Colorado

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Colorado

This page was updated on Dec. 4, 2018, to reflect Colorado’s improved rating after the publication of a new tax incentive evaluation.

Rating: Leading

Key points:

  • Colorado is leading other states because it has a well-designed plan to regularly evaluate incentives, experience producing quality evaluations that rigorously measure economic impact, and a process for informing policy choices.
  • The law ensures that the perspectives of businesses and business organizations will be considered in the evaluation.
  • Despite facing some data limitations, the Office of the State Auditor’s first evaluation included valuable background information and analysis of 14 tax expenditures.

Colorado evaluation law

Year enacted: 2016.a

Who evaluates: Office of the State Auditor.

Length of review cycle: Five years.

For more information on state ratings, please visit our interactive map.  

The following information was current as of May 3, 2017.  

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.
State tax incentives
State tax incentives
Report

Improving Tax Incentives for Jobs and Growth

A national assessment of evaluation practices

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Report

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.

Colorado
Colorado
Fact Sheet

Colorado Issues First Evaluation of Its Tax Expenditures

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Fact Sheet

Colorado Issues First Evaluation of Its Tax Expenditures

In September, the Colorado Office of the State Auditor (OSA) released its first evaluation of the state’s tax expenditures—deductions, exclusions, and other preferences in the tax code. Under legislation enacted in 2016, OSA is reviewing all of the state’s tax expenditures on a five-year schedule to assess their effectiveness and whether they are meeting their intended purpose.