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.

Who suggested the idea to whom is still unclear. Cuddeback claims that NCR was hinting that it was not impressed with the effort Fort Collins was making to help the company plan its expansion there. "We got the sense from NCR that Fort Collins was not being very responsive to them at all," he says.

Not so, responds Schwartz. She insists the company never considered Colorado Springs as a substitute for the expansion plans intended for Fort Collins. "It had never even been looked at as a possibility," she says. "Colorado Springs came forward and made the offer. They somehow found out about the Fort Collins expansion plan and decided, `Let's go for broke and try to get the whole thing.'"

That isn't to say that NCR wasn't interested once the idea of several million dollars' worth of tax breaks showed up on the table. Schwartz says the company immediately halted its preparatory work on the Fort Collins expansion. The reason: to give Fort Collins time to come up with a nice counter-offer. Says Schwartz, "Fort Collins realized that there was a possibility that we might curtail our plans here, or actually move."

Frank Bruno, director of economic development for Fort Collins, says the Springs' sweetener "was absolutely a surprise to us. All we were doing was helping NCR with their planning for the expansion. They hadn't even asked us for incentives; nothing was on the table."

With Colorado Springs' $20 million package of tax breaks and other giveaways out in the open, however, Bruno says it was no longer possible to offer NCR nothing. Since June, Bruno and other Fort Collins economic developers have scrambled to come up with a matching offer. Not surprisingly, they turned to the state's enterprise zones.

One major benefit of Colorado Springs' incentive plan was that nearly forty acres of land owned by NCR next to its existing facilities already were part of an enterprise zone. As a result, the city's economic-development officials pointed out that if the company chose to expand there--instead of up north--NCR would be eligible for generous state-sanctioned tax breaks.

Like Colorado Springs, Fort Collins already had a designated enterprise zone, which the state granted in mid-1993. Unfortunately, it was across town from NCR's facilities. Earlier this year the city had applied to expand the existing zone. When it got wind of Colorado Springs' incentive plan, however, Fort Collins quickly added an amendment to the expansion request to include land on which NCR's expansion was scheduled to occur. That way, any new work the company did would be eligible for generous tax breaks.

The city didn't stop there. Last month Fort Collins--again invoking recently passed state laws--added more tax breaks to sweeten the pot for NCR. According to an economic-development bill passed by the legislature two years ago and modified last year, local governments may now extend property-tax breaks to companies if officials think it will help them lure a company into town.

Four weeks ago, Bruno says, both Larimer County and the Fort Collins school district agreed to consider rebating property taxes if NCR proceeded with its Fort Collins expansion. According to the Larimer County treasurer's office, NCR currently pays more than $100,000 a year in property taxes, although that amount would increase significantly if the company expanded.

Fort Collins's efforts may have come too late, though. On August 29 AT&T announced that it was selling its NCR Microelectronic Products Division, including the facilities in Fort Collins and Colorado Springs, and that whether or not Fort Collins would ever see the $300 million expansion plan was up to the new owners.

It's not certain the Fort Collins expansion project was far enough along that AT&T would have okayed it even if Colorado Springs hadn't intervened.

What is certain is that the two cities' fat economic-development incentive proposals will only continue to benefit AT&T. For example, Schwartz says that the tax breaks offered by both Fort Collins and Colorado Springs will be mentioned in prospectuses sent to potential buyers of NCR as a major attraction.

"A [tax] incentive plan to expand would not be anything to ignore," she explains. "That definitely will be part of our package" to sell

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