ev­i­dence.

It’s eas­ier to sell a $45 mil­lion-ayear tax credit to your fel­low law­mak­ers than it is to ask them to set aside $45 mil­lion for land con­ser­va­tion in the an­nual bud­get along­side com­pet­ing in­ter­ests like K-12 ed­u­ca­tion and Med­i­caid.

It’s close to be­ing the same thing (ex­cept in Colorado the Tax­payer’s Bill of Rights pro­vides a per­verse in­cen­tive with caps on rev­enue and re­quired re­funds for the state to spend tax dol­lars be­fore they come in).

Things can quickly spi­ral out of con­trol, es­pe­cially when tax credits are trans­fer­able, like the con­ser­va­tion ease­ment. Trans­fer­able credits can be sold to some­one else. Sec­ondary mar­kets spring up to buy and sell tax credits. These mar­kets aren’t read­ily avail­able to the com­mon man, mean­ing it’s Colorado’s wealth­i­est get­ting tax breaks for no ap­par­ent rea­son other than that they are rich enough and savvy enough.

In 2008, in re­sponse to re­ported abuses of the con­ser­va­tion ease­ment tax credit, the state tight­ened down the ap­praisal process to en­sure that appraisers weren’t over-es­ti­mat­ing the value of land put into an ease­ment to boost the value of the tax credit.

In 2010, law­mak­ers capped the pro­gram so that only the first $22 mil­lion per year in tax credits claimed would be ac­cepted. In 2013 the cap was raised to $34 mil­lion and in 2014 raised to $45 mil­lion. There have been crit­i­cal au­dits all along the way.

Ev­ery­one out there has a tax at­tor­ney adept at mak­ing the most of the law for their clients.

What was once a self-ad­min­is­tered pro­gram has be­come a small bu­reau­cracy funded by fees on those seek­ing the tax credits. The Divi­sion of Real Es­tate has a nine-mem­ber com­mis­sion that makes the fi­nal de­ter­mi­na­tion on the tax credits. It takes 5.8 full­time equiv­a­lent staff to ad­min­is­ter the pro­gram. It is funded by about $205,000 in fees.

Pro­tect­ing our lands in Colorado is crit­i­cal, but the state should have a pri­or­ity sys­tem for these lands and a line item within the bud­get. When it comes to con­ser­va­tion, some lands are more crit­i­cal than oth­ers. We need to be strate­gic in how we use our lim­ited re­sources.

Law­mak­ers are likely to take a look at these tax credits dur­ing the 2017 ses­sion that starts next month.

But tax credits, once born, are a stub­born thing.

Af­ter all, I told any­one who would lis­ten for four years in Ok­la­homa that there were ma­jor flaws in the aero­space en­gi­neer tax credit.

Yet it was re­newed in 2014 with great fan­fare and lit­tle pub­lic scru­tiny to the over­all cost of the pro­gram, other than big claims that the credits brought Boe­ing and other em­ploy­ers to town with the lure of af­ford­able liv­ing.

I didn’t buy it then, and I don’t buy it now.

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