HB 12-1251 Reforms to the "Urban and Rural Enterprise Zone Act"

House Bill 12-1251

Testimony to the House Finance Committee
George Awuor, policy analyst
February 22, 2012

Thank you for the opportunity to speak before this committee today.

I am George Awuor, and I am a policy analyst at the Bell Policy Center. The Bell is a non-partisan, non-profit profit research and advocacy organization dedicated to making Colorado a state of opportunity for all.

I'm here in support of HB 12-1251, which limits the amount of investment tax credit (ITC) that may be claimed in an income tax year to $500,000. Currently, the law sets a temporary requirement that businesses defer claiming EZ ITC exceeding $500,000 in 2011, 2012 and 2013. This bill will make the cap permanent. In addition, this bill will require the Colorado Economic Development Commission to provide public access to electronic reports and to forward information about taxpayers receiving tax credits to the Department of Revenue. Along with some of the other changes required by recent legislation, this information will help determine whether the zones are achieving their economic development objectives.

According to the Colorado Office of Economic Development and International Trade, the bulk of the enterprise zone credits certified in 2010 (77 percent, totaling about $84 million) were for investment tax credits. Our research findings suggest that large amounts of the credits are claimed by oil and gas and mining companies for investments they would make anyway. For example, in 2010 gas and oil companies claimed a total of $35 million in tax credits. These companies make investments because of the existence of natural resources in these locations, regardless of the availability of tax credits. In addition, some companies actually claimed tax credits while also laying off workers. Research shows that a reduction in the workforce may occur particularly when capital investments are made to increase mechanization.

An initial investment of about $17 million would qualify for the $500,000 (3 percent tax credit). This means that in most cases, smaller businesses with relatively smaller investment capital would not be affected by this bill. The Legislative Council Staff estimates that this bill will save taxpayers about $8 million in FY 2012-13 and $ 15 million in FY 2014-2015. At a time when programs are being cut or eliminated, these savings will free up funds that could help the state provide other critical services.

Thank you for the opportunity to share our thoughts with you.