Public dough for private grow: A close look at economic incentives

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AURORA | Since 1995, Aurora has paid more than $37 million in tax breaks to local business in exchange for jobs and development projects coming to town — and those deals are likely to be more common in the future.

Recent moves at City Hall and the state Capitol show lawmakers are looking for ways to use tax breaks as incentives to attract businesses.

At the city, council members in January approved a plan to relax the incentive rules for retailers. At the state, two separate bills are working their way through the Legislature, both aimed at making it easier for cities to give tax breaks to private businesses.

Supporters of incentive deals say they are vital when cities are competing with each other for the best employers.

“With the job creation deals, we are always in competition with another site, or another city or another state. So the incentive is used as a deal sealer,” said Andrea Amonick, the city’s director of development services.

Still, even as cities like Aurora lean on tax incentives to bring companies and jobs to town, critics of the deals say they sting already tight municipal budgets. And, they argue, it’s tough to track the efficacy of the deals.

“The reality is that we are spending an ever-increasing amount of public tax dollars transferring to private corporations. And the problem with that is almost nobody has a decent system of accountability,” said state Sen. Morgan Carroll, D – Aurora.

The Aurora Democrat has long been critical of incentive deals like the $300 million Aurora offered to Gaylord Entertainment for a hotel and conference center near Denver International Airport.

Gaylord officials have said that in the current economy, it wouldn’t be economically feasible to build a massive hotel project without public help. Major incentives, the company has argued, are the only way to get a massive, job-creating project off the ground.

But Carroll said if there is truly a market for a project, the private sector will handle it. In the case of northeast Aurora, where Gaylord has said they plan to build, the real estate is ripe for development, so a private deal will come along sooner or later, she said.

“Maybe Gaylord expects handouts and maybe a lot of businesses do. Who wouldn’t prefer to get public money? But the reality is that is a location that is prime real estate for development,” she said.

Carroll said the pricey incentives are particularly foolish when cities like Aurora are struggling to fund services citizens expect.

In Aurora, budget woes led the city to close four libraries in 2009 when voters balked at a $12 million sales tax hike. In 2011, the city renegotiated a voter-approved police staffing mandate that means the city will save money in the future by having fewer cops on the street.

With those kinds of budget woes, giving away tax dollars to private corporations doesn’t make sense, especially considering how hard it is to say definitively that a subsidy created jobs, Carroll said.

“When we can’t meet our public obligations with public funds, I frankly think it’s an embarrassment that we are giving out so much and deferring income that is actually profoundly needed,” she said.

Most of the Aurora’s incentives helped bring large-scale development to the city, such as $6.69 million pledged to the Arapahoe Crossing development in 1997, and $1.5 million to redevelop Florence Square in 2003.

Hiccups — such as the $155,000 the city gave Amazing Jake’s before the company shuttered its indoor entertainment center in 2009 — have been rare.

Amonick said that in the case of redevelopment deals, including the $524,000 the city has doled out since 2007 for the redevelopment of the old Buckingham Square Mall, the incentives are the only way the city can get a run-down property redeveloped.

“If the market were there, people would be doing it already,” she said.

In the case of Buckingham, the city refunded use taxes to the developer in exchange for them tearing down Buckingham and replacing it with the booming Gardens on Havana project.

“The private developer either will not or cannot because of cost make the deal work. So it wouldn’t happen,” she said.

In the case of those “job creation” deals, an incentive from the city can help separate Aurora from other locations that a business is considering, Amonick said.

In that January vote, city council opted to lower the threshold for what retail projects can qualify for an incentive. Under the old rules, the retailer had to be huge — at least 500,000 square feet. Now, retailers can be any size, so long as they require public improvements and “provide substantial benefit to the city and its residents,” the new ordinance says.

That’s a broad requirement, but one Amonick said is necessary because it doesn’t tie the hands of city officials looking to attract businesses and jobs.

“You don’t know what the exact specifications are going to be, so the more flexible you can be the more usable of a tool it is for you,” she said.

Mayor Steve Hogan said the old rules were outdated and left a huge chunk of properties that city officials would like developed ineligible for incentives.

“The city has numerous locations everywhere — north, south, east and west — places that are less than 500,000 square feet and are not in urban renewal areas but it makes sense to talk about how we might assist,” he said.

Council approved the measure on a 7-2 vote, with councilwomen Molly Markert and Renie Peterson voting against.

Markert said she had concerns about the incentive deals in general, but incentives for retailers are particularly distressing. For one, it’s not like an incentive that targets a particular, high-paying industry. Instead, retail incentives often mean jobs with low wages and few benefits.

And, if a project flops after the city pays out a tax break, there isn’t much the city can do.

“We can’t cut their fingers off if they don’t do what they promise,” she said.

Still, tax incentive deals appear to be growing in popularity at the state House, too.

One proposal, House Bill 1206, would allow cities to give a business a tax break if the business threatens to move its operations to another state.

The bill’s sponsor, Rep. Brian DelGrosso, R-Loveland, said the legislation is an extension of a bill passed last year allowing businesses relocating to a Colorado city or expanding their operations to receive a business use tax exemption. While legislation such as last year’s focused on attracting businesses, there isn’t much local governments can do to hold on to the businesses they have, he said.

“We need to work on retention as well. We are in competition with all the other states around us to not only bring businesses, but to keep them,” he said.

But whether incentives actually spark economic growth is up for debate. The New York Times last year published an exhaustive study on government incentives and subsidies and found that while governments give out at least $80 billion in incentives a year — and likely much more — there is little tracking of the jobs created and it’s impossible to say whether jobs would be created without the deals.

DelGrosso said he understands that it can be hard to say if a new business might have chosen a particular community had an incentive not been on the table, which makes tracking the efficacy of those deals difficult.

But in the case of an existing business that might leave town, it’s easy to predict the economic devastation that would occur if they left. In those cases, cities lose every tax receipt from that business, he said. That amount dwarfs whatever tax break a city could give a business in order to keep them in town, he said.

Another measure, House Bill 1212, would allow local governments to create “job creation districts” where governments can give tax dollars generated by a project back to the developers.

Bryan Blakely, vice president of the Aurora Economic Development Council, helped draft the bill and called it the “next generation of economic development tools.”

Under the current rules, cities often have to designate a chunk of land as “blighted” for it to qualify for urban renewal dollars. In some cases, that land isn’t really blighted or urban, but the only mechanism cities have to attract large-scale development is via the urban renewal process.

The legislation includes “claw backs” that would allow cities to get their money back if the deal flops, Blakely said.

“We ensure that Aurora or any other local government will not be left holding the bag,” he said.

But Carroll said the increased use of tax incentives amount to a “race for a public giveaway” that has real consequences moving forward.

“It’s a very slippery slope,” she said. “We can’t afford to buy the opening of every business.”

The incentives can put cities in a tricky spot where they have to choose between giving away public money, or losing jobs.

“It becomes almost a level of extortion,” she said. “Where now you need to up how much public money you are giving me, or I’m gonna leave.”

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Gayle Jetchick
Gayle Jetchick
9 years ago

Au contraire…The Havana Business Improvement closely tracks the sales tax revenues generated from the Havana District and The Gardens on Havana. Your article states that, “the city has doled out $524,000” to the redevelopment of Buckingham Square Mall. The Havana BID has worked with the City of Aurora Budget Office to run regular sales tax revenue reports. The Buckingham Square Mall was dying and not producing the kind of sales tax revenue it should have been for the city to provide adequate services to Aurora residents. We have tracked sales tax revenues from Buckingham Square as it was in decline and the major anchors had left. Buckingham Square Mall’s 2005 sales tax revenues had dropped to $173,176, according to the records I have on file from the City of Aurora. The old Buckingham Square Mall was not pulling its own weight and was not doing much to generate sales tax revenues to provide services for the citizens of Aurora.
We have worked with the City of Aurora Budget Office since The Gardens on Havana stores started opening in 2008, and we continued to track sales tax revenues through the economic downturn.
Gardens on Havana sales tax revenue figures and as a percentage of the 8 major retail centers in Aurora:
2009 revenues $1,342,065 which is 21.6% of the 8 major retail centers in Aurora
2010 revenues $1,874,427 which is 21.6% of the 8 major retail centers in Aurora
2011 revenues $1,977,306 which is 23.1% of the 8 major retail centers in Aurora
2012 revenues $1,670,940 which is 25.3% of the 8 major retail centers in Aurora
The total sales tax revenue generated by The Gardens on Havana from 2009 through 2012 is $6,864,738 which is $6,340,723 more than the initial $524,000 incentive. I will post the Aurora Major Mall Revenues spreadsheet from the City of Aurora showing the sales tax revenues of the 8 major Aurora Retail Centers at http://www.OnHavanaStreet.com under the “About Us” tab. Take a look.

Urban renewal, when correctly applied, really does help revitalize a city and bring in more sales tax revenue above and beyond the initial “incentive” given to a developer so cities are able to provide better services to their citizens. Gayle Jetchick, Executive Director, Havana Business Improvement District

John
John
9 years ago

I think Gayle just schooled the Aurora Sentinel. Hey Brandon, perhaps next time you will do actual research rather than write an opinion piece.