Utah Incentive Program Keeps Utah Competitive in Business Recruitment, Retention Efforts

Economic Development Corporation of Utah, Feb 17, 2009

In 2006, Barnes Aerospace, a business unit of Barnes Group Inc, was out of space in its Ogden facility and couldn't grow, despite its desire to bring more work to Utah. The company was contemplating a capital expansion that would create approximately 474 new jobs and retain 145 existing jobs--an enticing prospect for governments as far away as Singapore, which offered Barnes a seven-year, tax-free deal followed by a 20 percent corporate tax incentive valued between $20 and $30 million.

If Barnes were to stay in Utah, the company would make a $12 million capital investment at Business Depot Ogden, generate nearly $8 million in new state revenue and more than $150 million in new state wages over a 15-year period -- just the type of project the Governor's Office of Economic Development (GOED) and EDCUtah wanted to win.

Consequently, the GOED Board offered an Economic Development Tax Increment Financing (EDTIF) incentive totaling approximately $2 million over a 15-year period, the maximum not to exceed 20 percent of new state revenues over the same period. What's more, Barnes had to commit to keep its operations in Utah for 15 years, create some 474 new jobs over the same period and pay new employee salaries that would average at least 125 percent of the then current Weber County median of $36,550. Thanks to the incentive program and other competitive factors, Barnes selected Utah for its expansion and completed construction of its new facility in the Business Depot Ogden in 2008.

While the conditions that influence a company's final decision vary, a key factor that plays into nearly every expansion or relocation equation is government-sponsored financial incentives. Site-location competition is intense, especially in our volatile economy, as cities and states try to retain and recruit jobs. Companies interested in relocating or expanding expect to be courted by local, regional and state economic development organizations and it is often the combined cooperation of such entities--plus incentives--that seal the deal.

"Once a company makes its short list, incentive programs come into play," says Derek Miller, managing director of recruitment and incentives for the Governor's Office of Economic Development (GOED). "Utah is almost never the highest bidder, but if we are on the short list we almost always win and get the company here."

It wasn't always so. When Utah's incentive program began in the 1990s the state was not nearly as competitive as other, more aggressive states; however, in recent years the Utah Legislature has made significant revisions to state incentive policies for relocation and expansion, which has allowed GOED to be much more aggressive in a transparent, consistent and predictable incentive process -- all with no risk to taxpayer dollars.

"The real genius of the program that the State of Utah has created is that every incentive given is post-performance," says Jeff Edwards, EDCUtah president & CEO. "It may sound simplistic, but we don't give away one penny in Utah without first receiving one dollar in new tax revenue. Having studied other state level incentive programs, I truly believe that ours is the best thought out, best functioning one in existence. It allows us to be competitive in high value projects, while at the same time not mortgaging our future."

Miller says the state's financial incentives program targets select business relocation and expansion projects that create new, high-paying jobs to help improve the standard of living, increase the tax base, attract and retain top-level management and diversify the state economy. Incentives are offered as either tax credits or grants. The incentive amount and duration is decided by the GOED Board and Executive Director Jason Perry, based upon statutory guidelines and evaluation criteria that includes the financial strength of the company, the number and salary of jobs created, amount of new state tax revenue, long-term capital investment, competition with other locations and whether the company is in a targeted cluster, as identified by Governor Jon Huntsman in his cluster initiative.

Targeted clusters include the following:

• Software and Information Technology
• Defense and Homeland Security
• Aviation and Aerospace
• Corporate Headquarters
• Energy and Natural Resources
• Financial Services
• Life Sciences
• Outdoor Products and Recreation

The two main incentive programs used to recruit or retain businesses are Economic Development Tax Increment Financing (EDTIF) tax credits and Industrial Assistance Fund (IAF) grants. EDTIF incentives are post-performance, refundable tax credits for up to 30 percent of new state revenues (including state corporate, sales and withholding taxes) over the life of the project (typically five to 10 years). IAF incentives, on the other hand, are post-performance grants for the creation of high-paying jobs. GOED has the flexibility to offer either of the incentive types or a blend of both. For a complete description of the various incentives and their requirements, follow this link.

Of course, not every company offered an incentive will end up coming to Utah, and Miller says GOED isn't willing to sell the farm to win a relocation or retention project. Still, GOED has been extremely successful with the incentive program.

IAF and EDTIF Incentives Offered in Fiscal 2008

GOED awarded four IAF grants totaling $2 million during 2008. The companies involved include:

• Delta Air Lines, awarded a $250,000 incentive over 16 months to develop its direct trans-Atlantic flights from Salt Lake City to Europe, with an estimated economic impact greater than $90 million and estimated local job creation of at least 1,100 jobs.
• FiberTek, awarded $1.25 million for its new manufacturing facility in Nephi, Juab County, with the estimated creation of 99 new jobs, $13,612,000 in new state revenue, $32,500,000 capital investment, and $36,589,000 in new state wages.
• Southern Classic Foods, awarded $300,000 over 10 years for its new manufacturing facility in Ogden, with an estimated 94 jobs created, $1,262,000 in new state revenue, $10,260,000 capital investment and $22,332,000 in new state wages.
• Barnes Bullets, awarded $200,000 over 10 years for the relocation and expansion of its operations to Mona, Juab County, with an estimated 42 new jobs and 53 retained jobs, $446,000 in new state revenue, $5,000,000 capital investment and $13,370,000 in new state wages.

GOED awarded 11 EDTIF incentives totaling more than $170 million in 2008 with estimated new state revenue of $615,903,302. The companies offered EDTIF incentives include:

• FiberTek, awarded $2.75 million over 10 years to build a new manufacturing facility in Nephi, Juab County, with an estimated 99 new jobs, $13,612,000 in new state revenue, $32,500,000 capital investment and $36,589,000 in new state wages.
• Barnes Aerospace, awarded $2 million over 15 years to relocate and expand its current Ogden, Weber County, operations with the creation of 474 new jobs and 145 retained jobs, $7,927,000 in new state revenue, $11,800,000 capital investment and $150,221,000 in new state wages.
• Thermo Fisher Scientific, awarded $2,735,000 over 10 years for its new manufacturing facility and research laboratory in Logan, with 196 new jobs created, $ 9,118,000 in new state revenue, $21,100,000 capital investment and $68,054,000 in new state wages.
• The Procter & Gamble Company, awarded $85,000,000 over 20 years to build its new manufacturing facility in Box Elder County, with 1,185 new jobs created, $280,739,000 in new state revenue, $540,000,000 capital investment and over $1.25 billion in new state wages.
• Hershey, awarded $2,600,000 over 10 years for its new western distribution center in Ogden, with 123 new jobs created, $13,009,000 in new state revenue, $38,000,000 capital investment and $48,860,000 in new state wages.
• Goldman Sachs, awarded $20,000,000 over 20 years to expand its current Salt Lake City facility, with the creation of 375 new jobs, $81,763,000 in new state revenue, $20,200,000 capital investment and $886,727,000 in new state wages.
• Disney Interactive, awarded $5,250,000 over 10 years to expand its existing Salt Lake City operations, with 565 new jobs created, $16,989,000 new state revenue, $15,100,000 capital investment and $330,678,000 in new state wages.
• Oracle, awarded $15,124,000 over 12 years to build its new data storage center in West Jordan, with 100 new jobs created, $50,415,374 in new state revenue, $260,000,000 capital investment and $73,574,249 in new state wages.
• eBay, awarded $27,277,000 over 10 years to build its new data storage center in Salt Lake County, with 50 new jobs created, $109,110,945 in new state revenue, $436,000,000 capital investment and $23,799,980 in new state wages.
• Cementation, awarded $3,317,000 over 10 years to locate its new USA corporate headquarters operation in Sandy, creating 422 new jobs, $16,585,538 in new state revenue, $5,500,000 capital investment and $130,226,301 in new state wages.
• Fresenius, awarded $4,157,611 over 10 years to expand its current Ogden facility, creating 1,111 new jobs, $16,630,445 new state revenue, $340,000,000 capital investment and $303,339,000 new state wages.
  

Incentives Used as a Stimulus

Miller says the incentives are used by the companies as a stimulus. Once the incentives are accepted, GOED continues its work with the companies involved through quarterly and annual reports to maintain the integrity of the incentive offered, both for the taxpayer and company.

"The state's goal with incentives is two-fold: first, to place Utah in a competitive and viable position with other states; second, to offer an incentive formula based on an economic model that promotes healthy, sustainable relocation or expansion into Utah. This stimulates job growth and expansion of the capital investment," he adds.

Edwards says business incentives have become an essential part of the process of recruiting companies. Moreover, Utah's incentive programs are very competitive on a national scale and have proven effective in helping to make business decisions in our favor while shifting the risk to the company and away from the state. If the company doesn't perform to the agreed upon benchmarks, the incentive is never given.

While financial incentives are an important part of the process, they are not the ultimate factor in a business location or retention decision.

"It doesn't matter how much money a state throws at a company, if other factors are not in place. Utah is fortunate to have many natural incentives, such as a highly educated workforce, some of the lowest tax rates in the country, great quality of life, some of the lowest utility costs in the nation and a low cost of living. These natural incentives combined with financial incentives are what put Utah at the top for best states for business," says Miller.