September 2009 Archives

As part of its longstanding relationship with BBVA Compass, the Leeds School recently hosted the third quarter 2009 U.S. Regional Watch. Nathaniel Karp, Chief Economist for BBVA Compass, presented an overview of the national economy and was assisted by BRD researchers Richard Wobbekind and Gary Horvath in addressing local issues.

For updates throughout the year, check out the Leeds Business Confidence Index (LBCI), a forward-looking index for the state of Colorado published quarterly by the BRD (January, April, July, and October).

Tax credits are a powerful tool in economic development; however, the notion of incenting select industries and competing against other states or metropolitan areas sometimes raises questions about who are the winners and who are the losers. In essence, this was the big question during the 2009 Colorado legislative session when a debate ensued about the notion of tax credits to incentivize job growth (HB-1001) and tax credits for the film industry (HB-1010).

From an economic development standpoint, the goal is to grow employment, albeit high-paying jobs. Even better for the state is to grow industries that export goods or services nationally or globally because it results in greater external investment in the state (ultimately paid for by the end consumers of the goods and services). By providing short-term tax credits, economic developers have a tool for initially luring companies and developing industries. Once the tax credits expire, the industries theoretically remain to flourish and payback the initial subsidy through property taxes, sales taxes, business income taxes, employee income taxes, and through the businesses they buy from and sell to.

Tax credits are then an investment by the state. Like any investment, the trick is to not pay too much for the asset (in this case, job growth and industry growth). So long as Colorado pays the right price, the state reaps the benefit of economic development, which can ultimately result in a number of benefits for Colorado's citizens: greater infrastructure, more jobs, business collaboration, higher wages, better schools, etc.). The tax credit strategy is being deployed far and wide. Given Colorado's mix of industry and quality of life, the state would be quite competitive if no such tax credits were being utilized anywhere. But they are, and to compete, Colorado must pay to play.

The BRD conducted economic studies of both tax incentive programs, titled, "Summary of the Impact of Film Incentives on the Colorado Economy and on Public Revenues," and "Economic Impact of Proposed Job Incentive Program in Colorado."