Thanks to the Taxpayer Bill of Rights, Coloradans have the final say on taxes…unless Sen. Gail Schwartz and Rep. Brian DelGrosso get their way.
They are the lead sponsors of HB 1255, legislation that would impose a sneaky tax to benefit green energy production. I say “sneaky,” because it circumvents TABOR with a budgeting trick, known as tax incremental financing (TIF), which would allow Colorado localities to mortgage future tax revenues in order to subsidize alternative energy production. By employing this accounting sleight of hand, Sen. Schwartz and Rep. DelGrosso’s green energy tax can avoid unwelcome TABOR scrutiny.
Very brief primer on Tax Incremental Financing:
- TIF is a financing mechanism that historically has been used for urban renewal or infrastructure projects. Generally speaking, here’s how it works:
(1) A jurisdictional authority (a municipality, or a specially created TIF district) issues a bond to finance an urban renewal or infrastructure project;
(2) as a result of the TIF project, the surrounding area is improved;
(3) this improvement in the area that benefits from the TIF project leads directly to an increase in property taxes;
(4) this increase in property taxes (an “incremental” tax increase), in turn, pays for the bond interest and principle over a set period of time (usually 20-25 years).
HB 1255 is different from traditional TIF in two key aspects:
- Traditional TIFs place a bet on infrastructure improving property values; HB 1255 places a bet on the renewable energy industry. The problem is that the green energy industry is a crummy investment, because it would not exist without government subsidies. As such, the industry is vulnerable to dire disruptions whenever its subsidies are called into question. Look no further than the Colorado solar industry. After Xcel suspended one subsidy (the Solar*Rewards program), Sen. Schwartz called a snap hearing in February, and 7 solar industry representatives testified that they faced imminent bankruptcy. Due to the removal of a single subsidy! If Colorado is going to mortgage future tax revenues, it should bet on a better horse than green energy.
- TIFs traditionally have been based on property taxes in order to ensure that the biggest beneficiaries are the primary financiers of the TIF project. The idea is that those who live or work nearest the urban renewal or infrastructure project will receive the biggest boost in property values, and, therefore, will pay the largest share of the “incremental” increase in tax revenues. This is known as the “benefit principle.” HB 1255, however, allows for a TIF regime based on incremental increases in property taxes or sales tax. As such, it appears to be designed to make the entire community within the TIF authority share an equal burden, regardless whether they want to contribute taxes to subsidize green energy production. More fundamentally, it’s not clear whence the “increment.” Subsidizing jobs as a means of generating increased tax revenues defies the laws of economics (otherwise, Communism would work). The upshot is that a TIF, as designed by HB 1255, is just a tax by another name. In fact, it’s quite thinly disguised.
Conclusion: When is enough, enough?
Already, Coloradans are paying almost 8 percent of their utility bills for unnecessary green energy subsidies ushered in by ex-Governor Bill Ritter’s New Energy Economy. Now, Sen. Schwartz and Rep. DelGrosso want to add a surreptitious energy tax.
And for what? These two lawmakers justify their green tax by claiming that it will help Colorado in its competition with other states to attract companies engaged in the alternative energy sector. In fact, Colorado is “competing” in this race to the bottom with only one other state: California. Is the Golden State—which faces a $30 billion deficit—a budget model for Colorado?
William Yeatman is an energy policy analyst at the Competitive Enterprise Institute