Last year, Utah said it would give $148 million worth of incentives to help companies expand, more than double the amount allocated in 2010, as the state tries to spur employment.
Utah gives money in the form of tax rebates. Last year's recipients included IM Flash Technologies Inc, ITT Corporation and eBay. That funding will help add 10,265 jobs and generate over $383 million in new revenue for the state, according to Governor's Office of Economic Development data. In 2010 Utah gave $62.4 million in incentives that would generate $248 million in state revenue. The program doesn't involve the state spending cash. Instead it represents rebates given to companies after they hire new employees.
The 20 companies that participated in the program last year will add $6.2 billion in new wages throughout the state over the course of about 10 years, on average.
"The best part in what Utah has been able to do as opposed to other states is that companies give us money in terms of taxes and we give them a portion of it back," said Christopher Conabee, managing director for GOED, in a phone interview. "We know that they've done what they've committed to first, and then we reward them."
Utah began its post performance business incentives program in 2006. Typically, the state gives aid to companies when they can add at least 50 employees earning 125 percent of the county's average wage for urban areas, or $54,335 in Salt Lake County, and 100 percent of the average wage plus benefits in rural areas, or $26,867 in southern Utah's Kane County, for example. Under a typical arrangement, a company will have a contract of five to 20 years in length, and will start receiving a prorated amount of their taxes back after one to three years. Companies can receive up to 30 percent of their state taxes back.
Typically the state gives out incentives worth 27 percent of new state revenue, based on an analysis of state records.
Incentive amounts aren't the first thing companies look at when considering where to grow their business, said Rob Derocker, an economic-development consultant in Tarrytown, NY. Incentive amounts are usually the last thing considered. Companies look at other factors first, and once they've narrowed it down to just a couple of states, then they look at incentive amounts and government programs, he said.
Derocker said states across the nation offer different kinds of programs to grow jobs but one thing that companies look at is the quality of the work force, which is very high, Derocker said.
Only about 25 percent of companies that apply actually get into the program. The reason for that isn't because GOED rejects them, but because the companies decided not to take part in the program. Typically, if companies aren't accepted, it's because they don't think they will meet the requirements.
The program definitely helps creates jobs in Utah, Conabee said.
"There's no question it's an effective program," Conabee said. "I think one of the reasons our state's doing well is because our model is a sound model."
Conabee said the state isn't just giving money to businesses that would already be here, but the companies must have competition to go or stay out of the state.
"Every incentive we have given has been to a company that has consideration to move somewhere else," Conabee said.
Companies in both areas also must give benefits for the workers, Conabee said. In order to get the tax credits, companies must also generate new tax revenues, have significant capital investment and significant purchases of Utah vendors or suppliers. All incentives are post performance, meaning that companies only get the incentives after they've met the requirements outlined by the state.
In other incentive models, where the state gives out the money up front, businesses could fail and the state would have lost the money it gave. That's not the case with Utah's model.
About 1.5 jobs were for every job the state has incentivized, Conabee said. Those include support staff that don't always earn more than the 125 percent wage level.
"When you tack it to the global package that we have; a young, highly educated work force, a governor and a government that effectively has a low tax rate and understands business - that's why we win business," Conabee said.
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