Gehrke: Why are Utah taxpayers being asked to fork over more than $56 million for Merit Medical?

Francisco Kjolseth | The Salt Lake Tribune The Salt Lake Tribune staff portraits. Robert Gehrke.

Merit Medical is a true rags-to-riches Utah success story.

It was founded in 1987 by Fred Lampropoulos, who often recounts his family sleeping in a car when they first moved to Salt Lake City. Today, the company has a sprawling South Jordan campus and employs about 2,000 Utahns. It’s engaged in the community, supporting youth programs and homeless services.

On its current trajectory, Merit could be on track to generate $1 billion in revenues next year.

So why does it look like state taxpayers are going to end up giving the company more than $56 million in subsidies?

Well, according to documents obtained through an open-records request, Merit has threatened policymakers that, if it doesn’t get the incentive, it will scrap plans for a $500 million expansion and move its operation to Ireland or Tijuana.

It’s a tactic at odds with Lampropoulos’ recent statement that, “We are committed to growing our business with local talent in all areas.”

But it seems to have worked. Last month, Merit was awarded an incentive package of nearly $18 million by the Governor’s Office of Economic Development.

And earlier this week, the Salt Lake County Council voted 6 to 3 to approve Merit’s proposed $38 million in tax breaks over the next 15 years.

The county’s approval was really more of a formality, since the Jordan School District, the city of South Jordan and the other required taxing entities had all signed off on the deal. The Jordan School District approved the proposal last week, despite not having any of the formal agreements in hand.

That’s not the only thing that is unusual here.

Merit was originally given a 15-year tax break on the value of its South Jordan campus back in 2005. With that tax break due to expire in just a couple years, the company asked for a 15-year extension. But it wanted two unique provisions.

First, it wanted to be grandfathered in under the old law that existed when the first incentive package was adopted, except it wanted a break from a provision that requires 20 percent of the value to go toward building affordable housing. Merit has voluntarily offered 10 percent.

That could mean a couple million bucks less going to moderately priced homes at a time, as you may have noticed, Utah already is facing an affordable housing crisis. And most of the jobs that Merit will be creating with its expansion are not going to pay well.

About 1,000 of the 2,400 projected jobs will be considered “high-paying” — 10 percent above the Salt lake County average of $50,500 — meaning the other 1,400 are exactly the type of workers who are going to need access to the kind of affordable housing that is in such short supply.

Second, Merit wants the whole deal to be based on the original $37 million valuation of the property where the Merit campus now sits, not the property’s 2017 value of $140 million. Because the tax breaks are calculated based on the growth between the original value and the current value, using the lower base means Merit could get about $10 million more in taxpayer subsidies than it would otherwise qualify to get.

Some members of the County Council balked. “Our responsibility is to make sure it’s a good deal for the taxpayers and the county,” said Councilman Jim Bradley, one of three who voted against it.

Councilwoman Aimee Winder Newton recognized the uniqueness of what they were being asked to vote on, but she went along with it anyway.

“It’s killing me that it’s not in line with what our recent policy is,” she said, “but I recognize the value of what you’re trying to do.”

Winder-Newton and fellow Republican Councilman Steve DeBry — the chief advocate for the tax incentive — each received $1,000 contributions from Merit in the past two months.

That’s not even a rounding error for Merit, which is a juggernaut in Republican politics. According to the National Institute on Money In Politics, Merit has donated $634,000 to candidates and causes over the past 15 years, while Lampropoulos has personally donated $473,000. Almost all of it has gone to Republicans. Gov. Gary Herbert has received $62,500.

Merit also has members on the board of the Utah Taxpayers Association, which chimed in support for the incentive. It is unknown how much money the company gives to the association, since it doesn’t have to release those records.

Look, the Merit deal is not on the scale of the quarter-billion-dollar Facebook boondoggle of 2016 that ultimately fell apart. But it does raise big questions.

For example, when Salt Lake County has an unemployment rate of 2.9 percent — generally considered full employment — does it make sense for taxpayers to cough up millions of dollars to subsidize the creation of hundreds of mediocre-paying jobs that put a squeeze on mom-and-pop startups struggling to find workers?

Do we want to give incentives to successful companies already established in the state, or should they be used to lure businesses that otherwise wouldn’t be here?

Why do we give in to economic blackmail, threats of offshoring jobs and having companies pit one entity against another in a race to see who can dangle the fattest carrot? Once we’ve offered an incentive, are we on the hook for perpetual extensions?

And should taxpayers even be asked to kick in corporate welfare when the economy is chugging along?

It may be too late to consider these issues as it relates to the Merit deal. The taxing entities have a final vote scheduled for Dec. 11. But if policymakers want to be good stewards of taxpayer money and foster wise, holistic economic development, then these are questions that need to be answered before we keep throwing around millions of dollars in incentives.