Even in the midst of another significant budget shortfall, legislators overwhelmingly took the first step Monday to approving an extension of a corporate income-tax credit that business and state leaders agree is critical to Colorado’s economic competitiveness.
The Job Growth Incentive Tax Credit, created in 2009, lets employers keep the equivalent of 50% of federal FICA taxes they pay for workers filling newly created jobs over an eight-year period — an incentive worth about $3,800 annually for an employee earning $100,000. To qualify, an employer must create 20 new jobs (or five in a rural enterprise zone) that pay 100% or more of the average annual salary in that county, and they receive the credit only after those 20 or more new workers have been in place for at least a year.
While the tax credit redirects millions of dollars each year from state coffers, officials estimate it has at least a four-to-one return on investment because the new jobs it incentivizes bring in income-tax revenue that would not exist otherwise. That ROI has risen as high as 12-to-1 in instances where companies vastly exceed projected job creation — but are limited to credits approved by the Colorado Economic Development Commission — and spark secondary jobs in areas like construction or staffing at area restaurants.
What’s most important about the tax credit, however, is that while it is limited in scope, it represents the most lucrative job-creation incentive that Colorado offers as competitor states like Texas and Utah throw far more cash at expanding and relocating companies. The credit is scheduled to expire at the end of this year, but House Bill 1014, sponsored by Republican Rep. Rick Taggart of Grand Junction and Democratic Rep. Andy Boesenecker of Fort Collins, would extend it through 2034.
“Off the list” without the incentive
Offering the credit gives the state a seat at the table for companies that then can consider its other attributes, and it’s helped it win expansions, said Johnna Reeder Kleymeyer, president/CEO of the Colorado Springs Chamber & Economic Development Corp. Particularly as the state slips in national business-friendliness rankings and faces a more competitive atmosphere for jobs that it used to capture more frequently, the state cannot go empty-handed to corporations considering growth here, she and others said.
“The job-growth tax credit is one of the very few tools in our toolbox that helps us compete to win,” Reeder Kleymeyer told the House Finance Committee. “If Colorado doesn’t have an incentive program, we are simply taken off the list.”
By a 9-2 margin, committee members voted Monday to advance HB 1014 to the House Appropriations Committee. The only dissenting votes came from Democratic Rep. Bob Marshall of Highlands Ranch and Republican Rep. Ken DeGraaf of Colorado Springs, both of whom are longtime skeptics of the fairness and value of tax credits.
Michael Gifford, advocacy manager for Associated General Contractors of Colorado, speaks at a 2024 council meeting at the Colorado Chamber of Commerce.
The hearing came on the same day that the Colorado Chamber of Commerce released an update to an often-cited 2024 study it commissioned, finding that Colorado remains the sixth-most-heavily regulated state and has added more than 5,000 regulations in the past year. Those rules make it harder to attract jobs and have led the state to exit some top-10 rankings for pro-business states, making it more important that officials extend the tool, said Michael Gifford, advocacy director for Associated General Contractors of Colorado.
A high return on investment
Sean Gould, deputy director of financial analysis for the Colorado Office of Economic Development and International Trade’s business incentives division, said the incentive lets the state generate about $33 million annually above what it pays in tax credits. And the state’s commitment to what it will pay can be larger than what it actually spends, as some firms that receive the credit are early-stage firms that can’t take it in some years because they don’t have tax liability to Colorado, he added.
Major employers like Arrow Electronics, Charles Schwab and Blue Origin all have made big investments in the metro area because of the tax credit, noted Becky Nelson, director of partner engagement for the Denver South economic-development organization.
Meanwhile, Western Slope leaders have been able to hold onto expanding homegrown companies that eschewed offers to relocate in no small part because of the tax credit, said Candace Carnahan, president/CEO of the Grand Junction Area Chamber of Commerce. On Monday, she cited an aviation services firm that agreed to add 100 jobs and an outdoor manufacturer that grew by 50 employees, as well as a mining and engineering firm that agreed to add 893 jobs at a $92,000 average annual wage.
Grand Junction Area Chamber of Commerce President/CEO Candace Carnahan speaks at a dinner earlier this month whose attendees included Rep. Rick Taggart (foreground).
To that end, Reeder Kleymeyer noted semiconductor manufacturer Entegris accepted the incentives in 2023 and agreed to add 597 direct jobs — but spurred creation of 1,700 indirect jobs ranging from construction to a coffee shop that opened near its plant. Taggart cited another instance in which Lockheed Martin accepted a large incentive package in which it received tax credits for 500 jobs but ended up creating another 280 additional positions for which it got no credits.
Bipartisan backing — and pushback — for incentive
“Without this program, Colorado in some cases can’t compete with some other states when it comes to trying to lure (these jobs) away,” said Taggart, who formerly ran an international outdoor-equipment retailer.
Even with the resounding initial support, it’s likely that the tax credit will continue to face some legislative pushback, as it has since its inception. DeGraaf asked if the state would be better off just reducing tax rates and not having to offer these incentives. Marshall asked that if the program works as well as advocates described, why wouldn’t the state consider upscaling it and eliminating its sales tax?
Colorado state Rep. Andy Boesenecker speaks to the Colorado Chamber of Commerce Health Policy Council in March 2023.
In general, though, the program has generated widespread support from legislators, several of whom could cite the number of jobs that it has created just in the counties they represent. And Boesenecker — noting, for instance, that Fidelity Investments accepted incentives in 2015 to add 400 jobs and ended up creating 1,481 instead — said the extension is needed to give confidence to employers considering expansion.
“As we look toward an uncertain future, retaining this proven took is critical,” he said. “This tax credit has been a very effective tool for driving job growth in Colorado, and we are just seeking a clean extension of it for eight years.”