Utah’s era of big tax breaks to attract new businesses may be nearing an end

In the face of record growth since 2010, state officials want a more targeted and nuanced approach to incentives for employers with an eye toward boosting affordable housing.

(Trent Nelson | Tribune file) Dan Hemmert heads the Governor’s Office of Economic Opportunity as it revises the state's efforts to lure new businesses.

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After almost a decade of record-setting growth and the pressures that come with it, leaders in Utah are revising and dialing back on a series of long-trusted economic development tools used to draw new employers.

Otherwise business-friendly conservative Republicans on Capitol Hill and elsewhere have been urging Gov. Spencer Cox to enact campaign vows for a more restrictive and targeted approach toward tax breaks and other incentives for private companies.

The Cox administration has been crafting a series of new economic development strategies and overhauls to existing ones since July. When lawmakers convene in January, they will debate moves to exclude retail firms from the state’s economic enticements as well as new limits on cities to lessen competition among them as they try to lure large businesses.

“We’re bursting at the seams, and we have serious growth issues in the state,” Sen. Dan McCay, R-Riverton, said last week. “The message is: Seriously, we just can’t keep putting cash laying on the roads, waiting for companies to come in from out of state.”

Other rules are proposed to make employers who accept enticements to relocate in Utah build affordable housing as part of their new commercial ventures. And judging from recent previews of bills legislators will take up in 2022, the state also wants to better ensure that the jobs they create benefit disadvantaged areas, including struggling rural communities.

State officials are developing ways to make government-backed economic gains more inclusive and to promote more business innovation, along with steps to maintain Utah’s place as a leader for startups and entrepreneurs.

These revisions to Utah’s economic strategies also include plans to align public and higher education and job training programs more closely with the needs of major employers and growing industries, including a stepped-up focus on teaching technical skills such as software coding.

In many ways, the emerging debate marks a remarkable change in tone for elected and business leaders in the Beehive State, which has relied for years on doling out millions of dollars in tax-rebating incentives and other grants to build and direct its economy.

“There definitely seems to be a shift,” said Ari Bruening, CEO of Envision Utah, a regional planning agency that has advocated for “smart growth” principles since the 1990s.

“We don’t just want jobs regardless of where they are or what they are,” Bruening said. “This is about jobs in the right place and the right kinds of jobs, so that growth happens well.”

Growing pains

The shift in policy comes after Utah added a million residents between 2010 and 2020 through a mix of rapid in-state population growth and new residents moving in. The state’s 18.4% growth rate over the decade made it the fastest growing in the country.

Under Cox, who succeeded fellow GOP Gov. Gary Herbert in 2021, the state agency long known as the Governor’s Office of Economic Development, or GOED, has been renamed the Governor’s Office of Economic Opportunity, also referred to as Go Utah.

Its strategies both statewide and in each region are now governed by a 15-member Unified Economic Opportunity Commission, made up of Cox, legislative leaders, heads of major state agencies, top public education and university officials and others.

Among its chief goals, according to Dan Hemmert, a former state senator from Orem who how heads up Go Utah, is to foster better collaboration and coordination within state government “as it orients its efforts toward economic opportunity for all and quality of life for Utahns in general.”

Centerpiece of its first overhauls to Utah’s economic growth strategy, Hemmert and others said, is a shrinking of the state’s flagship tool for attracting business expansion, known as tax increment financing.

The long-used system of post-performance tax rebates forgoes a portion of future revenues generated by incoming businesses in exchange for guarantees those employers create new high-paying jobs over future years.

“We are redoing all the state incentives,” said Ben Hart, deputy director of the Governor’s Office of Economic Opportunity, including, he added, “really ramping down support and incentives” going to large retail companies.

Those businesses are often intent on relocating to Utah anyway, he said, and “a lot of retail companies are not dependent on incentives. They’re dependent on rooftops.”

Nonetheless, Hart said, Utah cities are often pitted against one another to attract them with financial breaks in what many legislators refer to as “a race to the bottom.”

“All we’re doing,” Hart told legislators, “is redistributing where money is flowing as opposed to creating new capital.”

Elevate housing

Go Utah wants to essentially forbid for incoming business any retail subsidies, incentives and other streams of money devoted to infrastructure such as sewer lines or roads in all but a few cases, he said. Exceptions would be limited to areas with below-average wages and developments where half the construction by square footage is devoted to housing and half that housing is affordable.

Rebates might also be allowed for projects proposed for environmentally contaminated sites and for local small-business support and Main Street beautification programs.

“This is a very, very narrow lane we’re creating,” Hart said.

Concerted attention will be paid to “bottoms-up, community-driven approaches” for assisting rural areas, Hemmert said, even when those efforts span city and county lines. The state hopes to develop a unified strategy that cuts across those geographic boundaries, he said, while also recognizing specific goals and needs for each part of Utah.

And in a major first, housing also is being elevated as an important priority among these new strategies, Hemmert and others said.

Go Utah’s many players want to make a temporary state panel created for three years to recommend new housing policies, known as the Commission on Housing Affordability, a permanent part of economic development efforts.

The panel also would be expanded to include the state’s homelessness coordinator, according to draft legislation in advance of the Legislature’s 2022 session.

As Utah struggles to navigate through one of its worst housing shortages in decades, some advocates worry that putting the commission under economic development might dilute the focus on encouraging more housing affordable to low-income residents.

Steve Erickson, with Urban Crossroads Center, said housing had long been overlooked as a component of Utah’s economic pursuits. “But if you look at the actual value of housing in our economy,” he said, “it’s roughly a third of the economic activity of the state.”

He praised the commission’s spotlight on affordable housing measures. “We have a real opportunity to make some progress,” Erickson said, though he warned the proposed change could make housing “second fiddle to economic development.”

Sen. Derek Kitchen, D-Salt Lake City, also shared concerns over Utah losing its policy focus on addressing the housing crisis. But Kitchen said that adding the Commission on Housing Affordability to Go Utah would also “get us to acknowledge that stable affordable housing is a critical component of our economic development strategy.”

“The question of structure is an important one,” Kitchen said, “but I also don’t want to lose momentum.”

Correction • Oct. 27, 2021, 9:10 a.m.: This story was updated to correct the short name for the Governor’s Office of Economic Opportunity, Go Utah.