Colorado scores 'C' on effectiveness of its tax incentives

For the past couple of years, we have urged state officials to review the effectiveness of tax incentives because we believe that they are generally not effective in promoting economic growth. We have argued that in most cases, these programs do not meet public policy goals and should be reformed, revised or repealed.

A recent report – Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs, by Good Jobs First, a non-profit, non-partisan research center based in Washington, D.C. – assesses tax incentives in 50 states and the District of Columbia. The report looks at 238 key subsidy programs that cost more than $11 billion a year.  The study rated each of the programs on a scale of 0 to 100, with the possibility of 25 extra-credit points for features such as wage standards that help raise market level wages, retirement benefits, paid sick days and vacation time.

Colorado earned an average score of 51 points (grade C) and is tied at 13th position with Georgia and Arkansas for job-creation and job-quality standards. Colorado's Job Growth Incentive Tax Credit program costs slightly more than $4 million annually and is considered fairly successful, with a score of 66 points. The state's Enterprise Zone Program cost taxpayers $62.7 million in 2009 and received a score of only 38.

Other key findings include:

  • 222 of the 238 programs nationwide have quantifiable performance requirements, but only 135 programs have requirements that relate to job creation, job retention or training of a certain number of workers.
  • 98 of the 238 programs impose a wage requirement, and only 53 of those are tied to market rates. Only 11 of the wage requirements raise wage levels by mandating rates that are somewhat above existing market averages for the geographic area or industry sector.
  • Only 98 of the 238 programs with job-related standards require that new jobs remain in existence for a minimum period and/or that a subsidized facility remain open for a designated period, and only 92 bar companies from counting existing jobs that are simply moved from another facility.
  • Only 51 programs require that subsidized employers provide health care coverage, and only 31 of these require that the employer contribute to premium costs.
  • The states with the best average scores are: Nevada (average score 82), North Carolina (79) and Vermont (77). The worst are: District of Columbia (4), Alaska (5) and Wyoming (10). Twenty-three states score above 40, the average for all states.

Some policy recommendations offered in the report:

  • Every subsidy should contain job-creation, job-retention or training requirements.
  • Every job or training position in a subsidized facility should be covered by a wage standard, preferably tied to labor market averages and structured in a way that raises pay above market levels.
  • Decent job standards do not guarantee that a program's benefits will outweigh its costs. Sometimes the only sensible course of action is to eliminate a program altogether.

– George Awuor

 

 


Article posted on January 6, 2012