Utilities

POSITION ON 2006 COLORADO SPRINGS UTILITIES BUDGET (11/10/2005)  

BACKGROUND DETAIL

Growth Subsidies Built Into Currently Proposed 2006 Utilities Budget

• Out of $211.7 million in major capital projects in 2006 (budget p.66) (vast majority to support growth), developers are forecast to pay only $41.3 million (budget p.63) If appropriate development charges are levied, substantial rate relief and/or reduced borrowing could be accomplished.
• Inadequate development charges in 2006 will cost the average residential ratepayer $599. The cost to the average commercial/industrial ratepayer is $6,518. By 2010, these costs are projected to rise to $1,553 and $16,375 respectively.
• Tap fees should reflect the actual cost of infrastructure and capacity required.
• Utility bills should reflect the actual cost of service, maintenance and rehabilitation of older infrastructure – no more, no less.

Greater Colorado Springs Economic Development Corporation

• Private corporation founded by developers and funded by businesses that stand to benefit from construction and expanding the size of their local market while shifting the cost to the public
• Promotes continuation of out-dated, counter-productive economic development policies that benefit a few businesses at the expense of the entire community
• Promotes public assumption of risks and costs of expanding utility and transportation infrastructure while member companies profit
• Promotes tax increases for public at large, but tax abatements for business
• Takes sides and campaigns on local political issues

Outdated, Self-Serving Economic Development Policy

• Data shows low tap fees are almost never a significant factor in attracting quality employers (see quotes from experts and local employers on page 4)
• Low tap fee/higher rates attract only bargain-hunter companies not interested in the long-term. They are likely to be here today and gone tomorrow, enticed to the next community by low move-in rates and leaving before they are impacted by high rates to subsidize the next new employer
• Higher rates for existing employers (to subsidize tap fees for new employers) create counter-productive churn (it’s expensive to keep attracting new businesses to replace the ones we drive out of business with higher utility rates).

Economic Development Policy for All of Us

• Economic development policies that truly benefit the entire community don’t have to be hidden in utility bills and justified through misleading rhetoric about birth rates and intergenerational obligations; they can withstand public scrutiny.
• The city’s economic development efforts need to be modernized, targeted, innovative, beneficial to all, and out in the open.
• Any expenditure of public funds for economic development needs to be controlled by an objective public entity, not a profit-motivated special-interest group.

The EDC Is a private corporation, founded and largely funded by developers and homebuilders.

The EDC's goal is to get the public to pay for as much of their utilities, transportation and other public infrastructure needs as possible.

• Promoted increasing the citizen tax burden through RTA
• Promoted increasing the citizen tax burden through Ref. C & D
• Promotes decreasing business property taxes
• Is promoting decreasing tap fees for new businesses, which would have to be funded by increased utility rates for current residents and existing businesses
• Operates under a veil of secrecy (won’t provide a list of investors and the amounts they’ve invested, won’t allow private citizens to join; wouldn’t allow the Independent to join; keeps most of its news off its public web site behind a password-protected private site)
• Does not represent the everyday citizen

The EDC should not be funded through the utility bills for life-supporting heat, water and electricity for struggling citizens.

Development Charges

• 2006 Major Project Capital Expense – $211.7 million (p.66)
• 2006 Contributions-in-Aid from Developers & Builders – $41.3 million (p.63)
• 2006 Growth Deficit (excluding interest costs) - $170.4 million

Concern About Rising Debt

• $66 million in interest expense in 2006 alone (p.63)
• Only 23% of the 2006-2010 major capital outlay will not be borrowed (p.142). Is this prudent policy?
• Outstanding debt will nearly double from $1.294 billion in 2004 to $2.231 billion in 2010 (p.144)
• Debt service will nearly triple from $77 million in 2006 to $213 million in 2015 (p.143)
• All 3 bond rating agencies list the large capital plan as “a concern.”

Noteworthy Quotes  

“Experience suggests that state and local economic development policies are counterproductive; while a few people benefit, society as a whole loses. The lesson here is that the market is the best arbiter of the use of scarce economic resources.”

Arthur J. Rolnick
Senior Vice President and Director of Research
Federal Reserve Bank of Minneapolis

“A market economy is efficient in allocating resources only when costs are reflected in prices.”

Michael Kinsley and L. Hunter Lovins in
“Paying for Growth, Prospering from Development”
Rocky Mountain Institute

 "Companies don't come here for incentives; they come here because it's a good place to do business. What really matters is how good a place it is to live and how good is the support structure."

Hal Edmondson
Vice President, C orporate Manufacturing Manager, Hewlett-Packard
Quoted in The Gazette Telegraph, Incentives don’t act as magnets for industry 4/29/88

 "...it is not appropriate for the business community to be subsidized by public funding."

Steve Shuck, developer
Quoted in The Gazette Telegraph,
Economic proposals draw mixed reviews 5/4/88

 “For the first 20 years of a bond issue, 80 percent of the cost of new development is paid by residents who lived there before it came in.”

Dr. Chris Nelson,
Professor & Director of Urban Affairs and Planning
Associate Director, Metropolitan Institute, Virginia Polytechnic Institute

Littleton, CO Practices Enlightened Economic Development

Littleton has been practicing “Economic Gardening” since 1989 – taking care of existing, local businesses rather than engaging in unproductive bidding wars to recruit outside firms – and these are the results:

For more details, read the story of how Littleton, CO practices “Economic Gardening”

"Oregon Marketplace" Generated 100 New Jobs and $2.5 MILLION New Contracts In First Year

Eugene, OR started a program linking local suppliers with local buyers, called “Oregon Marketplace.” In its first year the program generated $2.5 million in new local contracts and 100 new jobs – just by identifying the items purchased out-of-state that could be obtained locally.

Resources  

Pikes Peak Independent Business Association "Local Biz” Buy Local Campaign

Available free on-line from Rocky Mountain Institute:

• "Grappling with Growth: What to Do When You Want a Strong Economy and a Great Place to Live" — "Smart" growth, Natural Capitalism, and building community capacity.
• "Paying for Growth, Prospering from Development"
  — RMI's approach to sustainable community development offers a practical alternative to "socialized growth."
• "Sustainable Development: Prosperity without Growth"
  — Chapter 1 of the Economic Renewal Guide, discussing pitfalls of growth and the elements of the viable alternative, sustainable development.

Download these documents from the Rocky Mountain Institute Library

At Least 89 Jurisdictions Now Attach Job Quality Standards to Development Subsidies

Download the study, "Standards Do Not Harm Development Efforts"

 The Great American Job Scam by Greg LeRoy

This site has a link to a six-minute audio blog by LeRoy about unaccountable economic development practices

 Paying for Prosperity: Impact Fees and Job Growth

This report by Arthur C. Nelson and Mitch Moody, June 2003 (concludes impact fees do not negatively impact job growth)

Natural Capitalism , Creating the Next Industrial Revolution

Research by Paul Hawken, Amory Lovins and Hunter Lovins. Describes innovative principles and practices for increasing competitiveness in ways that reduce waste and increase productivity. A summary article that appeared in the June Harvard Business Review can be found at the Natural Capitalism website.

Green Development : Integrating Ecology and Real Estate

by Wilson, Uncapher, McManigal, Lovins, Cureton, and Browning. Describes an exciting new field where environmental considerations are viewed as opportunities to create fundamentally better buildings and communities.

Economic Renewal Guide: A Collaborative Process for Sustainable Community Development.

by Michael Kinsley

This field-tested manual describes how a few energetic people can help steer their community toward development that's sensitive to local values and the environment.

Taking Sustainable Cities Seriously: Economic Development, the Environment, and Quality of Life

in American Cities by Kent E Portney, 284 pages, MIT Press, Cambridge MA

Communities by Choice: An Introduction to Sustainable Community Development
by Mountain Association for Community Economic Development, Berea KY

Going Local : Creating Self-Reliant Communities in a Global Age, by Michael Shuman

Details how dozens of communities are gaining control over their economies by investing in locally, replacing imports, and by working to eliminate many subsidies and changing tax and trade laws that disempower communities. Free Press