Business tax incentives — how do they work and what’s the benefit for Utah residents? Accounting firm Tanner LLC recently released its analysis of Utah’s tax incentive program for fiscal years 2019 to 2022, and the results are impressive.
The Utah Governor’s Office of Economic Opportunity (GOEO) contracts with EDCUtah to provide corporate recruitment, economic research, site selector marketing, and community development services statewide. For their part, GOEO champions Gov. Spencer Cox’s commitment to providing economic opportunity for all Utahns with initiatives that support Utah entrepreneurs and businesses, including tax incentives for expanding businesses. As part of its management of the state’s business incentive programs, GOEO contracts for an independent third-party review every three years.
EDCUtah’s Scott Cuthbertson caught up with Ryan Starks, GOEO’s executive director, for his take on the most recent report and how GOEO and EDCUtah work together to attract and retain companies and grow strategic industries.
Scott: What stood out the most to you about the Tanner study?
Ryan: From an accounting and process standpoint, I was happy to see there are no issues with the way GOEO runs the program. Tanner looked at 80 randomly selected active incentive agreements, and our procedures and documentation are solid throughout.
The other high point is the return on investment generated. Tanner combined the total taxes rebated to businesses under the program and GOEO’s administrative costs, and then compared that figure to the total new revenues for the state generated by companies receiving an incentive. For every dollar of cost, there are four and a half dollars in revenue added to the state’s coffers. Specifically, Tanner found a return on investment (ROI) of 454 percent in the most recent period of 2019 to 2022. The Economic Development Tax Increment Financing (EDTIF) program is performing very well for the taxpayers of Utah.
What aspects of the design and execution of Utah’s incentive program account for its success?
The EDTIF program is what we call “post-performance.” It’s a conservative approach. A company that enters into an agreement with the state commits to generating a given number of high-paying jobs over a given period of time, usually five years or more. Each year that the company meets its hiring milestones, the state rebates a modest portion of the associated income, sales, and payroll taxes back to the company. Unlike some states, we don’t offer money upfront. And if the company doesn’t meet its milestones, there’s no rebate provided. It’s straightforward, and it doesn’t impose undue risks on the state or the company.
Another aspect of the program that supports its success is our approach to vetting and review. That starts with EDCUtah, which is the first point of contact for companies looking to expand in Utah. If the company is in one of our target industries and is likely to meet other criteria, EDCUtah will introduce the company to GOEO. Our staff then initiates the incentive process, which starts with a detailed application. We look at the company’s profitability, the jobs they plan to bring, their projected capital expenditures, and other elements. Our staff then takes a recommendation to a subcommittee of our advisory board and then to the full board. The board’s recommendation comes to my desk for final approval. That’s a lot of eyes on any one application, and the discipline with which we follow this process is a message that comes through in the Tanner report.
Lastly, I would point out that the incentive program has the ability to evolve. With input from the Utah Legislature, we’ve modified parts of the program to better suit corporate expansion in rural Utah. We’ve also made it more readily available to existing Utah-based companies, not just out of state businesses. In fact, two-thirds of our recent incentive agreements have gone to Utah-based companies. We’ve honed the program’s focus on five key industries: financial services, aerospace and defense, software and information technology, advanced manufacturing, and life sciences and healthcare. This focus allows us to nurture the strategic ecosystems that drive our economy.
What has been EDCUtah’s role in producing these results?
I see EDCUtah as part of our “one-two punch.” EDCUtah markets our state and provides white glove service to companies considering an expansion or a relocation here, introducing them to all that Utah has to offer. EDCUtah also supports these clients with project management, which includes a level of screening, answering the company’s questions, and making connections to public and private sector contacts to facilitate the company’s evaluations and, with hope, their expansion. EDCUtah provides a level of professionalism, focus, and responsiveness that really assists us in our mission to bring quality jobs to our residents.
What are the key takeaways from this performance study for EDCUtah investors and the public?
First, our processes are well thought out and well executed and provide substantial ROI to our taxpayers.
Second, the EDTIF program is additive. It keeps us competitive nationally and plays a role in attracting or retaining jobs here. I’d rather have 80 or 90 percent of an expanding company’s tax revenues for five or ten years than 0 percent for 0 years if that company expands elsewhere.
Third, EDCUtah’s expertise and EDTIF’s utility give the state tools to foster strategic, high-growth industries.
A predecessor of mine in the executive director position, Spencer P. Eccles, would often ask, “What’s the proper role of government?” I think if a state program helps reduce our overall tax load by driving growth and innovation and at the same time, opens career opportunities for our residents, that’s a good role for government.
Read the Tanner LLC report here.