DENVER — Reducing or eliminating business personal-property taxes could force many local governments to scale back programs and services, according to local officials who testified Tuesday at a meeting of the Legislature’s special Committee on Economic Development.
The panel is examining whether the personal-property tax makes businesses reluctant to locate or expand in Colorado.
According to Rep. Bob McCluskey, R-Fort Collins, the co-chairman of the legislative panel, “Colorado’s business personal-property tax has made it difficult for Colorado to attract and retain businesses, but both state and local governments have become extremely dependent on the revenue that it provides.
“It’s important that we create a better business climate for the state, but not without first considering the impact of changing a long-standing state tax policy,” McCluskey said.
The business tax generates about $635 million a year statewide for municipalities, counties, school districts and special districts.
Ending it could also cost those governments another $550 million in residential property-tax reductions. The Colorado Constitution mandates a strict balance between residential- and business-property taxes, and lowering the latter would require a concomitant cut in the former.
Several local officials questioned whether ending the tax — which businesses pay annually on machinery, equipment, computers, furniture and even pipelines and oil and gas facilities — would promote economic development and job creation.
The business personal-property tax is one thing companies consider when pondering a move to Colorado,” said Larimer County Commissioner Kathay Rennels, although many also might be more interested business-friendly zoning codes and land-use regulations, as well as such quality-of-life amenities such as parks and trails.
Rennels encouraged lawmakers to “look at the broad picture” because “there are many other issues besides business personal-property tax that stop businesses from coming in” or that cause them to leave, she said.
For example, she cited payroll decisions that cause some companies to outsource production and service jobs overseas.
Personal property comprises about 8.9 percent of Larimer County’s local property-tax base, generating nearly $6.2 million a year, Rennels said.
Two Fort Collins officials, deputy city manager Diane Jones and finance director Alan Krcmarik, said eliminating the business personal-property tax would have cut estimated $4.1 million annually from the city’s $89 million general fund.
Because of other revenue declines, Fort Collins already has severely trimmed its budget, Jones and Krcmarik said. They said it would be impossible to cut further without significant spending reductions in the fire and police departments, parks, libraries and youth and senior recreation centers.
Cities and counties already have the ability under state law to eliminate business personal-property taxes.
El Paso County assessor John Bass said his county was the first in the state to do so, phasing them out by 2001.
Bass said he believed the positive message the county sent the business community by ending the tax outweighed any effect it might have had on reducing government revenues.
Asked whether cutting the tax created more jobs in El Paso County, Bass replied: “I believe that it has certainly helped.”
But other government representatives at the meeting said decisions about ending the business property tax should be left to local officials.
Some suggested the loss of tax revenue would devastate local budgets.
La Plata County assessor Craig Larson said one-sixth of his county’s total property-tax base is from business personal property — primarily oil and gas wells, pipelines and related facilities — that generates about $3.1 million a year.
Moffat County Commissioner Marianna Raftopoulos said 14 of the state’s counties depend on business personal property for 20 percent or more of their revenues. In Moffat County, the site of a Tri State Electric power plant, the tax generates more than 44 percent of county’s revenue, she said.
Several officials suggested they would be willing to forego the business personal property tax if the Legislature would cover lost revenue with state budget funds. Another option, they said, would be to create a state income-tax credit equivalent to what businesses pay in personal-property taxes.