As a young person working in the real estate businesses and a budding entrepreneur, I have had to work hard every day for my clients and my company. Working in real estate is not for everyone. Though I couldn’t see myself doing anything else, I find myself often keeping odd hours and staying late many nights to help the company. As a broker in Michigan, I was tested much the same way but my dedication to helping small businesses succeed has kept me going and brought me to Colorado. Over the past decade, many small independent businesses have been absorbed by large corporations or have simply closed their doors in the face of increasing taxes and regulations. Small businesses play a large role in communities in every state in the country. When local businesses leave the neighborhood, the little league baseball team needs a new sponsor, storefronts downtown close, and the overall feeling of community is diminished with every business forced to close.
My success so far working in real estate has hinged on one word: responsibility. In a small business, when an employee needs help, they are treated like family; when the energy costs increase, small businesses tighten their belts rather than penalizing employees; when my personal bills are due, I pay them. Main street businesses don’t have the luxury of expensive lawyers or lobbyists to seek bailouts for business decisions we make, good or bad. That is why it is so frustrating to see large corporations skirt their debt obligations by firing employees, and even cities and towns seek money that will ultimately come from taxpayers to hedge their bad business decisions. The case of the town of Lamar right here in our home state of Colorado is a perfect case in point.
As every small business knows, if you use debt to expand your business, you must pay off that debt. For every dollar of debt personal or to finance part of a brokerage, I know I will pay that back plus interest, but the city of Lamar apparently does not hold itself to the same standards as a Colorado small business. A dozen years ago, Lamar joined with Holly, La Junta, Las Animas, Springfield and Trinidad, members of the Arkansas River Power Authority (ARPA) to fund an improved power plant fearing rising natural gas prices. To pay for the transition of the power plant from natural gas to coal, Lamar’s city council approved three rounds of bonds along with the five other cities totaling $155 million in new debt. This was a big risk, to be sure, but a risk ARPA members took on their own accord in the same way buying new equipment and hiring a new worker is a risk for our business.
Ultimately, the power plant conversion failed due to cost overruns, mismanagement and legal challenges from environmentalists. ARPA’s investment went south and now Lamar has sued to be relieved paying its share of the bonds and the accumulated interest. The other five ARPA members have dropped their legal challenges, and after receiving a settlement payout are dutifully paying back their share of ARPA’s debt.
No business could function the way Lamar is attempting to operate. By attempting to sue their way out of debt the city will affect future projects the city undertakes. If the city seeks future bonds to pay for projects any creditor, seeing Lamar’s attempt to sue its way out of its obligations, is going to seek higher interest rates to make up for the riskier investment. Just like an individual would have a lower credit score for not paying back debt, Lamar is seen as a riskier borrower by bond issuers. This higher risk will mean paying more in interest on future bonds, that higher interest payment will have to come out of the city coffers, and in turn its residents’ pockets.
Small businesses like independent brokerages must plan out the future so they are in the best position to succeed in the future. From the looks of things in Lamar, the city has done a poor job of making sure it is in the best position to succeed for its own citizens, and now it is in a worse position for the future. This should serve as a cautionary tale for cities across the state of Colorado and the country. If I were a small business owner in Lamar, I would seriously consider moving my business for fear of what the city will do to pay future debt. It would not be in my best interest to live in a city where residents will eventually be forced to pay higher taxes because of a poor decision more than a decade ago.
Small businesses are already taxed enough – cities and municipalities should not make the problem worse. As it stands, to start a business there are fees and taxes on the federal level, sales taxes, capital gains taxes, even the tax on carried interest if hiked as proposed by some in Congress could affect newly formed businesses seeking outside investors. Lamar has threatened to add even another level of taxation by action irresponsibly.
For the city of Lamar to think they can get out of paying its obligations via the courts flies in the face of good business practices. The city should accept that they are in a hole they dug themselves and the only way out is to pay the debt they owe. Continuing their misguided attempt to hold others responsible affects not only the future of the city, but the future of its residents.
7000 Blk Quincy Avenue
Denver, CO 80237
Travis Boak is a real estate professional and active entrepreneur in Denver, Colorado.
Filed Under: Letters to the Editor
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