The Colorado Senate is evaluating a risky new development subsidy proposal that passed in the House last week. House Bill 1220 would, for the first time, allow the diversion of incremental state sales tax revenues to back bonds used to finance road construction for new retail projects. Specifically, the bill would permit sales tax increment financing (STIF) to be used for projects that have been approved by the state department of transportation but lack dedicated state funding to secure federal highway matching funds.
The policy problems inherent in this bill are many. STIF is designed to subsidize retail projects, ignoring the fact that they are not a very effective form of economic development. Building new stores doesn’t grow the economy – it only shifts consumer spending from one place to another. Providing subsidies to move low-wage retail jobs around a metro area is a waste of taxpayer funds. The East-West Gateway Council of Governments (St. Louis metro region) found in its January 2011 study that the region had spent $4.6 billion subsidizing retail development between 1990 and 2007. During that period, 5,700 new retail jobs were created in the metro area, at an apparent cost of $370,000 per job.
STIF makes a poor economic development tool for other reasons as well. Sales tax receipts are unpredictable, especially during leaner economic periods. Determining the value of the incremental increase in sales tax revenues is nearly impossible if assessors attempt to estimate how much retail spending is “new” and how much was merely cannibalized from nearby retail establishments. STIF also promotes the fiscalization of land use—the unwise practice of letting tax revenue considerations control planning decisions. California repealed STIF in 1993 to avoid this problem. Colorado’s proposal is worse because it would only subsidize new retail developments that rely on highway access, making it biased against existing retailers in urban centers.
Another important consideration is that Colorado can’t afford to sacrifice the existing sales tax revenues that it would lose to STIF-subsidized development. As a TABOR (Taxpayer Bill of Rights) state, Colorado cannot raise new revenues without statewide voter approval. This is likely the reason that the development lobby is seeking this subsidy in the first place. As a result of the economic recession and TABOR, Colorado’s fiscal crisis is so dire that the state cannot afford to fund highway transportation projects despite the fact that federal matching funds are on the table.
HB 1220 would sidestep the appropriations process for funding highway construction, shortchange the state’s sales tax revenue collection, subsidize the relocation of low-wage jobs in suburban fringe areas, and contribute to the growing list of dead malls in Colorado.