Friday, November 28, 2014

The lure of tax breaks: Colorado Springs Airport (with video)

Anyone who questions the wisdom of tax breaks to encourage business development might want to chat with Jeff Perkins and Britt Ham.

Perkins works with a company that relocated from North Carolina to an area near the Colorado Springs Airport, in part because of tax breaks approved by city, county and state officials to encourage economic development at or near the airport.

Ham is president and CEO of a company near the airport that is expanding, thanks to the tax breaks.

Together, the companies employ more than 40 people, and they're planning to add another 75 employees - the bottom-line goal of the tax breaks.

The tax breaks are a "huge incentive" for Trine Aerospace LLC to expand in the Springs, Ham said. Trine, which moved to Colorado Springs from Chatsworth, Calif., last year, has grown from about a dozen employees to 20 and has up to eight contract workers.

"It gives us an advantage over other companies," Ham said of the incentives. "The benefit is to lower our cost and allow us to bring business to Colorado Springs. We have to compete for business and, as a new business, that competition is often based on price. We are a quality vendor at a significantly lower price."

Trine plans to expand to 50 employees by the end of 2016, and company officials are studying whether to consolidate space in five hangars at the airport into a single 60,000-square-foot hangar they would build nearby, Ham said.

Perkins, vice president of business management for Rampart Aviation LLC, said the tax breaks were one of several factors that prompted owner Tony Porterfield to move the company from the Raleigh, N.C., area to the Springs. The company specializes in providing flight services, aircraft maintenance and aviation training support mostly for military units for parachute drops. It has 20 local employees and plans to add another 25 in the next year, Perkins said.

Deals hinged on tax breaks

Both companies came to the Springs as Mayor Steve Bach and airport officials were developing a series of tax breaks to lure aviation and aerospace companies to the airport to provide jobs for local residents and generate income for the facility. Any income the airport generates from leasing existing hangars or from land for new hangars helps pay its operating expenses and cuts the amount that airlines pay in landing fees - a potential way to lure more flights to a facility that has seen traffic drop dramatically.

Besides the expansions by Rampart and Trine, the airport also has leased two long-vacant facilities - one that will house a vintage aircraft collection and the other that will be used by a company that plans to convert aircraft once used by airlines for military use, bringing at least 20 more jobs to the airport.

Dan Gallagher, the airport's director, said all four deals depended on the tax breaks, which include city and county exemptions or credits for sales and use taxes paid by businesses that lease, sell, repair or maintain aircraft.

Gallagher said at least two other companies are showing interest, as a result of the tax breaks, in 200 acres on the airport's west side for potential sites of hangars they would build for aircraft modification and conversion that could eventually employ thousands of workers.

"Our future appears to be aircraft integration, or bringing older planes to today's navigational and technical standards, including engine modifications and winglets to make the aircraft more fuel efficient," Gallagher said. "We have a great opportunity to take advantage of this developing industry and we have enough land available to create thousands of additional jobs" in that industry.

Aviation and aerospace manufacturers also have shown increased interest because of the tax breaks in building plants or other facilities in the airport's 900-acre Cresterra business park that has long been envisioned by local officials as an economic hub for the region.

The tax breaks aren't the airport's only recruiting tool. Parts of both the business park and the west side of the airport, which is home to a series of hangars for private and corporate aircraft, are designated as a foreign trade zone. Such zones allow businesses to delay, reduce or even avoid U.S. Customs duties, which are imposed on imported raw materials, parts and equipment brought into the zone, lowering operating costs for any businesses located in a zone.

But the tax breaks are considered a bigger draw.

Bach began pushing for tax breaks at the airport shortly after Gallagher was named interim airport director early last year as a way to help turn around declining airline service by finding other revenue sources that would lower costs for carriers at the airport. He said attracting businesses and jobs to the airport could help jump-start economic development in all of southeast Colorado Springs, the city's most economically struggling area.

"Companies in aviation and aerospace-related industries won't come to our airport unless we can give them some kind of targeted incentive to help them get started here," Bach said.

"We are using performance-based incentives to attract and retain employers at this airport."

Aircraft owners fled airport


Plans for the tax breaks grew out of an exodus of aircraft from the Springs airport that began when the city started charging sales and use tax on aircraft, parts and related equipment.

Owners moved more than 60 aircraft to Meadow Lake Airport near Falcon, Centennial Airport in Englewood and others along the Front Range. Most other cities with airports specializing in private and corporate aviation had waived or rebated such taxes, putting the Springs airport at a disadvantage.

The Colorado Springs City Council voted 7-2 in April to create a commercial aeronautical zone that allows businesses in and around the airport that lease, sell, repair or maintain aircraft to be exempt from most city sales and use taxes.

El Paso County commissioners in August unanimously approved the zone in the same areas to give credits for sales tax paid by businesses on equipment and supplies used in maintaining, retrofitting and upgrading aircraft.

The Colorado Office of Economic Development & International Trade in September designated the airport as a aviation development zone, which makes aviation and aerospace businesses at the airport eligible for a state income tax credit of $1,200 for each newly hired employee.

Airport officials also have asked the Pikes Peak Rural Transportation Authority to exclude 1,023.6 acres on the airport's west side and in the business park from its borders so airport businesses won't have to pay the authority's 1 percent sales tax.

The authority has scheduled a public hearing Dec. 10 on the request.

COMMERCIAL AERONAUTICAL ZONE TIMELINE


2007: City of Colorado Springs begins charging aircraft owners a 2.5 percent sales tax on the value of aircraft based at the Colorado Springs Airport.

2008-13: Owners of 62 aircraft, about 20 percent of the 292 aircraft based at the airport, move them to Meadow Lake Airport near Falcon, Centennial Airport in Englewood and other airports along the Front Range.

March 2013: Mayor Steve Bach appoints Dan Gallagher as interim director of the Colorado Springs Airport following the resignation of Mark Earle and begins discussions about offering tax breaks to lure aircraft owners and aviation-
related businesses back to the airport.

April: Colorado Springs City Council votes 7-2 to create a commercial aeronautical zone in and around the airport that allows businesses selling, repairing or maintaining aircraft to be exempt from most city sales and use taxes.

August: El Paso County commissioners unanimously approve a similar zone offering sales tax credits for equipment and supplies used in maintaining, retrofitting and upgrading aircraft.

September: Colorado Office of Economic Development & International Trade approves Colorado Springs Airport as an aviation development zone where aviation and aerospace businesses can get a $1,200 state income tax credit for each new employee.

Dec. 10: Pikes Peak Rural Transportation Authority will hold a public hearing and vote whether to exclude 1,023.6 acres on the airport's west side and in its business park from its borders so businesses in those areas won't have to pay its 1 percent sales tax.

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