Colorado

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Colorado

Rating: Making progress

Key points:

  • Colorado is making progress because the state has adopted a plan for regular evaluation of tax incentives.
  • The Office of the State Auditor will set a schedule for the evaluations in 2017.
  • The law ensures that the perspectives of businesses and business organizations will be considered in the evaluations.

Colorado evaluation law

Year enacted: 2016.a

Who evaluates: Office of the State Auditor.

Length of review cycle: Five years.

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In 2016, Colorado enacted bipartisan legislation requiring the Office of the State Auditor (OSA) to evaluate economic development tax incentives and other tax credits, exemptions, and deductions on a five-year cycle. The OSA is preparing to begin this work, with the first evaluations scheduled to be completed in 2018.b

By directing a legislative audit office to evaluate incentives, Colorado is following a proven approach: Washington’s legislative auditor, for example, has produced detailed evaluations of the state’s incentives for a decade.c While the OSA lacks experience measuring economic impact, Washington’s experience shows that audit offices can successfully build this expertise over time.

Under the law, the OSA’s first responsibility is to develop a schedule to ensure that all incentives are evaluated within the five-year period.d In doing so, it is important to consider the goals of Colorado’s incentives. Other states, such as Alaska and Oregon, have scheduled programs with similar goals for evaluation in the same year.e That approach helps states compare the performance of incentives and identify those that are getting the best results. For incentive programs with statutory expiration dates, Colorado’s law also requires the OSA to try to schedule the evaluations before these sunset dates.f That way, lawmakers will have information to determine whether incentives should be continued unchanged, modified, or allowed to end.

Colorado’s legislation won support from business groups such as the state chapter of the National Federation of Independent Business, which agreed that tax incentives deserve more scrutiny.g The law ensures that the perspectives of businesses and business organizations will continue to be part of the evaluation process: The OSA is required to consult with beneficiaries of incentives for its analysis.h That requirement could allow OSA’s evaluations to offer valuable insights on how incentives can serve the needs of Colorado businesses.

Endnotes

  1. Colorado Rev. Stat. § 39-21-305.
  2. Ibid.
  3. Washington Joint Legislative Audit and Review Committee, “2007 Tax Preferences Performance Audit - Full Review” (Nov. 28, 2007), http://leg.wa.gov/jlarc/ AuditAndStudyReports/Pages/2007 Tax Preferences - Full.aspx.
  4. Colorado Rev. Stat. § 39-21-305.
  5. Alaska Legislative Finance Division, “Indirect Expenditure Report” (January 2017), Introduction, http://www.legfin.akleg.gov/IEBooks/ 2017IndirectExpenditureReport.pdf; Oregon Legislative Revenue Office, “2016 Expiring Tax Credits” (February 2015), 8, https://www.oregonlegislature.gov/lro/Documents/RR%202-15%202016%20Expiring%20Tax%20Credits%202.pdf.
  6. Colorado Rev. Stat. § 39-21-305.
  7. National Federation of Independent Business, “Victories From the 70th Colorado General Assembly (2015-2016),” June 6, 2016, http://www.nfib.com/content/victories/colorado/victories-from-the-70th-colorado-general-assembly-69532.
  8. Colorado Rev. Stat. § 39-21-305.
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Improving Tax Incentives for Jobs and Growth

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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.