IAF helps companies targeting Utah for job growth

Corporate welfare. A wise economic development tool. Inappropriate involvement in the business world. A standard in corporate America.

By Brice Wallace
Deseret Morning News

http://deseretnews.com/dn/view/0,1249,595095326,00.html

Whatever you want to call it, the state’s Industrial Assistance Fund is an oft-misunderstood incentive program that flies under the radar of the typical Utahn.

The fund, designed to prompt the creation of high-paying jobs in Utah through the relocation or expansion of operations by businesses based either inside or outside the state, is proving popular again as the state and national economies rebound from recession doldrums.

That, plus a track record dating back more than a decade, leads state officials who administer the program to describe the IAF with one word: successful. Often, they say, it has made the difference in Utah landing jobs that companies could have put elsewhere, even when other states’ incentives were at least as tempting as Utah’s.

"It’s not the only decision criteria they’re looking at," Mark Renda, who is in charge of the state’s incentive programs, said of applying companies. "It’s in combination with the available work force, locations to your markets and other factors. But once you’ve narrowed it down to about the final three communities, then the incentive begins to play."

Typically, an IAF-approved company gets a few thousand dollars per job that is created and that pays a certain level above the county median wage where the expansion or relocation occurs. The companies get the money after the jobs are created and must commit to keeping the operations in Utah at least five years.

David Harmer, executive director of the Utah Department of Community and Economic Development, said companies sometimes are looking for a prime Western location for a distribution center or other facility. Utah, because of its central location in the West, often is a finalist among places that would fit the company’s needs.

Then the company wants to discover what incentives are available from the potential sites.

"The kind of incentive they get isn’t really going to be a big determinant for them economically, especially over the long term, but if they can save a million dollars, definitely they want that," Harmer said.

"Utah is a great place. We have a lot of great things we offer, but we have to be competitive. Businesses are going to be looking at the bottom line. If they’re looking at us versus Colorado or us versus Nevada or wherever, and they think we’re comparable in terms of those other areas — in terms of work force and so forth — they look for the incentives to say, ‘OK, what’s really going to make the difference between these places?’ "

Feeling wanted

But the bottom line isn’t the only factor, he said.
"It’s kind of a test to say, ‘How bad do you really want me? Are you really interested in having me be part of your community? And if you are, you should be willing to do something for me.’ "

Renda said that "validates their importance in the marketplace, that the community wants them."

"The local governments have much larger levers to pull frequently than the state," Renda said. "But they (the companies) want all the players at the table, and if that state is not there, it sends an offensive message. It says, ‘The state doesn’t care about us.’ "
Being offered an incentive also can serve as a gauge of business-friendliness, Harmer said. "How the state and how the community respond on these sorts of initial incentives sets a tone for what the working relationship is going to be like going down the road," he said.

Pennsylvania-based Cephalon Inc. received approval for $2.1 million in IAF money earlier this year to add 365 full-time jobs at its Salt Lake operations over the next five years. In Salt Lake City, the company develops and manufactures a drug line known as Actiq to treat pain in cancer patients.

"It (the incentive) absolutely helped tip the balance in the company’s decision to build the plant here," said Mike Barr, Cephalon’s general manager in Utah. "I’m not the decision-maker in the company, but I can tell you there were other facilities in other states that were evaluated in the process, and I know Utah’s contribution was very significant."

Two years ago, the company had 65 workers here. That number has risen to 180, and as many as 500 could be in place eventually.

"You could argue either way. Would the jobs have come with or without the development grant? But the company would have been less likely to bring the jobs here if it weren’t for us being treated nicely by the state," Barr said.

Rural help

Many IAF approvals have been tied to creating hundreds of jobs, but often areas outside the Wasatch Front capitalize when a relatively small number are produced. Steton Technology Group, approved for up to $100,000 in 2002 to create 32 high-paying new jobs in Santa Clara, Washington County, has added 15 so far and will have about seven more qualify during the current reimbursement period.

When it received IAF approval, it had 18 employees.

"Has it made an impact on our hiring decisions? The answer is yes," said Shane Callahan, director of finance and administration for the company. "With a growing company, cash flow is key, and when you add a resource and you know there’s something tied to it to help offset the cost of that resource, . . . those funds have played a pretty vital role for us."

In his company’s case, adding employees means expenses related to setting up work space and work stations, he said. And knowing IAF disbursements were available, the company has quickened its hiring pace, he said.

"We would have found a way to add those employees, regardless. . . . However, having that fund available sure makes it an easier decision. It’s nice to know we’re going to get that (cost) recovery somehow. It definitely plays into the decision. . . . The timing of those positions was definitely influenced by the fund."

Utah’s first foray into the world of incentives was in 1991, when it tried to lure more than 500 McDonnell Douglas jobs.

And despite nearly 90 IAF approvals since then, the public is often unaware of or has misconceptions about the fund. Meetings of the Board of Business and Economic Development, the deciding group, are usually sparsely attended. Meetings of a board subgroup, the IAF Committee, sometimes feature lively debates about applications’ merits, but they are held in private because much of the discussion involves proprietary company information.

Corporate welfare?

But should Utah offer the incentives at all? Government watchdog Claire Geddes recently said taxpayers are losers in such a setup, with the real winners being the developers and business owners. That’s especially true, she said, "if the jobs were going to be created in Utah anyway."

But Harmer points to a return on investment, saying the state often gets back $10 to $11 for every IAF dollar spent.

"There are some people who just believe it is not appropriate to provide incentives. I try to tell them that it’s a good investment in state money, built on the premise that without the incentives, these projects wouldn’t happen," he said.

And, he said, competition for jobs is a reality the state must address.

"There are other people offering incentives. If we want to win, we have to play in that game. But we have to be smart enough to look at it and say that if we’re not convinced it is benefitting Utah, then we’ve got to be smart enough not to do it and let it go to the other state," he said.

Renda said program critics often have been people on the extreme left who believe the IAF represents corporate welfare, or on the extreme right who believe government should not be involved in the business community.

"But people in the mainstream, they understand that this is normal," he said. "It’s part of business, and it’s expected."

Harmer described Utah’s incentives as "very, very conservative" compared to other states’ programs and said the board tries to ensure that Utah isn’t giving away the proverbial store to land a few jobs that might not pack a big economic development wallop. To be competitive, he said, Utah’s incentives need to be at least 80 percent of what a competing state or area is offering.

"But if that gap gets very wide, then people are going to go where it benefits them the most economically," he said.

Callahan, of Steton, bristles at the "corporate welfare" label. "It’s unfortunate that people would have that perception," he said.

He points to the fact that Steton’s entire work force receives at least 25 percent over the Washington County median wage — the pay threshold set in the company’s IAF approval.

"What we’ve done in terms of percentage above the median salary is significant," he said. "For the region, especially in southern Utah, we’re significantly above the median salary."

"It’s just something that helps us make decisions," Barr, of Cephalon, said. "I think the state will reap far more benefits than it’s costing them. We’re moving numerous people here from out of state, paying them wages at the high end of the scale, compared with other activities in Utah or the Salt Lake area. I think the corporate welfare argument is not really well thought-out."

Success and failure

But IAF approvals do not always lead to successful conclusions. Renda said about a quarter of approvals never result in created jobs, for a variety of reasons. One example is Micron Technology, which was approved for a $3 million incentive to create 300 jobs. But construction of its Lehi manufacturing plant was stopped as the company suffered during a downturn in the computer chip market. No qualifying jobs, no incentive money.

The state also took a hit when it approved $3.5 million for American Stores Co. Boise-based grocery giant Albertsons later acquired the company and moved the created jobs out of state. Utah sued to recover nearly $6 million in the original loan, interest and other costs, but it was unsuccessful.

That was when the IAF was a loan-based program, with loans forgiven if certain milestones were met. Now companies must create and retain the jobs before getting IAF money in the form of a grant.

The state also has tweaked the program in other ways over the years to protect its interests.

"In-state companies have indigenous growth all the time, but what we need to do to take it to the board is have a discreet project — like a new product line or a new plant expansion or something like that where they really have the option to do that somewhere else — because the board is not going to be passing out the money for something that they’re 100 percent certain is going to happen here anyway without the incentive," Harmer said.

"There has to be an element of competition. There has to be a real belief that we need to do something to make sure that Utah is the winner, as opposed to this going somewhere else."

The state looks into companies’ options as best it can, but eventually it falls into the category of trust.

"There’s no way to know 100 percent, so it’s a judgment call," Harmer said of trying to determine if a company needs an incentive to put jobs in Utah or if it’s simply bluffing to get the money.

"The only way to know for sure," Renda added, "is to be in the corporate boardroom when they make the decision, and you don’t have the privilege of being there."

While other states’ incentives are myriad, the IAF has traditionally been Utah’s only state financial incentive. But the Legislature has created a couple of others and is considering more.

"The IAF works well if we need an incentive of a couple of hundred thousand dollars for a project or up to $2 million, maybe $3 million, for a project," Harmer said. "Projects bigger than that, ones that are going to drive heavier competition, we’ve had no ability to play in that arena. People don’t even talk to us about those projects."

Ditto for projects that may have potentially huge economic benefits to the state but only a few direct jobs. "It’s hard to apply IAF to that type of project," he said.

And while lawmakers consider incentives expansion, the IAF is going strong. Buoyed by several applications for help keeping movie production in-state — a demo program funded through IAF — the fund approval figures are on pace for a record year.

That follows a lull caused by the dot-com bubble’s burst, 9/11, corporate governance scandals and the Iraq War.

"That was the perfect storm, if you will, and companies sat on their hands and didn’t do things, waiting for the market to turn," Renda said. "Lately, things have been very busy."

E-mail: [email protected]

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Confidentiality sometimes tricky on IAF matters

By Brice Wallace
Deseret Morning News

http://deseretnews.com/dn/view/0,1249,595095275,00.html

Sometimes when a company gets Industrial Assistance Fund approval, its identity remains a secret.

Some companies request and receive confidentiality as they move through the IAF process, with their names revealed months, if not years, later. Typically, they request confidentiality for business reasons, which is covered by the state Government Records Access and Management Act.

"It’s sort of a delicate process," said Mark Renda, who is in charge of the state’s incentive funds. "If a company makes an application to a state board, they make applications in confidence because it’s their business plan they’re sharing with us. Normally in state government we do everything in the open, so there’s this sort of inherent contradiction between a public process and the needs of businesses for it to be confidential."

IAF Committee meetings are held behind closed doors, but committee-approved matters come before the entire Board of Business and Economic Development, a group of business people from throughout the state. Board meetings are public, although sometimes, because of confidentiality agreements, approvals may be made to an unidentified "paper products company and shelving manufacturer" or "manufacturer and distributor of dietary supplements" or "health-foods company."

"It’s really an awkward thing for us," said David Harmer, executive director of the state Department of Community and Economic Development. "You have this public meeting requirement where the transactions must be done in public, but we have the confidentiality agreements with the companies that we won’t let this become public. They get very angry at us if we cause that to become public before they’re ready for it to become public."

Why companies request that their names be hush-hush varies. Sometimes the companies seek out and weigh incentives from several states before deciding where to place new operations, or they may be planning consolidations that will lead to layoffs in one state and additional hiring in another, but they don’t want that made public until they decide on the matter and inform their affected employees.

Harmer said privately owned companies often do not want other states or others they are negotiating with to know they’re in discussions with Utah, and Renda said companies also can use confidentiality to deflect inquiries from possible vendors wanting to do business with the company should it land in the Beehive State.

Sometimes, armed with sketchy information, news media or others can determine or make a good guess about the company’s identity. So far, Harmer said, that has not caused the state to lose any IAF job-creation project, but the potential exists.

"The other problem is we run the risk of being sued if we cause them some damages because we were unable to keep it confidential," Harmer said. "There is some exposure to us."

GRAMA requires that companies requesting confidentiality state reasons for its necessity. The government makes a determination based on whether the interests favoring access outweigh the interests favoring restriction of access.

E-mail: [email protected]