The state auditor’s office on Monday blasted Colorado’s management of a program designed to fund regional tourism projects, saying it failed to establish proper internal controls or adequately monitor projects after approval.
The legislature established the Regional Tourism Act in 2009 to kick-start large-scale tourism projects, provided that they were unique, would draw a large number of out-of-state visitors and could not be built without state tax-increment financing.
Five of nine projects that applied for funding were approved from 2012 to 2015 and awarded more than $445 million from the higher state sales taxes revenues they were forecast to generate from out-of-state visits over several decades. So far, the state has distributed $11.3 million to three projects.
By failing to precisely define terms and establish the necessary controls, the Colorado Office of Economic Development couldn’t properly determine whether projects met the original intent of the statute, Stefanie Winzeler, a staff auditor with the state, testified during a Colorado Legislative Audit Committee meeting on Monday
State economic development officials often disregarded findings from third-party analysts, who were supposed to provide a safeguard, that projects didn’t meet the intent of the statute or had greatly inflated future sales tax increases by anywhere from $14 million to $113 million, the audit found.
Even when those outside analysts warned projects either couldn’t achieve a high enough return to succeed or in other cases could be built without state support, economic development staff and commissioners still gave them a green light.
In the case of Pueblo’s Heritage of Heroes project, the Colorado Economic Development Commission, which had the final say on applications, provided approval despite a recommendation to reject from then economic development office executive director Ken Lund and his staff.
State economic development officials responded that the RTA program was unique and complex. The statute’s language was vague and state officials started with a flexible approach and added more “guardrails” with each successive round of applications as problems came up.
“This has been an unbelievably difficult project to navigate,” said Stephanie Copeland, executive director of the state’s economic development office. In hindsight, the department should have requested funding for a full-time staff member to oversee the RTA, which proved a drain on resources.
Auditors found that the economic development office didn’t meet requirements to inform neighboring communities of third-party analyst reports or changes in project parameters. Jeff Kraft, director of business funding and incentives with the state, responded that communities were provided with the initial applications, and that additional information was publicly available to anyone who asked.
Among the most concerning issues raised going forward was a lack of compliance with periodic reporting requirements. Eleven of 57 required reports were not submitted, auditors said, and the state could not provide sufficient evidence that 32 of 64 required meetings were held.
Among the worst offenders for reporting were the last two projects approved, Denver’s expansion of the National Western Stock Show Center and Go NoCo, four projects out of Larimer and Weld counties that appear stalled.
Committee members had pointed questions for Kraft, Copeland and EDC chairwoman Carrie Schiff about the RTA program, including whether the state could claw back funds if applicants altered or didn’t comply with the parameters of their proposals.
“You have to build what you say you will build,” Kraft emphasized, noting projects have five years to commence significant progress and 10 years to reach completion.
Rep. Dan Nordberg, R-Denver, although critical of the RTA, asked if the economic development office needed more powers from the legislature to enforce the agreements reached with communities.
Kraft responded that the economic development office believed it could obtain additional authority by working through the Colorado Attorney General if necessary.
The troubled program is not authorized to award additional grants and there is no push to renew it. Because of that, auditors provided a more general list of recommendations including the implementation of written policies and better management of the approval process if it is renewed.
The audit was set in motion by the audit committee June 2015. Many of the concerns from committee members centered on an $81.4 million RTA award to Aurora for the Gaylord Rockies Hotel back in May 2012.
Kraft said the 1,500-room hotel, which overcame several legal challenges, is on track to represent a successful use of RTA funds. About 500,000 room nights at what will be Colorado’s largest hotel have been prebooked, with 85 percent of those bookings from groups who haven’t held a meeting in the state before.
