The Seduction of Colorado Springs

Colorado Springs’ mild flirtation with the corporate welfare racket could become a love affair Tuesday, when a divided City Council decides whether to put a measure on the ballot that would annually earmark $3.2 million in property tax revenues for a “job creation fund,” to be doled out by an as-yet-unnamed entity for as-yet-unspecified purposes. If it all sounds troublingly vague, and a recipe for potential mischief, that’s because it is.

The best thing for City Council to do is let the .665 mills property tax sunset in December, as scheduled, but the group seems inclined to ask the voters for a 15 year extension, diverting the money into the general fund or using it to establish a so-called jobs creation fund. It was the Sustainable Funding Committee’s recommendation to do the latter. But this would be the worst of the three options available to City Council, not only because it doesn’t have a snowball’s chance with the voters but because it puts the city on a slippery slope with a serious downside risk.

Advocates of paying “business incentives” – the current euphemism for what’s more accurately called corporate welfare – argue that Colorado Springs can’t remain competitive, and its economy will suffer, unless we have some money available to entice out of town business and prevent existing companies from going elsewhere. They believe they have the know-how to “invest” taxpayer money wisely and fruitfully, in ways that will boost the local economy. They want to put $51 million of your money into a slush fund, which a handful of city leaders will use as they see fit, for unspecified economic development ends. They think this will help us "grow up," become "a real city" and "start playing with the big dogs," in the words of the publisher of the Colorado Springs Business Journal.

But even if you have no objections to such a concept on principle – which I do – a big picture perspective raises many practical objections, from the most obvious to the less appreciated, which I’ll lay out between now and Tuesday.

The city can’t afford it.

This point would seem too obvious to need much elaboration. The city is scrounging for every dollar, and major budget cuts are looming, including, we’re told, to “vital city services.” Diverting money from concrete needs to pie-in-the-sky abstractions would be the clearest sign yet that the city’s political and business leaders are out of touch with reality, and don’t have their priorities in order.

It’s unfair

Colorado Springs has thousands of businesses, 99.98 percent of which don’t ask anything from government except that it maintains a level playing field, enforces the law and stays out of the way. A tiny number of those businesses think they’re owed something extra from the government, in terms of financial assistance or special treatment – and they’ve learned to play one community off against another in an effort to get what they want. But such playing of favorites, and handing out of special favors, is unfair to the rest of the business community.

Why should local government offer one company something -- expedited permitting, for example, or special tax abatements, or cash payments – that it doesn’t offer all companies? Many companies have gotten on the dole because local leaders and Washington politicians encourage them to. But it’s time to end corporate welfare, at all levels, and insist that companies stop leeching off the taxpayers and start paying their own way.

Rather than jumping aboard the corporate welfare bandwagon, Colorado Springs needs to draw a line in the sand against such shakedowns, setting an example for other cities to follow. We should do everything possible to create a fantastic business climate in Colorado Springs (and can business or political leaders here honestly claim they’ve done that?), but announce to the world that paying business bribes just isn’t something we do. We might even gain some national attention, and encourage other cities to follow our example, and attract entrepreneurs and businesses of a certain mindset, if we become the city that didn’t just say “no,” but “hell no,” to such shakedowns.

The job creation claims are overblown, unproven or illusory

The “incentives racket” creates the illusion of job “creation,” but it really just moves jobs around on the map, depending on which towns or cities will pay the most tribute to mercenaries in corporate boardrooms. Pueblo officials may claim to have “created jobs” when they used millions of dollars in incentives to get the Professional Bull Rider’s Association to move its headquarters there. But all Pueblo really did was move a few jobs from here to there, by picking the taxpayers’ pockets. Pueblo benefits as a result – assuming the millions put out for a new headquarters actually generate a return on the "investment" – but the region’s economy didn’t grow as a result. And we’re all a little poorer because of the anger and resentment such poaching expeditions create.

The State of Kansas has spent at least $1.3 billion on various incentives over the past 5 years. But according to a report released last year, the economic benefits are undetectable and probably trumped-up. “Findings of ineffectiveness include promised jobs weren’t created, return on investment is low or negative, and incentives offered weren’t a determining factor,” according to the report. Some incentives succeeded in influencing companies to move from one county or city to another, yet net economic gains were hard to demonstrate. The Kansas report indicated that most states keep incentives, despite a lack of quantifiable results, due to a fear that they’ll lose out if they go without them, which means they’re simply doing it because everyone else is, lemming-like. A minor industry has been created, consisting of site-selection consultants and economic development deal-makers. But it’s doubtful the economy as a whole gets a boost.

Here's a concise write-up of the Kansas study’s results, as well as an executive summary for those who want to learn more.

Incentives “work” in a very narrow, short-term sense, if you’re comfortable with exploiting taxpayers to fund dog-eat-dog economic warfare between states and cities. But the benefits for the economy as a whole are unproven and probably illusory.

Americans need to concentrate on baking more pies; not stealing slices from someplace else.

These can be risky ventures

Venture capitalism should be left to venture capitalists, not to taxpayers, because these “investments” are frequently risky and when they go bad they result in a waste of taxpayer money. Betting on which ventures will succeed in an economy where many are bound to fail is something for private funds and private initiative. It’s not something government is good at, or suited for. What’s occurring in Washington is a perfect example of the dangers of mixing government and business. But those dangers can trickle down to the local level as well.

How will the city decide where to “invest” these funds? Whose expertise will it count on to make such decisions? Who will monitor the results? Who will be held accountable when “investments” go bad, or if public funds are misspent? None of these questions are answered by the vague proposal that’s been put before council.

And even partnering with an established company carries risks, as Colorado Springs ill-fated “partnership” with Frontier Airlines showed. Only a few months before Frontier went Chapter 11, this city had committed to finance and build a $55 million maintenance hangar for the airline -- despite the fact that anyone looking at the company’s financials at the time could have seen it was flying through turbulent skies. The “deal” was touted as an economic coup for the city, but I harbored doubts. What might happen, and who might be on the hook, if Frontier – whose financials and stock values weren’t looking good at the time -- was sold, merged with another airline, or went belly up? Few people who orchestrated and backed the deal seemed to think seriously about the possibility, as far as I could tell.

A delay in signing on the dotted line is the only thing that kept the city from entering into a 30-year partnership with a now-bankrupt airline. And while Frontier may emerge from Chapter 11, the prospects for its long-term survival – and the chances it will meet the lease payments on the hangar over a 30-year period – are beyond the power of this city’s self-styled venture capitalists to predict.

I wonder if the mayor and other members of city council who backed the “deal” would have been so quick to invest their personal money in a maintenance hangar for a financially-troubled airline? I’m betting not. Yet they had no problem using public money to backstop such a venture. I guess it’s always easier to gamble when you’re playing with other people’s money. But that’s exactly why the public needs to be on guard against being dragged into such ventures

The Frontier airlines “deal” was a debacle narrowly averted, and offers a cautionary tale -- and possibly a preview of coming attractions? -- if the city steps further out on this slippery slope.

Come back tomorrow for the second installment of “Risky Business.”