UNECONOMIC DEVELOPMENT

DID A SQUABBLE WITH COLORADO SPRINGS COST FORT COLLINS $300 MILLION?

The money and effort government spends in the name of economic development is supposed to bring a community new companies and additional jobs. But did economic development actually cause Fort Collins to lose $300 million worth of new investments?

Last week AT&T announced that it was putting its NCR Microelectronic Products Division business on the block. The sale is to include large semiconductor facilities in both Fort Collins and Colorado Springs that together employ 1,500 workers.

As part of the announcement, AT&T promised that a $230 million expansion plan already begun in the Springs would proceed according to schedule. It added, however, that a $300 million expansion project envisioned for Fort Collins would be delayed indefinitely.

According to NCR spokeswoman Lea Schwartz, the Fort Collins project was scrubbed because it was not far enough along in the planning process. If everything had gone according to schedule, she adds, "it's possible we might have been able to get things started" in Fort Collins before AT&T's announcement.

Yet NCR had voluntarily halted its $300 million plan for Fort Collins early this summer. The reason, says Schwartz, is that the company wanted to evaluate an unexpected $20 million worth of tax breaks proposed by Colorado Springs and designed to lure NCR's operations out of Fort Collins and into the Springs.

"If we could get $20 million in tax write-offs [from Colorado Springs], that sure beats nothing" from Fort Collins, Schwartz explains. In response, Fort Collins officials have been working frantically to come up with their own set of breaks to offer NCR as a counter-incentive to stay put.

The bidding war between the two Front Range cities, along with Fort Collins's potential loss of a $300 million investment, graphically illustrates the downside to government economic-development efforts. For starters, NCR says it fully intended to build in Fort Collins without any incentives before Colorado Springs turned its head. More alarming for state officials, however, is that as part of its bait to lure NCR out of Fort Collins, Colorado Springs used a state-sanctioned economic-development tax break.

Created by the Colorado Legislature in 1986, the law permits local governments to offer tax breaks to companies located inside state-approved "enterprise zones." Lawmakers reasoned that local cities could use the device to woo companies looking to relocate or expand to Colorado. What the legislation wasn't created to do, however, was to allow one Colorado city to snatch away jobs and companies from another city 150 miles up the freeway.

"Enterprise zones are designed to sway business decisions toward a particular area," explains Evan Metcalf, who coordinates the program for the state. "But nobody really intended that they be used to relocate existing businesses from one area in the state to another."

"Economic development" has become the government catchphrase of the 1990s. It's no longer enough to expect that a company would choose to build a new factory in a community because it's a nice place to live and work. These days many cities feel they must offer tax breaks and other taxpayer-financed incentives to lure businesses.

A drawback to such efforts is that they can throw economic-development offices into bidding wars as each tries to outdo the other in cobbling together more enticing incentives. The result can be pot-sweeteners that more often resemble a massive giveaway. Last year, for example, Alabama convinced Mercedes-Benz AG to build a new auto plant near Tuscaloosa--but only after the state offered an incentive plan worth a staggering $300 million.

It's uncertain whether such tax breaks really convince companies to do things they wouldn't be doing already. Take the case of Colorado Springs and NCR.

Schwartz says AT&T had long planned to expand its NCR Microelectronic Products Division in Colorado Springs. The plan included an $81 million renovation of a fabrication facility begun eighteen months ago and just now being completed.

Which is why Schwartz says it was such a surprise to hear that Colorado Springs was nevertheless willing to hand over a package of tax breaks worth an estimated $13 million. "It was just handed to us," says a still-surprised Schwartz. "We were going to do the expansion anyhow."

Gary Cuddeback, director of economic development for Colorado Springs, explains that the city simply offered NCR tax breaks and incentives that were regularly used by the city. He adds that it was important to send the message that a company looking to move into Colorado Springs wouldn't enjoy advantages denied companies already there. "It really is a business-climate issue--being sure that local firms aren't treated any different from new ones," he says.

Part two of AT&T's plan for Colorado Springs involved spending $150 million more to add on to NCR's existing facilities. Work on that project began this month. Once again, Springs officials agreed to an incentive package--this time worth an estimated $20 million. Once again, says Schwartz, the company already had planned to expand without it.

At about the same time, Colorado Springs crafted yet another plan to give NCR even more tax breaks. This spring, the city's economic development officials suggested that if the company would consider doing its Fort Collins expansion plans in Colorado Springs instead, there was another $20 million in tax breaks waiting for them.

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