ECONOMIC DEVELOPMENT INITIATIVE #1[Proposed Initiative]
ENABLE STATE OF COLORADO INVESTMENT IN BUSINESSES
It is recommended that the State of Colorado be enabled to directly invest into or provide financing to a business within the State of Colorado.
PROBLEM
The State of Colorado is constrained in the manner by which it can engage in economic development because it is unable to directly invest in a business. Therefore, in order to attract a new business into the State or to support growth of a business within the State, the State of Colorado must employ other means which may be considered less effective and more expensive.
In addition, other states, such as Texas are making direct investments into businesses resulting in the ability of the State of Texas to attract and grow leading to Texas being the top state with regard to new job generation.
DISCUSSION
Background
The Constitution of the State of Colorado currently forbids the State to take an interest in a corporation:
Article XI, Section 2
No Aid to Corporations No Joint Ownership By State, County, City, Town, or School District.
Neither the state, nor any county, city, town, township, or school district shall make any donation or grant to, or in aid of, or become a subscriber to, or shareholder in any corporation or company or a joint owner with any person, company, or corporation, public or private, in or out of the state, except as to such ownership as may accrue to the state by escheat, or by forfeiture, by operation or provision of law; and except as to such ownership as may accrue to the state, or to any county, city, town, township, or school district, or to either or any of them, jointly with any person, company, or corporation, by forfeiture or sale of real estate for nonpayment of taxes, or by donation or devise for public use, or by purchase by or on behalf of any or either of them, jointly with any or either of them, under execution in cases of fines, penalties, or forfeiture of recognizance, breach of condition of official bond, or of bond to secure public moneys, or the performance of any contract in which they or any of them may be jointly or severally interested. Nothing in this section shall be construed to prohibit any city or town from becoming a subscriber or shareholder in any corporation or company, public or private, or a joint owner with any person, company, or corporation, public or private, in order to effect the development of energy resources after discovery, or production, transportation, or transmission of energy in whole or in part for the benefit of the inhabitants of such city or town.
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There have been attempts in the past to amend the State of Colorado Constitution to enable the provision of health care. Referendum B to this effect was voted down by the citizens in 2002.
There have been many instances where the State legislature or a city has offered incentives to a business or organization that violate the spirit if not the letter of the law. Most recently, the City of Colorado Springs completed a transaction with the United State Olympic Committee that was determined in violation of this Article of the State Constitution.
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Some Interesting Published examples of this are:
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Colorado Springs Business Journal
Bill Hazelhurst
USOC decision: City 2, Colorado Constitution 0
Friday, September 17, 2010
Excerpt From:
http://csbj.com/hazlehurst/2010/09/17/city-2-colorado-constitution-0/
“….the deal called for the city to issue $38 million in so-called “certificates of participation,” to be secured by (in effect) mortgaging a fire station and the Police Operations Center. More than $20 million of the proceeds were used to acquire a building at 27 South Tejon, which the USOC will occupy for the indefinite future, paying the princely sum of $1 per annum in rent. At the end of that period, the building will become the property of the USOC, provided that they have remained in residence for the entire 30-year period. “Such sweetheart deals are exactly what the wise men who drafted the Colorado Constitution 134 years ago sought to forbid.”
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In an article originally published June 16, 1996, in the Rocky Mountain News, written by Dave Kopel and entitled Campaign Finance Reform, Mr. Kopel wrote:
"Article XI, section 2, of our Colorado Constitution states: "Neither the state nor any county, city, town, township, or school district shall make any donation or grant to, or in aid of... any person, company, or corporation, public or private in or out of the state."
Thus, our 1876 Constitutional Convention, reacting to the common practice of railroad companies extracting huge subsidies from municipalities, totally outlaws corporate welfare.
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Besides upholding the fundamental principle that private interests should not receive public subsidies, the Constitutional provision also protects the political process from corruption. If wealthy private interests aren't allowed to enrich themselves from the public till, then the private interests have much less motivation to give campaign contributions to the legislators who are in charge of the public till.
This 19th-century intuition was recently confirmed by University of Chicago economist John Lott. Comparing state spending levels and political spending rates in all fifty states, Lott found a direct relationship. The greater a state government's per-capita spending rate, the more money that was spent on state legislative elections.
For the first half-century of Colorado statehood, Colorado courts generally enforced the constitutional ban on welfare for private interests. But more recently, the Colorado Supreme Court has invented a "public purpose" exception to Article XI. Corporate welfare is now okay, as long as there is some alleged "public purpose" to it.
Since 1930, the Colorado Supreme Court has never found a single instance of corporate welfare whichdoesn't have a "public purpose." Thus, the court upheld the 1991 legislative plan to grant a huge subsidy to United Airlines, and the court would likely uphold the proposed gift of $180 million tax dollars to Denver Broncos owner Pat Bowlen.
In addition to the Article XI ban on corporate welfare, our Constitution also outlaws legislative creation of special privileges for corporations or individuals (Art. V, sect. 25); and forbids giving taxpayer money to private persons or organizations (Art. V, sect. 34). These provisions too have been emasculated by specious decisions from the increasingly lawless Colorado Supreme Court.
Grants of public funds to private interests have now become routine. The Denver City Council, for example, just voted to spend millions of tax dollars redeveloping the University Hills shopping center. Legislators and city councilpersons apparently figure that if the courts won't enforce the bans on corporate welfare, elected officials have no independent obligation to uphold the plain language and meaning of our Constitution.
Many advocates of restrictions on spending for political speech have an insoluble dilemma: they want a powerful government which can bestow public funds on various private groups or individuals. At the same time, they want a political process which is untainted by these very same interest groups.
Willie Sutton once explained that he robbed banks because "that's where the money is." If taxpayer funds were no longer a source of private revenue--if Colorado's state and local governments once again obeyed the Constitution-- there would be a substantial reduction of private-interest spending on political campaigns. And no-one's right to participate in the political process would have to be limited.”
However, the State of Texas has engaged in investments in business rather than giving out incentives. This approach has proven beneficial in attracting and growing businesses leading to new jobs.
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In Case You Missed It… Wall Street Journal Says Texas is “Where the New Jobs Are”
Friday, October 29, 2010 • Austin, Texas
The Wall Street Journal called Texas the place where new jobs are being created in a Review & Outlook piece Tuesday, describing Texas as a "mecca for high tech, venture capital, aeronautics, health care and even industrial manufacturing like the building of cars and trucks." Noting Texas' status as the nation's top home for newly-created jobs, the Journal compared Texas with other large states, including California, New York and New Jersey, which all continued to post job losses in September. "This continues a longer term trend," the Journal wrote. "Over the last year, as the economy was beginning to grow again, the Lone Star State has led the nation with the addition of nearly 153,000 jobs, while California surrendered 43,700, New Jersey lost 42,300 and New York dropped 14,600." The Journal credited Texas' low taxes and employer-friendly environment as key to its success. "There is a lesson here for Washington," the Journal concluded. "If the next crop of Governors and the 112th Congress want faster growth and more job creation, they'll avoid the mistakes of California and New York and learn from Texas."
http://online.wsj.com/article/SB10001424052702303467004575574322146119944.html?mod=WSJ_Opinion_AboveLEFTTop
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The primary Texas program is the Texas Enterprise Fund. http://www.texaswideopenforbusiness.com/financial-resources/texas-enterprise-fund.html
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At Gov. Rick Perry’s request, the 78th Texas Legislature established the Texas Enterprise Fund (TEF) in 2003 to help attract new jobs and investment to the state. The fund was renewed by the Legislature in 2005, 2007, and 2009. As the largest “deal-closing” fund of its kind in the nation, the TEF continues to attract businesses to Texas. The fund is used only as a final incentive tool where a single Texas site is competing with another viable out-of-state option. Additionally, the TEF will only be considered to help close a deal that already has significant local support behind it from a prospective Texas community.
Projects that are considered for the TEF must demonstrate a significant rate of return on the public dollars being invested in the project. Additionally there are several primary measures that every TEF project must meet in order to be considered for an award. Those include but are not limited to the following:
o Competition with another state for the project must exist and the business must not have already announced a location decision
o Projected new job creation must be significant – past recipients have typically created more than 100 jobs in urban areas or more than 50 in rural areas
o The new positions must be high-paying jobs – above the average wage of the county where the project would be located
o Capital investment by the company must be significant
o The project must have community involvement from the city, county and/or school district, primarily in the form of local economic incentive offers
o The applicant must be financially sound
o The applicant’s business sector must be an advanced industry that could potentially locate in another state or country
The TEF gives Texas the competitive edge in attracting new businesses to the state and assisting with the expansion of existing businesses that might otherwise opt to expand in another state. Recently, the TEF was the driving force behind Caterpillar's decision to relocate its engine assembly, paint and testing operations to Seguin, Texas -- a move that will generate more than $176.8 million in capital investment and create over 1,700 new jobs for Texans.
Additionally, the conservative and thorough methodology behind the grant process and the enforcement of contractual agreements with each awarded company ensure that the public dollars invested through the TEF produce a solid return on investment. To date, the Texas Enterprise Fund has brought more than 52,000 new jobs to the state and generated more than $14.3 billion in capital investment.
If Colorado were to amend its Constitution to enable direct investment into businesses, it would still need to pass legislation setting conditions for the investment and establishment infrastructure to place and manage the investments.
Advantages
If the State of Colorado were to amend its Constitution and enable the State to invest into a business then the State might expect to realize the following benefits:
1. Provide needed capital for businesses within the State
2. Create a rate of return for money used as incentives instead of giving it away
3. Make Colorado competitive with other states
Disadvantages
1. The State may make a bad investment, losing money needed for public services
2. Businesses might attempt to influence legislation in order to obtain investment
IMPLEMENTATION
This initiative would be advanced by passage of legislation placing the issue on the ballot for 2011 which would read substantially as follows:
Referendum
An amendment to section 2 of article XI of the constitution of the state of Colorado, concerning the authorization for the state and local governments to become a partner with or an investor in a public or private entity and, in connection therewith, authorizing the state or a local government to become a subscriber, member, or shareholder in or a joint owner with any person or company, public or private.
YES_____ NO_____
In addition to the forgoing constitutional amendment, legislation would be drafted spelling out specifically how the State of Colorado may invest. In all likelihood, this legislation would draw heavily upon the prior work of the State of Texas. The legislation would be submitted to the Colorado legislature for approval at the same time as the bill authorizing the referendum to be place on the ballot with the legislation ready to take immediate effect if the referendum is approved.