Having followed economic development incentives nationally since the turn of the millennium, I’ve seen some eyebrow-raising deals go down.
There were “big fish” relocation bidding wars that caused countless hours of wasted civic energy at the state and local levels. There were deals set to last far into the future, saddling future generations with an investment for which there was a murky long-term return at best.
There were big tax breaks for projects that failed to live up to their promises or that folded within just a few years. There were companies that received tax incentives for projects to which they had already committed – and, in a couple of cases I know of, on which construction had already begun.
In short, as economic development incentives have grown in popularity nationwide, there are a lot of mistakes that can be – and have been – made. As a result, a growing chorus of critics has assembled across the political spectrum, and in both the public policy and academic spheres.
Fortunately, Utah has protections to shrink the margin for error on its state-level incentives. Among them are limits on the percentage of new revenue that can be captured for an incentive, shorter time limits on the duration of an incentive and a requirement that the incentives be awarded only on a post-performance basis (i.e., only after the company has delivered promised benefits).
Nevertheless, incentives have come under reproach even in the Beehive State. The most prominent criticism came from the Utah Office of the State Auditor in a 2014 report. Among other things, it suggested that the wage data and criteria used to verify the performance of incentivized companies were massaged in some instances in order to allow the companies to qualify for incentive awards. The report also raised concerns about oversight and control weaknesses.
Utah Foundation’s new report, “EDTIF Elevated? Utah’s Evolving State Incentive Program,” chronicles significant changes in the state’s economic development tax increment financing program since 2014. It also calls attention to questions that still remain.
EDTIF, which is administered by the Governor’s Office of Economic Development (GOED), is the state’s most prominent incentive program. It offers a post-performance, refundable tax credit drawing on up to 30% of new state sales taxes, corporate income taxes and employee personal income taxes for up to 20 years.
In response to the 2014 auditor’s report, the Utah Legislature in 2015 passed a bill tightening up EDTIF wage and job requirements and mandating a triennial review of “the state’s return on investment.” GOED has since undergone an independent audit (2017) and submitted two reports to the Utah Legislature’s Revenue and Taxation Interim Committee.
GOED has also upgraded its data verification process, boosted wage performance, bolstered internal controls and improved efficiency. “Today,” GOED told Utah Foundation, “a company’s incentive is 7 years and 20%, compared to 15 years and 25% prior to 2014.”
In 2019, the Utah Legislature passed SB 172, Economic Development Incentives, which called on GOED to revisit the state’s economic development strategy. In response, GOED in November released a new economic development plan, which provides broad guidance for the future.
Still, a number of questions persist. Among them are whether the optimum strategy is in place; whether state-local coordination can be fortified; whether there are ways to make the program more effective and efficient; and whether transparency can be improved.
By multiple measures, EDTIF has been a success. Since its creation in 2005, 24,083 new full-time jobs have been created in connection with the program. GOED reports a 3:1 revenue return on its EDTIF tax investments.
But since its inception, the EDTIF program has also been a work in progress. And given the risks that have come with incentives nationally, continuing that push forward – and building public trust along the way – is well worth the effort.
Peter Reichard
Peter Reichard is president of Utah Foundation, a nonpartisan, nonprofit public policy research organization. Reach him at peter@utahfoundation.org, and find “EDTIF Elevated?” at utahfoundation.org.