house of subsidies

Colorado farmers receive $196 million in crop subsidies

Anonymous — Tue, 12 May 2015 06:00:00 +0000

Colorado farmers receive $196 million in crop subsidies Anonymous (not verified) Tue, 05/12/2015 - 00:00 Lars Gesing

House of subsidies, part four

Note: This is the fourth in a series examining how government money helps Colorado industry. Today’s focus is federal crop insurance.

Farmer Rick Palkowitsh checks the state of wheat plants on his farm in Burlington, Colorado. Bugs that come in with the sometimes heavy east winds in the area can kill his plants within days. (Photo: Lars Gesing / CU News Corps)

In Kit Carson County, close to the Kansas border but deep in Colorado’s breadbasket, only farms separate the big blue sky from the fruitful soil.

At least the soil is supposed to be fruitful.

Two severe, multi-year droughts hit farmers hard here on the Eastern Plains twice within the last dozen years. The second round left once green fields dangerously barren far into 2013, and agricultural businesses are still recovering, said Rick Palkowitsh, 46, who owns a wheat and corn farm in Burlington.

“We hope it starts raining soon,” he said, turning a haggard face toward yet another beautiful, cloudless mid-April Colorado sky.

Palkowitsh is among the thousands of Colorado farmers who receive emergency payments from the federal government in case of a natural disaster or severe price fluctuations. In 2012 alone, farmers across the state received $196.2 million in federal funds. That more than doubled the 2011 number, which was $84.9 million (see graphic).

As part of its investigative series on the impact of corporate subsidies on Colorado’s economy, CU News Corps analyzed the crop insurance program’s warranty and weighed the arguments of the program’s supporters and its opponents.

View graph showing annual insurance costs in Colorado

Severe weather such as drought provided fertile ground for farmers’ advocates as they successfully fought for an extension of crop insurance subsidies to be included into this spring’s $956.4 billion farm bill, the Agricultural Act of 2014 (see graphic), which President Barack Obama signed into law on Feb. 7.

According to the bill, the federal government will spend $90 billion over the course of the next 10 years to subsidize insurance policies for agricultural businesses in case their crops fail or prices decline. That’s a $7 billion hike compared to the 2008 version of the farm bill.

More info on the 2014 farm bill

The number includes federal lawmakers’ plans to spend $7 billion to help cover farmer’s monthly deductibles even before the insurance kicks in – a concession offer for cutting direct payments out of the bill.

Those guarantees enrage critics who have fought long and hard to abolish direct subsidy payments to farmers.

The nonprofit Environmental Working Group, which specializes in research and advocacy in the areas of agricultural subsidies and corporate accountability, among others, opposed the new farm bill.

In a statement, the organization pondered, “Although the Congressional Budget Office estimates that annual spending on traditional farm subsidies will fall, the final bill includes price and revenue guarantees that will almost certainly cost more than expected.”

Farmer advocates disagree.

“This country depended on a safe and abundant food supply since day one,” said Norman Dalsted, a professor of agricultural and resource economics at Colorado State University’s College of Agricultural Sciences. “[The lawmakers] were very concerned about the safety net. In case of a drought or a harvest fallout, will agricultural businesses have income?”

Rick Palkowitsh knits his brow. During some of the drought years, he said, he could only harvest about 10 percent of his usual corn and 25 percent of his regular wheat yields.

“That’s why we need crop insurance,” he said. Unlike any other industry, Palkowitsh explained, farmers are at Mother Nature’s mercy.

“You definitely might have better odds in Vegas, to be truthful.”

The federal crop insurance program, administered by the U.S. Department of Agriculture’s Risk Management Agency, covers 50 percent of farmers’ losses. For a premium, farmers can buy additional insurance beyond the scope of what the government provides. In Colorado, companies like Armtech, Rain and Hail, John Deere and Farmers Union are among the companies that sell those extended crop insurance policies.

Palkowitsh said he covers his farm at the 75 percent deductible level, “the highest that is economically feasible in Colorado.” His premium is anywhere between $10-15 for every $100 of coverage.

Gallery

Hoping for a better year

The harassed 2007 Chevrolet Silverado drags a cloud of thick, brown dust behind it as Palkowitsh takes the unpaved county roads that sporadically link the farms in the area to inspect some of his 3,800 acres of farmland.

It’s mid-April, almost time to plant corn. The green wheat fields smoothly waver in a wisp of wind. They were planted in the fall.

The only reason they look so green right now, Palkowitsh said, is because of the heavy rainfalls in September 2013. While most of the Front Range was rattled by devastating floods, the nearly 12 inches of rain that fell on his farm within 24 hours substantially increased chances of a good harvest this year, Palkowitsh said.

“It was also the last decent rain we had.”

Agricultural businesses of all shapes and sizes make up nearly the whole economy here in Kit Carson County. The local jail is the other kind-of-major contributor. According to the EWG, the county is the top recipient of federal crop insurance funds. In 2012, $38 million in federal funds reimbursed Kit Carson County’s farmers for drought losses and price fluctuations.

Is that money well invested?

“[Farmers’] profits and productivity are crucial to American consumers,” said Norman Dalsted, whose family owns a wheat, soybean and canola farm in North Dakota, close to the Canadian border.

According to the U.S. Department of Agriculture, Colorado farmers sold $2.43 billion worth of crops in 2012.

But Taxpayers for Common Sense, a nonpartisan federal budget watchdog group based in Washington, D.C., criticized the federal crop insurance in an issued statement as a program on auto-pilot that has no payment caps, “meaning costs will continue to rise as more crops are added to the program and participation rates increase.”

The organization’s critique doesn’t stop there. “[Farm payments] also encourage excessive risk-taking by insulating agribusinesses and passing the risks to taxpayers.”

The EWG lamented that the crop insurance program “fails to include a means-testing provision that reduces insurance subsidies for the largest producers.” Such a provision was approved twice by the Senate, but never made it into the final farm bill text.

Like most farmers in and around Kit Carson County, Rick Palkowitsh inherited the business from his dad, who retired in 1998. Since then, it’s just Rick, his wife, Bonnie, and 3,800 acres of land.

Although enrolled in the crop insurance program, he isn’t one of those whom the EWG labels “largest producers.”

“What is a large farm?” Norman Dalsted wondered. “No one seems to have an explanation.”

“Some 95 percent of the farms [the EWG] refers to are still family-owned,” Palkowitsh said. “There are two or three generations working those farms. If you put that into perspective, are they really any larger?”

Palkowitsh himself has never had a job outside a farm. He was a junior in high school when he rented his first piece of farmland. Still, he said, today, thanks to small and extremely weather-dependent revenue margins, every farmer needs the government to step in.

“It would be very hard to convince anyone to enter agriculture without the government because of the risk. We have no guaranteed way of paying the banks their money back.”

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Tax break for ‘job creators’ gains traction despite pointed criticism

Anonymous — Tue, 12 May 2015 06:00:00 +0000

Tax break for ‘job creators’ gains traction despite pointed criticism Anonymous (not verified) Tue, 05/12/2015 - 00:00 Lars Gesing

House of subsidies, part three

Note: This is the third of three stories outlining The Colorado General Assembly’s attempts to spur economic growth by giving tax credits to businesses and industries. CU News Corps found that many of the programs put in place don’t always work as well as lawmakers intend. Today’s focus: HB14-1014, the modification of the Job Growth Incentive Tax Credit. A fourth story looks into federal crop insurance.

The job growth incentive tax program isn’t something lawmakers came up with just this year. In fact, it was implemented in 2009, and it allows businesses that created and maintained at least 20 net new jobs in any given year (five if they are located in an enhanced rural enterprise zone) to receive a tax credit equal to 50 percent of what the business paid as payroll taxes to fund social security and health care measures for its new employees.

The bill passed both the House and the Senate without major opposition. House legislators added an amendment that requires the OEDIT to take new steps in finding ways to evaluate how well the most sought-after business incentive is actually working, but the Senate deemed that portion unnecessary and discarded it. Either the House or the Senate version of the bill will become law once Gov. John Hickenlooper signs it within the next month.

This year’s amendment extends the period in which the tax credits can be claimed from five to eight years and changes the bill’s language, requiring the tax credits to be only a “major factor,” rather than the only one, in a business’s decision to locate or retain in Colorado instead of moving to another state.

The bill also lowered the minimum wage-match requirement of a job to qualify for the tax credit from 110 to 100 percent. That means the wage for the newly created job must at least match the average yearly wage of the county in which the business locates. That way, lawmakers hope, companies will bring more medium-paying jobs to Colorado instead of providing opportunities solely for highly-skilled job seekers.

“Our economy is slowly getting better, but to get back to a robust state, we need to bring companies and jobs to Colorado,” said state Rep. Tracy Kraft-Tharp (D-Arvada), one of the bill’s co-sponsors, during a break from a legislative session on April 17.

While the approved bill was among Gov. Hickenlooper’s top priorities in this legislative session, there remains considerable resistance against the measure.

The Colorado Legislative Council calculated that the bill could cost the state an additional $55.2 million within the next 14 years.

University of Colorado Boulder economist Jeffrey Zax is convinced that’s money thrown out of the window. He questioned the government’s general ability to create jobs.

“Is there a net gain for the economy?” Zax asked tax credit supporters, only to go on and answer the question himself. “Absolutely not. On the contrary. What you did is you put companies who didn’t need it at a heightened competitive advantage, and there are probably companies elsewhere who are disadvantaged as a consequence and are suffering. But that second level of analysis just escapes everyone in the public sector.”

Kraft-Tharp disagrees.

“Oftentimes, tax credits alone aren’t successful,” she admitted. “But they are a tool in the toolkit when it comes to the final selection process to give [companies] that final push.”

The state representative said the program already has created 12,000 jobs since 2009.

According to the latest Economic Development Commission’s annual report, in the 2012-2013 fiscal year 16 projects received approval for up to $46 million in tax credits associated with the creation of 4,784 jobs.

Among the funded corporations was Woodward, Inc., an aerospace systems designer, manufacturer and service provider. As the company was looking for a location for its new world headquarters, the EDC approved a $7.26 million tax credit and anticipated a $200 million investment and the creation of 971 net full-time jobs in return. In August 2013, Woodward announced it would build its new headquarters in Fort Collins.

But Carol Hedges said the sole purpose of job incentive tax credit programs was for politicians to appeal to voters.

“I have spoken to several legislators about these bills, and I have gone into offices and said, ‘This is a dumbass idea, it doesn’t accomplish what you hope it’s going to accomplish, it doesn’t say anything to address the concerns that you say you are concerned about’,” she said.

“To a person, they have said, ‘I understand that. But jobs and the economy is the number-one issue on the voters’ minds right now, so we know that these are dumb, we know that these are sending money to the wrong people, but we need to send a signal to the voting public’.”

A recent Quinnipiac poll found that Coloradans’ chief concern remains the state of the economy, which provided fertile ground for tax credit incentive proponents.

Independence Institute senior fellow Linda Gorman doesn’t want to hear any of it.

“Corporate subsidies encourage a corrupt government, and that is never good for a democracy,” Gorman said. “They take money from productive people, filter it through the government and give it away. The government shouldn’t pick market winners and losers”

Zax agrees with both Hedges and Gorman.

“Half the bills have attached to them, ‘This will create jobs’,” he said. “And this phrase is meaningless, it’s a flag-waving exercise, putting a bumper sticker on it. It’s a way to say, ‘I care about it, I care enough about it to utter these words.’ Whether or not [legislators] care enough to design policy that will actually do that is a wide-open question, and the answer is really, ‘no’.”

The CU economics professor labeled the tax credits government favoritism. “These payments are completely unjustifiable, except as payoffs to political supporters,” Zax said.

His allegations caused some substantial anger on the other side of the aisle.

“You can call everything we do in government favoritism,” state Rep. Max Tyler said. “We decide what we think works best for the state of Colorado.”

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Lawmakers renew push to incentivize investors to give money to advanced industry startups

Anonymous — Mon, 12 May 2014 12:00:00 +0000

Lawmakers renew push to incentivize investors to give money to advanced industry startups Anonymous (not verified) Mon, 05/12/2014 - 06:00 Lars Gesing

House of subsidies, part two

Note: This is the second of three stories outlining legislative attempts to spur economic growth by giving tax credits to businesses and industries. Today’s focus: HB14-1012, the Advanced Industry Investment Tax Credit. A fourth story covers federal crop insurance subsidies.

Colorado lawmakers have pushed hard during this year’s General Assembly session to extend and increase tax credits to industries and corporations in the hopes that such breaks would spur job growth and the overall economic performance in the state.

CU News Corps analyzed this year’s legislative session and the key corporate tax-credit incentive bills that lawmakers proposed and passed. News Corps found that many of the programs put in place don’t always work as well as lawmakers intend.

House Bill 14-1012, which proposed the advanced industry investment tax credit, aims to incentivize so-called angel investors, wealthy individuals looking to put their money into local startups, to help new businesses with early-stage capital.

An amended version of the bill passed the Senate on April 30, and the House confirmed the changes in a second vote two days later. The bill will become law once Gov. John Hickenlooper signs it within the next month.

State Rep. Max Tyler (D-Lakewood), one of the bill’s three House co-sponsors, said early-stage capital was one of the problems most startup businesses encountered.

“Maybe this bill can be the tipping point by providing an incentive to invest into those businesses,” Tyler said.

The advanced industry investment tax credit allows an investor to claim a reduction of their state income tax bill equal to 25 percent of their investment. If the startup operates in a rural or economically distressed area, investors can even claim a credit equaling 30 percent of their financial engagement, which has to be at least $10,000.

In Colorado, advanced industries include companies that specialize in aerospace, advanced manufacturing, bioscience, electronics, energy and natural resources, information technology and infrastructure engineering.

The Boulder Chamber of Commerce welcomed the efforts put forward by Tyler and the bill’s other sponsors, state Rep. Cheri Gerou (R-Evergreen) and state Sen. John Kefalas (D-Fort Collins).

“We need to support the advanced industry programs because that’s how we excel as a community,” said John Tayer, president and CEO of the Boulder Chamber. “The success and vitality of our economy are everyone’s business. We need to thoughtfully invest in key state industries, in particular those which provide [economic] growth.”

This year is not the first time state legislators tried to incentivize angel investors with tax credits. In 2010, lawmakers created a similar program. But those incentives never worked – because of the program’s small scale, as backers of this year’s new attempt argued.

The 2010 bill capped a 15-percent tax credit at $20,000, and only investments made in 2010 were eligible in the first place. The program’s overall size was limited to $750,000.

This year’s bill, which replaces the innovation investment tax credit, takes a large, multi-year approach. The maximum amount for a single tax credit is now $50,000. Investors can claim tax credits for multiple investments into different businesses, though.

The original bill’s language allowed for up to $2 million annually to be granted in advanced industry investment tax credits within the next four years. But the amended version cut that scope to $375,000 in 2014 and $750,000 for each of the years 2015, 2016 and 2017.

The national Angel Capital Association estimates that by now, half the states provide some form of comparable benefits. Still, the bill passed in Colorado this spring is highly experimental, as most angel investment tax credit programs nationwide have emerged within the last five years and have failed to produce reliable data so far.

According to Tyler, the program will be worth the risk.

“Colorado is now the No. 4 job creator in the country,” he said. “We would like to improve that so that at some point, maybe we will be No. 1.”

In 2017, the bill requires the Office of Economic Development to report to legislators on the advanced industry investment tax credits and their economic benefits.

According to Carol Hedges, the executive director of the Colorado Fiscal Institute, relieving individuals of their tax duties is the wrong approach. “The use of the tax code to pick out individual groups and treat them differently is at an apex this year,” Hedges said.

“If you give someone a tax credit to make them do something they normally wouldn’t do, you basically pay for that,” said Linda Gorman, a senior fellow at the Independence Institute, a free-market think tank in Denver. “If the government wants to achieve something, they should pay for it upfront so the taxpayers can see the costs.”

Despite the criticism, the advanced industry investment tax credit isn’t the only incentive for the high end of the corporate sphere. The new bill complements the advanced industries accelerator programs that were created in 2013.

In a press release, Gov John Hickenlooper said then, “We can boost Colorado’s advanced industries by increasing their access to capital. These types of bipartisan efforts will help Colorado continue to grow and sustain a long-term innovative ecosystem that creates highly skilled jobs and prepares Coloradans to fill them.”

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State legislators extend tax credit programs for corporations, spur dispute but hope to improve economy

Anonymous — Mon, 12 May 2014 06:00:00 +0000

State legislators extend tax credit programs for corporations, spur dispute but hope to improve economy Anonymous (not verified) Mon, 05/12/2014 - 00:00 Lars Gesing

House of subsidies, part one

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