Outdated Tax Laws Could Hurt Colorado’s Amazon Chances

By CFI Economic Policy Analyst Elizabeth Cheever

Who else is sick of hearing about this

You may have heard that tech giant Amazon is seeking a home for its second headquarters (HQ2). The online retailer promises 50,000 highly-paid jobs and solicited bids from cities across North America; 238 proposals were submitted. Cities have scrambled to offer creative incentives and attention-grabbing stunts, like a large cactus, giant Amazon boxes, and $7 billion dollars in tax breaks.

Tax incentives have become common practice in state efforts to lure employers. But as the trend grows, economists and researchers have pushed back against the notion that companies relocate because of tax breaks alone. Analysis shows investment in public goods like schools and transit are what make skilled workers and their employers want to put down roots. For evidence, look no further than the RFP released by Amazon in September.

Denver and Amazon: is it a match?

On Amazon’s wish list? A host of traits that require public investment:

• A location with the potential to attract and retain strong technical talent.
• Proximity to an international airport.
• Proximity to major highways. 
• Access to mass transit.
• Cultural fit, including a diverse population and excellent institutions of higher education
• Community/Quality of Life: “We want to invest in a community where our employees will enjoy living, recreational opportunities, educational opportunities, and an overall high quality of life.”

Denver has an international airport, several universities, and it’s a beautiful place to live. But from a fiscal perspective, Colorado’s antiquated tax laws could make Denver a poor candidate for Amazon’s HQ2. The issue is not that Colorado can’t top New Jersey’s $7 billion offer. Amazon wants a community with strong public investments, and there is no way to hide Colorado’s dismal numbers.

If Amazon’s HQ2 team looks at the data, they’ll find Colorado ranks 42nd in the U.S. in per-pupil spending on K-12 education. That’s down from 26th in the nation in 1991, the year before TABOR passed and restricted the state’s ability to fund crucial public investments. Setting up shop near some of the country’s most inadequately-funded schools could put a serious damper on Amazon’s ability to recruit top talent. Higher education budgets in Colorado are routinely slashed because the state lacks revenue, which deprives our public universities of competitive resources and makes tuition prohibitively expensive.

Because the legislature can’t raise revenue, Colorado also lags behind in transit funding: 70% of the roads in our state are in poor or mediocre condition, which costs drivers more than $1 billion in extra repairs and maintenance each year. Colorado’s population is ten times the size of Wyoming’s, but we spend only twice as much on transportation. Front Range residents who want to take advantage of Colorado’s natural beauty usually find themselves stuck in traffic—and lack of funding means Colorado can’t keep up with transit needs.

Colorado’s tax laws are antiquated, and they may make our state less appealing to employers like Amazon. What’s more, TABOR’s outdated restrictions limit the benefits of an Amazon move to Colorado. Amazon claims to have invested $38 billion in Seattle between 2010 and 2016. That pitch is exciting for prospective HQ2 cities because it means more jobs and highly paid workers, but also more revenue for the city itself. That means more revenue to fund stronger public investment: better roads, good schools, higher pay for teachers and firefighters. Yet, in Colorado, those benefits are capped—literally—by TABOR. You can read more about why TABOR’s economic growth formula is a bad one here, but the bottom line is that only a small slice of Amazon revenue could be used for public investment. Much of it would be refunded to taxpayers, and chances are those TABOR rebates won’t even cover the extra $287 Colorado motorists sink into vehicle maintenance every year because of poor road conditions. 

Amazon also promises to create 50,000 jobs with an average salary of $100,000. To the increasing number of people concerned about housing affordability, that sounds less like a sunny prediction and more like a threat. Colorado is already the 11th most expensive state for housing, and Denver is in the midst of a housing crisis. The most recent analysis shows Metro Denver’s vacancy rate is at 5.7%, compared to 7% nationally. Average rent in Denver is $1,382/month. Denver residents must earn at least $25/hour to afford a two bedroom apartment, meaning minimum wage workers need the equivalent of three full time jobs. Amazon’s presence would put further pressure on the Denver housing market, but Colorado still won’t have the funds for effective affordable housing programs.

We love living in Colorado, and we can’t blame people for wanting to move here. But our outdated tax laws keep us from being able to share resources, prosperity, and opportunity among all Coloradans. TABOR restricts Colorado’s ability to be competitive and invest in projects that benefit everyone. Amazon is just one of many examples. Maybe we’ll have a shot at HQ3?