INCENTIVES

Colorado must end the arms race

Colorado should take its foot off the economic development accelerator, at least a little. Wonderful news came last week. VF Corporation, the parent company of outdoor brands like The North Face and Smartwool, will be moving its headquarters to Colorado.

The company will bring with it 800 jobs with an average annual salary of around $147,000 and it will become Colorado’s largest public company by a huge margin.

We’re thrilled VF CEO Steve Rendle selected Denver — it’ll help diversify our economy.

However, in an ideal world, Rendle wouldn’t have needed $27 million in tax credits to seal the deal. Sadly, that’s not the world we live in.

Michelle Hadwiger, deputy director of Colorado’s Office of Economic Development and International Trade, said incentives are crucial to Colorado competing for large and small companies looking to expand or relocate.

“If the state of Colorado doesn’t have incentives on the table, we are immediately taken off the list and we don’t even get to tell our story,” Hadwiger said.

With Amazon still selecting a site for its second headquarters, now is a scary time to talk about things that could take Colorado off the table. We calculated in November that if Amazon were to quickly bring 50,000 jobs to Colorado, a tall order, it could earn more than $700 million in tax credits.

That Colorado is a finalist for Amazon and just landed VF Corporation, indicates the state has a good story to tell. We have easy access to an endless bounty of recreation possibilities, a Denver-metro area with mass transit and wonderful cultural amenities, middle-of-the-road tax burdens, and of course, lots of sun.

The state isn’t perfect, though. We have college attainment issues among our students; traffic congestion is only getting worse; and while the cost of living pales compared to some coastal cities, it’s rising as new construction fails to catch up with demand.

Growth will only exacerbate those issues, especially if the growth isn’t paying its own way.

It’s likely that if VF Corporation is able to take full advantage of the Job Growth Incentive Tax Credit, it will end up paying nothing in Colorado corporate income taxes for up to eight years. And if the company has any tax credits that exceed its tax liability it will be able to sell up to $13 million of those tax credits to other companies, reducing the other company’s taxes too.

State officials say it’ll still be a net win for the state — the incentive pays $3,825 for an employee making $100,000 (calculated as half of the FICA payment) and it’s estimated that job will generate $5,000 in new state revenue through other taxes like income and sales.

Giving up around 3/4s of the state revenue for a person who will be using statefunded roads and schools seems like a mistake. And VF Corporation is donating the incentive to its charity, a wonderful gesture, but one indicative of the favorable economic climate these companies are already operating in.

States need to work together on this issue — the National Governors Association could even negotiate some sort of a, well, mutual disarmament.

Colorado is in a position to begin the slowdown. Already our incentives are smaller than those offered by other states, and thankfully Colorado doesn’t offer risky up-front cash payments.

This arms race among states must end somewhere.