Posted by Tom Clark April 5, 2012
Can we say it now? Yes, the economic recovery in Colorado is officially in full swing. What was a 50-employee company announcement two years ago is now a 200-employee announcement today. It is time for Colorado to go full bore to capture these opportunities.
But those of us in economic development find ourselves in a conundrum with a gap between opportunity and incentives. In recent years, the Colorado Economic Development Commission (EDC) has made available an incentive pool of $5.75 million in cash grants to companies-called the Strategic Fund. Coupled with the Job Growth Incentive Tax Credit, which allows companies to apply to the EDC for a 3.8 percent per job state income tax credit based on the payroll tax cost they incur from creating new jobs, Colorado has become increasingly competitive in the global incentive game.
There's just one catch. It's called the Great Recession. The 3.8 percent income tax credit only works when companies are making money. With so many companies awash in red ink from the recession, the credit is virtually worthless to many.
That's why the Strategic Fund is so important. And right now it's hit a trouble spot in the state's annual budget.
While it's easy to find an audience of supporters for special interests-such as tourism and films-there is no easily identified group of zealots for general economic development incentives. The Strategic Fund has been pivotal in our efforts to land such companies as Arrow Electronics, GE Primestar Solar, DaVita, and others. These companies do not fall into a single, special interest category. But each is iconic in our innovation clusters. Without such brand names, our ability to locate similar firms into Metro Denver and Colorado would be diminished.
Long ago, other states realized the importance of credits AND cash to their incentive strategies. Take Texas' Enterprise Fund-the nation's largest cash incentive fund. In a recent award, the fund granted a single company an amount nearly four times larger than Colorado's entire Strategic Fund.
In 2012, Texas announced that Apple would add a new campus in Austin, creating 3,600 new jobs. The Enterprise Fund would invest $21 million over 10 years. Oh, to have that leverage!
Today, Metro Denver is the third-fastest region for job growth in the country. Let's not lose the momentum that's underway. Talk to your legislator; give him or her a call. In a recent poll conducted by the Metro Denver EDC, "jobs and the economy" was the top concern of Metro Denver residents-four times greater than the No. 2 issue.
Let's get Colorado working again with high-paying, quality jobs in our innovation clusters. Help Colorado keep the Strategic Fund as our winning strategy.
Tags: Economic Development, Incentives
Posted by Tom Clark March 26, 2012
The first time “crowd funding” for startup companies was explained to me I thought it should be renamed to “cloud funding.” Anyone willing to invest small amounts of money into startups with no collateral, loan documents, or regulatory restrictions certainly seemed to be someone with his or her head in the clouds.
Crowd funding, sometimes called crowd-sourced capital, is the pooling of money to support the efforts of new ideas or other initiatives with which the funders share some common interest. The money is usually collected through the Internet.
The recently passed crowd-funding bill requires companies to register with the Securities and Exchange Commission (SEC) and provide tax returns if they use crowd funding. This is not a big deterrent to those who will move to make this into a new commercial industry. Credit is due to Colorado Senator Michael Bennet for pulling off the final Senate compromise that sent this bill to the President’s desk.
Crowd funding has been happening for years. Natural disasters often create a crowd-funding response. Now it’s set to fund commercial ventures in a big way.
Some of us remember the “penny stock” businesses that flourished in Colorado in the 70s and 80s. It made millionaires and paupers out of many a “get-rich-quick” wannabe. In Denver, the industry’s poster childBlinder Robinson and Company--collapsed in the late 1990s after taking millions of dollars from questionable or fraudulent stock sales.
Is crowd funding for business ready to do the same? Let’s give that a qualified “maybe.” With lower regulatory and legal standards for “entry and reporting,” the new industry will invite speculators, hucksters and, of course, the Nigerian prince who needs help getting his money into your bank accounts, or vice versa.
But, we would argue that crowd funding fills a gaping hole in how small businesses, with great ideas, find capital. Virtually every successful startup company is driven by the passion of its founder(s). That’s followed by the founder emptying his or her savings and mortgaging his or her house. This is followed by convincing their friends and others of the potential payoff from their new enterprise. This funding mechanism is called “friends, fools, and family.” It’s the tried and true American startup path.
But what if Congress made it easier for you to broaden your funder base—people you don’t know? Maybe those people are looking to make a quick buck or maybe are just interested in (and understand) your new idea. Crowd funding makes these types of investors available.
There are limits in how many times the fund can go for new cash and the actual cash the fund can receive. This is all intended to reduce risk to the investor, which is a good idea. However, this type of financing, popularized originally in philanthropy and later migrating into film and social enterprises, is now going commercial.
Why does this matter to Colorado? In the decade ending in 2010, Colorado companies that had actual employees added NO NET NEW JOBS—for the ENTIRE decade. It was a bad run. But the region added 130,000 jobs—all “non-employee firms.” In other words, 130,000 individuals started their own firms. Throughout that same period, state and local governments were scrambling to create greater access to capital. While state and local government efforts to increase capital access are laudable, they’ve simply never been very good and have failed to reach any large audience of entrepreneurs.
Crowd financing goes directly from the investor to the entrepreneur. The cost of financing drops dramatically and economies of scale, required in most loans, is reduced since administrative costs are substantially reduced.
We don’t know how those 130,000 intrepid entrepreneurs would have fared if crowd funding was available a decade ago. But I think we’re willing to concede they would have had a lot more Facebook friends and probably would have created a lot more jobs than just their own. Let’s watch this innovation closely. Colorado may be one of the biggest beneficiaries.
Tags: Legislation, Venture Capital
Posted by Tom Clark March 6, 2012
Imagine you're one of the nation's most innovative publicly regulated utilities. You have a great partner with a global brand. Your partner is a showpiece for everything you value and want to accomplish. You invest money heavily in your partner. You promise your other customers that what you create, and the new efficiencies you'll achieve, will be shared after your partner helps you learn how to do them. And for a while you get along reasonably well with each other. But your partner wants you to move faster than you want to. They want you to take risks that you're not convinced will pay off. And when you chose different paths, your partner decides to break up with you.
Boulder, Xcel's partner, and the only Smart Grid City certified by the World Economic Forum in Davos, Switzerland, is deciding to break up with Xcel Energy and may create its own municipal utility. It's a sad day for Colorado. We had high hopes for the Boulder Smart Grid initiative going forward. Today it's a much more efficient, predictive electrical system than almost anywhere in the world. But for the voters of Boulder that wasn't enough. They wanted more alternative fuels, more personal control over their energy choices and, as is mostly the case these days, they prefer that Xcel and all of Xcel customers pay for it. No one would quarrel with that decision if Boulder had chosen to stay in Xcel's territory.
Boulder is what is called an "early adopter." It's a city that had its own Internet before there really was one. It was the first to prove that customers would pay more for electricity generated from alternative sources. We can all appreciate their willingness to take on risk and be willing to live with the consequences. In many ways, Boulder's technological bent led the way for many of our changed views on new energy. Its willingness to experiment with a host of urban issues should be applauded.
Boulder commercial and residential customers utilize the Xcel energy rebates at a higher rate than customers in the rest of Xcel's territory. The costs of these rebates are shared across Xcel's entire customer base. With the prospect of Boulder forming its own municipal utility, Xcel is seeking a ruling from the Public Utilities Commission that would define its obligation to Boulder customers for future rebates and its obligation to its other customers should Boulder split away.
It is not a comfortable place for a company that, a decade ago, set out to be a leader in energy conservation and use. And it seems that Xcel should have a right to be reimbursed by Boulder for some of its investments that went only to Boulder customers if Boulder forms its own utility. The same goes for its responsibility to its remaining customers when it comes to continuing or discontinuing its rebates to another utility that is no longer in its territory.
Tags: Cleantech, Energy
Posted by Tom Clark January 24, 2012
Gov. John Hickenlooper is about to start a statewide listening tour on the public's vision of the state we want to live in. It's JIT—"just in time." With his TBD ("to be determined") initiative, the Governor intends to spend a good amount of time both laying out the state's financial condition and listening for new ideas. He'll also be paying extra attention to those comments on what aspects of our lives we prize most in Colorado. Will it be our open spaces, our schools, our low taxes, our roads, or all of the above?
These conversations have been going on for more than five years-from Rutt Bridges' Bighorn Center to the Metro Denver EDC's Toward a More Competitive Colorado (first published in 2005). In recent years the University of Denver with its Colorado Futures program and former Club 20 CEO Reeves Brown's "grass tops" initiative have all taken steps to inform a broad spectrum of leaders around the state.
What has not been done is a much deeper dive into the psyche of all Coloradoans. It is a risky undertaking. The Governor's "bottom-up" economic development planning process brought in a mixture of the citizenry and community and political leaders. It worked fairly well, despite outcries from various quarters that they should have been invited to the conversation. We hope that TBD can accomplish the same positive outcome.
The TBD conversations should be very lively. There's lots of solid data that lays out our competitive position as compared to other states. We are very competitive in many ways, and not in some others. The cost of a college education for the average family's budget has increased 50 percent since 2000. More than 50 percent of our roads are in poor condition; some are still in use, but unsafe. We have the third-lowest residential property tax burden, the lowest state sales tax (in states that have a sales tax). Ditto for our state income tax. But we have the 10th-highest local government tax burden. See Toward a More Competitive Colorado at www.metrodenver.org.
With the recent Lobato decision, wherein the judge called our funding of K-12 "unconscionable," we run the risk that the courts will begin deciding our tax rates. Our funding of K-12 may be "unconscionable" in the eyes of the judge, but we would argue it's not "unconstitutional." We vote to fund education at the levels we choose. With the potential for a constitutional confrontation in the wings and a structural deficit in our budget, the Governor's tour couldn't come at a better time. Stay tuned.
Tags: Gov. Hickenlooper, Legislation
Posted by Tom Clark January 17, 2012
Both of Colorado's political parties are championing the reinstatement of the Senior Homestead Exemption, a program than can potentially cost the state's General Fund up to $100 million. While such rhetoric makes for great election-year chatter, it ignores some basic facts.
Seniors, and the rest of us homeowners, have received a total of $17 billion in property tax breaks on our homes since 1987. Annually, the amount totals to about $71 million. That $17 billion in tax breaks has been passed on to the state's General Fund and commercial property owners, courtesy of the well-intentioned, but fiscally crippling Gallagher Amendment, passed by voters in 1982. Today, Colorado ranks second lowest in the nation for residential property taxes.
If you worry about higher education (like we do at the Metro Denver EDC), you might look at the millions of dollars cut from our universities over the past decade. What would $71 million mean to the cost of tuition for students? In 2000, tuition at the state's colleges and universities required 19 percent of the average family's income. In 2011, that number skyrocketed to more than 30 percent of the average family income.
A degree at a community or four-year college is a requirement to participate in the state's innovation economy. And the price of participation is rising.
Is it good public policy to continue to limit more young people from attending college due to rising costs, or to give seniors another property tax break? Is being the No. 1 lowest residential property tax state substantially better than being No. 2?
Tags: Legislation
Posted by Tom Clark January 10, 2012
This past week a business icon left us. Walt Koelbel, Sr., was one of the founders of the Greater Denver Corporation in 1987. In 2002, his son Walt (Buz) Koelbel helped found the Metro Denver EDC. Walt was the first developer to serve as an officer in the Greater Denver Corporation. It was an unusual move. The opportunity for conflicts of interest as an insider on the board had kept many a good real estate person from occupying an officer's seat. But Walt was so highly respected that his nomination was never questioned. He was so conscious of any apparent conflicts that, even though he was an investor, he would never submit his properties for consideration by prospects until he had checked with me.
Walt graduated from the University of Colorado with a bachelor's degree in economics. He stumbled into real estate, loved it, and went on to survive the booms and busts of the Colorado economy, building a great company along the way.
He often went against conventional wisdom. When I saw him build a high-end apartment complex in the middle of the 80s recession and then saw it fill up quickly, I was astounded by his success. He smiled sheepishly and said, "We had so much money in the land that developing a pricy project was the only choice we had. We're not visionaries, just desperate real estate guys." He was honest and humble.
But mostly, Walt was my friend and confidant. When things got chaotic in my professional life back then, it was Walt who took me to lunch, listened to my worries, and supported my efforts. As his health failed, I saw less and less of him. But the accolades and awards for his pivotal role in the business community just piled up and up. In every sense of every award, Walt Koelbel deserved them all.
Posted by Tom Clark October 25, 2011
In the past few weeks there has been some stress on metropolitan cooperation, especially in the area of economic development. This is unfortunate. But while the intrigue around the Gaylord project in Aurora caught headlines, the regional economic development system handled another major project with great efficiency and no acrimony.
While GE's PrimeStar Solar thin film solar manufacturing plant, valued at $300 million, announced its decision to locate in Aurora, there was a trail of contributors who deserve mention for their efforts, starting many years ago.
Our first encounter with the company was when one of its inventor/owners became a member of our Colorado Energy Coalition (CEC). Ken Zweibel was one of three brilliant scientists who came out of the National Renewable Energy Laboratory (NREL) to create PrimeStar Solar.
As the company outgrew its first building, Ken and his partners began looking for bigger and better space. We helped them find a suitable building in Arvada, with the help of our partner, Hazel Hartbarger, who has headed Arvada's economic development operation for many years.
In a few short years, General Electric saw the great promise of PrimeStar's technology and made a $6 million cash infusion to the fledgling company and later acquired it.
The Arvada site was too small to accommodate increasing needs for manufacturing operations. Arvada notified our office that the company was on the hunt for new space. A broker was retained by the company and approached Adams County Economic Development for data on large, available manufacturing space. Barry Gore and his staff offered the Avaya building at 120th and I-25, in Westminster. John Hall and Susan Grafton of Westminster's economic development team were also brought in. Subsequently the broker also found another building-the one that would ultimately be chosen in Aurora.
Westminster and Adams County ED partnered with the State Office of Economic Development and International Trade to develop an incentive package. In Colorado, incentive packages tend to be small in amount and almost always require a joint proposal from the State, County, and City where the deal is happening. Westminster's joint proposal with the State and Adams County Commissioners was the largest incentive package offered-approaching $50 million "all in." By this time the company (GE) had identified itself and 10 other states jumped into the competition.
Unfortunately for Westminster, the Avaya building could not be ready for manufacturing to suit GE/PrimeStar's tough schedule. Another suitable building was identified in Aurora. It was right on I-70 and could be ready in time to meet GE's deadlines. In the meantime, GE/PrimeStar said it would keep its research and development and headquarters operations in Arvada, provided additional testing space for the company's panels could be provided. It was.
Now, this is where things really work well. Westminster had gone from the No. 1 city to No. 2. Aurora was vice versa. Under the Metro Denver EDC Code of Ethics, of which both Aurora and Westminster are signatories, the city in the No. 2 position cannot "go around" the deal until all efforts by the No. 1 city are exhausted. Aurora had waited patiently for the Westminster site to play out and was now ready to try its hand in the deal. Susan Grafton, head of economic development for the City of Westminster was informed that her site was now in second place and Westminster needed to stand down until or if the Aurora site could or could not work.
Meanwhile, the State Office of Economic Development program, Adams County, and Aurora were working with the company to get all the incentives in line and deal with the growing threats of other states, all of which were augmenting their own incentive packages. Adams County ultimately offered the largest local government incentive at $6 million in business property tax rebates over the next five years. Aurora and the State through in-kind, training funds, and tax credits accounted for about another $14 million. The media pegged New York's offer at about $30 million. Our sources tell us that it was much more.
Gov. Hickenlooper played a pivotal role in "closing" the deal. But in the end, Metro Denver and Colorado won, beating out a vigorous offer by Gov. Cuomo. It took this entire string of events and people to make this happen. From the genius of the inventors, the presence of NREL, the initial site in Arvada, to General Electric's purchase, to the many organizations that partnered in the site search that ended in Aurora. This is how our unique economic development process works. And it did not go unnoticed. GE executives commented at the announcement that one of the things that helped them make their final decision was the "state's collaborative economic development process."
"Colorado won the PrimeStar Solar plant because it had a technology head-start and a facility that could quickly be turned into a factory," said Victor Abate, vice president of GE's Renewable Energy business.
But if you don't think there is enthusiasm for the victory of one city by another, here's what Hazel Hartbarger from Arvada said, "PrimeStar Solar is an important corporate citizen in Arvada. We are proud that the company, along with many employees, chooses to do business here. Colorado IS the perfect place for SOLAR! Congratulations to GE on your new facility planned in Aurora!" said Hazel Hartbarger, Arvada Economic Development Association Director.
As they say in the movies, "I love it when a plan comes together." Thanks to all who made this a success.
Posted by Tom Clark September 20, 2011
Site Selection events are designed to introduce Metro Denver to consultants from site selection firms, national real estate executives, national accounting or engineering firms with site selection practices, and high-level executives within companies that are seeking a new corporate home. The Metro Denver EDC has been hosting Site Selection conferences since 1986. These events are our most successful marketing tool other than the Metro Denver EDC website.
Next week, 10 of the nation's most prominent corporate site selection consultants will visit the Metro Denver region. The Metro Denver EDC and its economic development partners will host this important group-providing economic briefings, helicopter tours or the area, discussion panels-giving them a taste of what it's like to live and work in Colorado. The site selectors are coming here to learn more about our region for their clients and to share with us the changing trends in corporate location decisions.
A typical site selector will work six to 10 projects per year. Virtually all site selectors are paid a fee by the company who retains them for location services. They do not make their money from the magnitude of incentives that can be extracted from state and local governments. For an economic development organization like the Metro Denver EDC, site selectors are a valuable upstream marketing opportunity and a lucrative source of corporate intelligence. The upcoming Site Selection conference, for example, can very easily put Metro Denver on the radar of more than 75 companies seeking new expansions this year by virtue of meeting with their consultants.
During our last event in August 2010, one site selector was working an active prospect. On the final evening he told us he was going to inform his client that although Metro Denver was not on the short list for the company's new facility, they needed to come here for consideration. On September 21, 2010, the company came for its first visit, then returned twice in November. Metro Denver went from "not on the list" to the company's first choice. This company is Trulia.com, an Internet-based real estate listing and information website. To date the company has hired about 130 people at its new facility in Centennial.
Each Site Selection event costs about $90,000 to $100,000. One deal that brings 100 new jobs generates about $9 to $10 million a year in salaries alone. That's a $1,000 to $1 return. And what is my savings account paying?
Posted by Tom Clark September 13, 2011
A decade ago, we considered Utah as one considers a mosquito, buzzing around annoyingly but not of any consequence. We were focused on regional competitors in Texas and the Phoenix metro area. A few years later that all changed.
This past week I traveled to beautiful Utah as the guest of the Salt Lake Chamber of Commerce. The Metro Denver EDC has recently added Utah to our list of competitors in our annual publication Toward a More Competitive Colorado. Why? Because Utah seemingly burst onto the scene with smart infrastructure investments, international recognition from the Olympics, and a plethora of targeted programs to grow new jobs. Of course, these advancements didn't happen overnight. What was observed in the data was the outcome of years of good management, strategic vision, and solid execution.
I was honored to meet some of these leaders in my recent visit. Here's what I found:
- In the 1990s, in one year alone, the Colorado General Assembly refunded over $950 million to taxpayers under provisions of the Taxpayers Bill of Rights (TABOR). That same year the legislature cut state programs. At the same time, Utah put its surplus money into a "rainy day" and infrastructure account.
- The Utah legislative leadership continued to fund existing social programs but resisted expansions of those programs, thereby not creating a system that would eventually demand tax increases when the growth spurt ended. This is real leadership.
- Utah used its surplus to rebuild the road system and to construct and repair public buildings. Along with the improvements realized from the 2002 Winter Olympics, Salt Lake City now has a modern road system, commuter transit, and a complete interstate system around the metro area.
- Utah held its Triple A bond rating and dramatically increased exports.
- And, Utah abolished term limits. They wanted to elect representatives who would have to see their decisions through, and not be cobbled by one-issue candidates with narrow agendas.
In the early years of the 21st century, Utah looked at ways to stimulate small business creation and innovation. The state studied a small program in Colorado, created by the Colorado BioScience Association, which provided small amounts of money to pharmaceutical researchers to help with the challenging process of proving the commercial viability of new discoveries. The process is called "proof of concept" and is the most difficult money to obtain. Colorado ponied up $2 million for this fund, which helped create about 20 companies employing more than 200 people.
Utah took Colorado's idea to scale-it provided $14 million for a similar program, creating more than 450 new companies, and adding 4,500 jobs to its economy. When I commented on its surprising success, Utah's leadership were kind enough to acknowledge Colorado's contribution to its innovation economy.
Certainly, Utah is not the center of all things wonderful. Like the rest of us, it is struggling through this recession. The state's birth rate is booming, and 65 percent of its citizens are children or elderly paying virtually no taxes. Schools are over-crowded and the state ranks 50th in student-teacher ratio in K-12. Colorado ranks 40th. Utah's politics have become increasingly polarized with the Tea Party playing a powerful role in next year's elections.
But to Utah's credit and thanks to its business and political leadership, it has evolved into an acknowledged economic challenger in the West. We need to ignore Satchel Page's sage advice, "Don't look back, they might be gaining on you." They are gaining!