February 21, 2006

  

A Publication of the Economic Development Corporation of Utah

CEO Jeff Edwards

 PRESIDENT'S MESSAGE

 Confidentiality Touches Many 
 Core Issues  in Economic 

 Development Decisions


Recent media coverage of economic development incentive programs has highlighted one important aspect of these programs: confidentiality. This topic touches many of the core issues in economic development and so we have chosen to feature it in today's issue and have included information not presented in other articles.

Today's Economic Review also includes links to many of the ED-related news stories from the past week. As always, if you have comments, suggestions or topics you'd like to see in the Economic Review, please contact us by clicking the "Comments" button on the bottom of this page.

Enjoy!

Jeff Edwards
Jeff Edwards
President and CEO

FEATURE STORY

Good Reasons for Confidentiality in Administering Utah's Financial Incentive Programs

Incentive programs have been used for many years in the United States and other parts of the world as a key tool for government to direct the economic growth it desires. Incentives take many forms and are administered many ways, but the end goal is the same: to promote healthy, sustainable growth by stimulating job growth and expanding capital investment in locations that will have the most impact.

Previous issues of The Economic Review have discussed Utah's incentive programs in detail. The topic today is the issue of confidentiality in these programs. Confidentiality is seen by many as essential for the success of incentives and has been included in many programs in the U.S. and abroad.

Utah's Incentive Process

Utah created its first statewide business incentive program in the early 1990s. Known as the Industrial Assistance Fund (IAF), it is still in use today. This program provides cash grants to companies that create new jobs or capital investment in the state. A second incentive program was added in 2005. Unlike the IAF, this program, called the Economic Development Tax Incentive Fund (EDTIF), provides tax credits to companies that create jobs or make capital investments in Utah. Both of these programs are performance based; that is, the company does not receive the incentive until after it demonstrates it has had a positive economic impact on the state's economy. IAF awards are made only after an audit of jobs actually created, while EDTIF credits are made on taxes actually paid which are directly proportional to the success of the new or expanded business. In this way, these state funds provide incentives for actual economic growth and are done so at no or very low risk to the state.

These incentive programs are administered by the Governor's Office of Economic Development (GOED). The director of corporate recruitment and GOED Board make all incentive funding decisions based upon established formulas, after complete financial and business analysis. Decision factors include location (rural or urban), impact on the community, jobs created at specific salary levels, benefits paid, capital investment the company will make in the area, the value of anticipated purchases from Utah companies, payroll taxes collected, corporate franchise tax liability and sales tax collected.

To be considered for an incentive, the interested company must fill out a comprehensive application. The GOED staff analyzes this data and generates an estimate of the net impact the project will have on the state and an estimate of state tax revenue it will generate. Based upon the impact data, the director of corporate recruitment makes a recommendation regarding incentives. The final step is for the GOED Board to review all of the data and make a final recommendation for an incentive amount. The GOED staff and Board members are competent individuals charged with a mandate to bring new jobs and capital investment to Utah. Furthermore, each incentive decision made by the GOED Board is subject to audit by the legislature and various state agencies.

Many of the companies that apply for incentives work directly with EDCUTAH. Most are seeking to expand or relocate business operations on a national scale and are looking for potential sites in multiple states or countries. The process is highly competitive, and incentives such as the ones in Utah have become a very important part of this selection process.

Confidentiality Process

During the application process, the prospect company must disclose its identity and its detailed financial information to the GOED Incentives Committee of the GOED Board, in order for them to make the best possible decision about the incentive request. The company may elect to keep its name and the details of the proposed project private at the monthly public meeting of the GOED Board, when the final incentive decision is announced. This is done by the company filing a special waiver form invoking a provision in the state incentive program law allowing for exclusion from public disclosure.

Some have questioned the need for confidentiality when public monies are in use. These are legitimate concerns, however, there are several strong reasons why a company may request confidentiality, and it is in the best interest of the state to honor a request for confidentiality during the incentive application and approval process. Here are some of those reasons:

1.  If a company is relocating an operation from one part of the country to another, it may not wish to cause undue concern or speculation by its employees. Furthermore, making public the search process could backfire, as it is not uncommon for companies to proceed far into a relocation project, considering sites in many states, only to decide to stay where they are. Public disclosure in such cases can wreak havoc on employee morale at existing facilities and give the company a black eye in the communities where it currently operates. Simply because Utah pledges an incentive amount is no guarantee that a particular company will relocate or expand in the state.

2.  Disclosure can have significant impacts on a company's business plans with regard to its competitors. For example, a company may be considering an expansion into a new region and may not want to reveal its plans to its competitors before a final decision is made. Decisions of this type are rarely made under public scrutiny.

3.  Public disclosure of a business' intent to relocate or purchase real estate can drive up costs, especially if the disclosure occurred while the business was in the site selection process, before it had the opportunity to negotiate a purchase price with a landowner or developer.

The National Scene

A number of national site selectors have told EDCUTAH and GOED if Utah moved to a fully public incentive award process, the state would be "seriously impacted" in its ability to compete for national projects. In fact, in some instances, the state wouldn't even hear about projects because companies with confidentiality issues would choose to look elsewhere.

Surveys of neighboring states confirm that Idaho, Wyoming, New Mexico and Arizona all have programs similar to Utah's, where companies can seek to remain confidential via an optional application. This is also true of most other states in the country. On the other hand, Colorado, Nevada and Georgia incentive programs are the only ones that allow confidentiality until the public meeting is held, whereupon the companies must disclose who they are. National site selectors have indicated they do very few projects in states where there are no confidentiality options and if they do go there, they do not apply for state incentives.

All companies seeking incentives are encouraged to engage in the public process. Some companies are comfortable with public disclosure and in fact welcome media exposure, whereas others are not prepared to discuss their relocation projects in the public forum-especially with intense news media scrutiny.

The benefit of the existing confidentiality option is each company can choose how it wishes to proceed. The process allows a balance between good public policy and open government in creating significant, long-term economic benefits for all of Utah's citizens. EDCUTAH and GOED staffs make good-faith efforts to balance the needs of the public process with the goal of accomplishing economic development for the state.

CALENDAR

Feb. 24:  GOED Tech Breakfast (Click here to register)

March 8-9:  Business and Technology Expo, Orem

March 23:  EDCUTAH's Quarterly Investor Update

April 6-7:  Utah League of Cities and Towns Spring Convention, St. George

April 9-12:  BIO 2006 Annual Conference, Chicago

April 19-20: Rural Business Conference with Sen. Robert Bennett, Vernal (Click here for more information)

April 23-26:  CoreNet Global Summit Spring Convention. Philadelphia

May 3-4:  SL Chamber Business-to-Business Expo

May 21-24:  ICSC Spring Convention, Las Vegas


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LEGISLATIVE UPDATE

Rural Utah Supports USTAR

The USTAR economic development initiative isn't just for the Wasatch Front. The entire state will benefit.

Bill Johnson, executive director for Uintah County and Vernal City Economic Development announced on Friday, Feb. 17, his Advisory Board unanimously voted to fully support the USTAR Initiative and SB75.

"I am so pleased that the Economic Development Board agreed with my recommendation of support for this very important economic development tool," Johnson stated. "If we are going to keep pace in today's rapidly changing world economy, it is imperative that we, the great State of Utah, join together and aggressively pursue research and development of new technology with all the resources we have. Each community and region of the State has something to offer and something to gain with USTAR."

With Uintah County's importance to our national energy programs, Johnson hopes that the State will see the importance of locating one of the regional Innovative Research Centers in Vernal and making energy research a priority. "Everyone hears the stories that we have double the potential oil and fuel reserves here in Utah than the Middle East, if we can only develop the technology for oil shale, tar sands, coal to liquids and other alternative fuels," Johnson continued. Section 369 of the 2005 Energy Policy Act set mandates to pursue these resources as part of our national energy program.

"If the Legislature is kind enough to fund our request for a higher education building, to be used jointly by Utah State University and the Uintah Basin Applied Technology Center, as well as passing SB75, we have the perfect fit to be the energy research center for the western United States. We have tremendous interest from the private sector, the Department of Energy and the Department of Defense. I envision that USTAR can complete the partnership bringing the State of Utah and its Higher Education component to the mix," Johnson concluded.

Blended Incentive Plan (HB131) Advances

After passing in the House, last week the Senate's Workforce Services and Community and Economic Development Standing Committee passed out HB131, which would allow economic development officials to blend financial incentives used to lure companies to the state or help in-state companies expand.  (Read the Deseret Morning News article for more news about HB131.)

IN THE NEWS

Economic Development Headlines

SLC Ranked 50th in 'Hottest Cities' Survey of Professional Site Consultants

- SLC ranks 50th in Expansion Management Magazine's 8th annual "America's 50 Hottest Cities" survey, which attempts to measure the perceptions of professional site location consultants. (Press release)

$100M, 21-Story Office Tower for SLC's Main Street

- Hamilton Partners and Wasatch Property Management announced a joint venture agreement Friday that will add 450,000 square feet of Class A office space to Salt Lake City's starved market. Construction of the 21-story office tower at 222 S. Main St. begins this fall... (SL Tribune) (Morning News)

GOED Board Approves Incentives for Two Businesses

- The Utah Governor's Office of Economic Development Board approved two company incentives Friday, including up to $2.5 million in a tax rebate over 10 years for a food services distributor that would add 200 to 225 new full-time jobs, giving the existing Utah facility 450 to 475 total jobs. (Morning News)

Financial Incentives: GOED Strives for Greater Openness

- Same story, different perspectives from the Salt Lake Tribune (here) and Deseret Morning News (here) regarding increased openness efforts by GOED.

SLC Will Help Businesses Renovate Two Buildings

- City Council members, acting as the Redevelopment Agency, have approved a $1.6 million loan to the Summit Group, a Salt Lake City-based marketing firm that has plans to restore, and then move into, the United Electric building at 117 W. 400 South. (SL Tribune)

Industry Groups UITA and ULSA Plan Merger

- Two of the state's most prominent industry associations plan to join forces. The Utah Information Technology Association and the Utah Life Science Association boards of trustees announced Friday that they have unanimously agreed to merge. (Morning News)

Davis Chamber to Hold Economic Summit

- Everything is growing in Northern Utah: employment, construction, tourism and even traffic congestion. To address the challenges and opportunities of economic growth, the Davis Chamber of Commerce is holding its annual Northern Utah Business and Economic Summit on March 17. (Utah Business Magazine)

West Point Holds Economic Development Seminar

- A recent economic development seminar at this community's city hall highlighted "a really exciting five years economically for the county." That was the take of West Point City Manager Rick Davis who said "this (seminar) was all about continued economic growth. (Clipper here and here)

Davis Conference Center to host ski conference in August

- The firm in charge of marketing Davis County to the world has a bigger budget this year, and for good reason. It landed a contract with the National Ski Council Federation, which will hold its annual meeting in Layton in August. (Morning News)

Tourism Legislation Looks Favorable for Davis County

- It's "looking pretty good" for passage of a legislative bill that would allow Davis County to raise the transient room tax. (Clipper)

Big Box Retail Proposed for US 40 Business Park

- With "big-box" retailers eyeing Summit County, citizens this week got their first look at possible plans to construct Costco and Target stores in Snyderville that total 255,000 square-feet. (Park Record)

Rossignol Nears Deal on Ogden Distribution Site

- Rossignol Group is in final negotiations with The Boyer Co. to locate its U.S. ski equipment distribution headquarters at Business Depot Ogden, the companies said. (Morning News)

Op-Ed: USTAR Will Help Southern Utah

- Rep. David Clark, R-Santa Clara supports USTAR. "Southern Utah is growing quickly, but we need more high-paying jobs that support a family. The high-tech sector of our economy provides these kinds of jobs. That's why I am pleased to be the House sponsor of Senate Bill 75, the Utah Science, Technology and Research (USTAR) economic development initiative." (Spectrum)

Ogden Taps Brits for Assistance

- The city has hired a British firm to help tap into the European snow- sports market. The contract with Bridge Atlantik Corp., based in Birmingham, England, will give Ogden exposure to overseas ski companies looking to establish a U.S. presence, Mayor Matthew Godfrey said. (Standard-Examiner)

USTAR Funding Questions Raised

- With 10 days left in the session, the USTAR bill remains before the House Business and Labor Committee. Differences over USTAR's bonding provision may be to blame. (SL Tribune)

More Salt Lakers Commuting to Davis County for Work

- When Salt Lake City's outspoken mayor infamously asked Davis County residents to consider how their commuting choices were affecting his constituents, he may have been focused only on one side of the freeway. (SL Tribune)

Would Two Theaters Rejuvenate Downtown SLC?

- Renovating a downtown theater and building Salt Lake City's largest stage could rejuvenate downtown, consultants told the City Council on Tuesday night. (Morning News) (SL Tribune)

Downtown Ogden Project  'The Junction'

- Tipping its hat to history, The Boyer Co. has chosen the name "The Junction" for the project expected to renew downtown Ogden. (SL Tribune)

Job Growth Still Red Hot

- Utah's red-hot rate of job creation defied expectations in January by reaching levels not seen in 10 years. Utah added about 52,700 new jobs in the year that ended Jan. 30 for a job-growth rate of 4.8 percent. (SL Tribune) (Morning News)

Retail Sales More Than Double the Forecast

- Retailers rang up their biggest sales gains since May 2004 last month, more than doubling forecasts and helping the U.S. economy snap back from its worst quarter in three years. (SL Tribune)

Linux Networx Lands Big Defense Deal

- After nearly a decade of slowly building a top-notch reputation for technological innovation, Utah's Linux Networx is laying claim to the supercomputing big time. The Bluffdale company announced Monday it has signed a multimillion-dollar deal with the Department of Defense for its largest order ever - five supercomputing systems in all. (SL Tribune)

Utah Black Chamber of Commerce Set to Launch

- The state's newest chamber, the Utah Black Chamber of Commerce will officially launch this week. Housed in the Utah Business Development Alliance, the chamber will provide networking and business services to Utah's minority business owners. (Utah Business Magazine)