Gambling With Our Tax Dollars

Fired. Can you believe it? Governor Hickenlooper fired the entire gaming commission board. Their sin? They granted a tax rate reduction for Colorado’s casinos. When Coloradans are facing layoffs, wage cuts, increasing energy and grocery costs; and when the State is short on revenue and struggles to close budget shortfalls, these commissioners granted a tax rate reduction to one industry. Hickenlooper, in a fit of populist rage, appointed a new board that he hopes will reverse the tax cut.

The gaming commission is charged to “encourage business growth and investment in the gaming industry and to permit licensed operations…to realize a fair and just profit.” Isn’t that what the commissioners tried to do? In their judgment, a 5% tax rate cut would help the gaming industry achieve a “fair and just profit.” Keep in mind that statewide gaming revenue dropped an average of 7% during the last three years. 

You might ask, “Where’s the tax cut for all the other businesses in Colorado? What’s fair about that?” That question assumes the gaming industry starts from a fair position. They don’t. The gaming commission sets tax rates for the industry. Whereas other businesses pay 4.63% of their profits, the gaming industry pays a graduated tax on their Adjusted Gross Proceeds. The tax rate can vary from 0% up to 40%. Adjusted Gross Proceeds means the tax is based, not on profits, but on revenue less payouts, which is a higher portion of the same income. Casinos can’t deduct wages, benefits, capital expenditures, interest, depreciation or other normal business expenses. 

This is an industry that asked permission to operate in Colorado.  Colorado said, “Okay, but you’re going to pay dearly for that permission. You will be subject to the whims of an unelected commission. If the Governor doesn’t like what the commission does, you’ll be subject to a whole new commission. You really can’t guess how to budget for Colorado taxes, but rest assured: YOU WILL PAY THEM!” 

Compare that to the tax situation for Gaylord Entertainment’s proposed project in Aurora. We’re not talking quarter slots, this is real money - $300 million in public financing. It’s your money and politicians are gambling with it. 

Gaylord Entertainment wants to open a convention center and hotel with 1500 rooms and 400,000 square feet of conference space. Aurora, Denver, and the State of Colorado are offering subsidies worth over 36% of the projected cost of the project. Governor Hickenlooper, where is your rage? 

They justify this under the premise that it will bring conferences, people, and money to Colorado. The new activity is supposed to generate new tax revenue. According to their website, Gaylord Hotels “strive to make planning easier for you by providing ‘everything in one place.’ From guest rooms and meeting space, to recreation and dining, in a self-contained environment…” Any conventioneers that come to Colorado will not need to visit anyplace other than Gaylord Hotels. 

Reality check: what are the chances that the CEO of a large corporation will say, “Let’s have a convention, hold it in Aurora, and stay inside”? No offense, but…Aurora? Yet that’s what will be required for Gaylord to generate new revenue.  Here are three possible and obvious ways that your tax dollars will fail to generate the predicted tax revenue: 

1. Tax revenue might be diverted from other local hotels, restaurants, and other businesses to Gaylord. Instead of generating new revenue it just relocates it. Businesses that once depended on that revenue could be hurt.

2.  Conferences might very likely continue going to convention centers that are in more exciting locations than Aurora.

3. Gaylord appears to be a healthy, profitable corporation. So did Enron. If Gaylord fails, our tax money has been wasted. 

If it’s a viable, worthwhile project, private investors will invest in it. If it isn’t worthy of private investment, why should government force us to invest? Let’s leave the gambling where it belongs - in Blackhawk, Central City, and Cripple Creek.

Bottom Up or Upside Down, It’s Still More Government

Yesterday I attended the Governor’s Bottom-Up Economic Development Initiative Regional Meeting.  These meetings are part of the executive order Hickenlooper signed on his inauguration day.  His plan is to “to engage Coloradans across the state in

developing a comprehensive and collaborative approach to economic development.” Information from regional meetings and County subgroups will be used to create this new plan.

I was disturbed that so many in attendance have "swallowed the kool-aid", believing that government can craft the right program to get the economy moving and put people back to work.  Any attempt by government to incentivize business is a burden that must be borne by taxpayers, and a comparative disadvantage to the businesses that don't qualify for the incentives.

The Mayor of Commerce City (Paul Natale) boasted that they appoint a person to help any large business that's moving to their city, a single point of contact between that business and the city to facilitate the move. But what are the chances that a smaller business would get that same assistance?  The businesses that drive the economy and offer the most employment are the small, less glamorous businesses. One thousand sole proprietors that each hire one person creates more jobs than a relocated company with 500 employees. And the sole proprietor doesn't show up in any statistics. Making it easy for people to start small businesses by removing barriers can have a far greater impact on employment and the creation of wealth.

Natale also wanted protection (tariffs?) for the concrete pipe companies in Commerce City.  Apparently there's a move afoot to change regulations to specify plastic pipe instead of concrete in public works projects.  This is foolishness all the way around.  Protectionism always harms the consumer (the taxpayer in this case).  And regulations that specify a particular product (rather than performance criteria) invite more governmental favoritism and corruption.

There were lots of ideas about government programs to educate businesses. Really? Perhaps the people who run the Post Office, Medicaid, Medicare, Social Security, etc. can teach us what they know.

Someone wanted to raise the gas tax to fund transportation.  I'm always amazed at the people who believe that if you come up with a new way to tax, it will somehow create new money to be taxed.  It's as if consumers are saving money under their cushions until someone comes up with the right way to pry it out.  Gas taxes are the best way to ensure that the users of roads are the ones who pay for the roads. But if gas taxes are raised, there must be a commensurate decrease in other taxes, or it will further dampen economic growth.

Someone trotted out the common belief that the key to prosperity is to fund higher education. Adams County apparently doesn't have enough college graduates.  The belief is that if we have more college graduates sitting around waiting for jobs, companies will relocate here.  I would contend that companies will relocate here if they see a comparative business advantage, meaning less government intrusion and taxation and more stability in regulations.  Then those businesses will attract the people they need to staff the company.  The main reason to improve higher education in Colorado is so that parents don't have to ship their kids out of state to get a good education.   That's not a bad thing, but let's be honest about it.

One gentleman thought we should have a government agency that businesses could contact to keep abreast of government changes that might affect them.  I believe it's a sad day when our business environment is so volatile because of government that we have to have an agency to help us track the changes.

Someone suggested that the Governor should personally know the CEOs of the top 100 Colorado employers. Can you imagine that weekly phone call from Hick to Mr. Big?  Do you think either will care that Hick generally cannot help Mr. Big’s company without taking from the taxpayers, or putting competing companies at a comparative disadvantage?

Although everyone acknowledged the need to cut red tape, very few specific ideas came up.  It's such a huge task that few know where to begin.  Perhaps it’s also because the government representatives in attendance don't experience the red tape problem.  Remember that the first red tape Hickenlooper cut was for brewers, a problem of which he has first hand knowledge.

This whole fiasco is a classic example of the grand conceit of those who think they can plan our economy.  A room mostly full of government representatives trying to decide how best to "create jobs".  Business people attend because "if you aren't at the table, you're on the menu". TIFs, programs, agencies, enterprise zones, tariffs, incentives, and on and on.  It all adds up to favoritism for the businesses that government approves, and taxpayers foot the bill.

  

Remember what happens when you bend over and grab your ankles - you are Bottom Up. An appropriate name for this misguided attempt to create jobs.