SALT LAKE CITY — A report released Tuesday by the Utah state auditor calls for more statute clarity, consistent administration and transparency in a corporate incentives program through the Governor's Office of Economic Development.
The Corporate Recruitment and Incentives Program seeks to help existing companies expand and to recruit new companies to Utah to bring more high-paying jobs to the state.
As part of the initiative, the program administers economic development tax increment financing, which returns a portion of new tax growth to participating companies after they've paid their taxes for a given period. The maximum rebate companies can receive is 30 percent of the taxes they paid over 20 years.
Currently, 127 companies have signed on with the program, which has brought about 13,000 jobs and generated $128 million in net revenue since it began in 2006.
But GOED was selected for an audit because of the "significant amount of long-term financial commitments (it) can make through its corporate incentives program and the impact that such commitments have on future tax revenue," the report states.
The audit identified three primary concerns that demonstrated "inadequate governance" of the program, including inconsistency in awarding incentive rebates, reducing corporate incentive requirements, and inadequate oversight and transparency.
In order to be approved for the economic development tax increment financing rebate, companies must meet certain benchmarks in job creation and wages, which are required to be at least 125 percent of the average urban wage in the county. One of the findings of the report was that GOED used existing company employees to "inflate" the average wages of new employees, and that it raised the average company wage by omitting low-paying jobs from the calculation.
The audit also claims GOED gradually lowered the average wage requirement from 147 percent of the average urban county wage for new jobs to 125 percent over the past five years, and that special exceptions were made for some companies.
Val Hale, who was appointed as GOED executive director two months ago, said these are isolated incidents and that statute says wages for newly created jobs must "compare favorably" with the local average, not exceed it.
"We're talking about a very small number of companies in some of these instances," Hale said. "Some of these sound like it's happening all the time, and it's really one or two companies we're talking about out of 127 companies."
During a presentation to the Utah Legislature's Executive Appropriations Committee on Tuesday, auditors argued that inconsistent administration of the program could open the state up to lawsuits with participating companies.
"Our concern with the way that the techniques are applied is that they're not applied for every company," performance auditor supervisor Chris Otto said. "So the worry would be if one company was incented in one way without policy that a future company could come back and say, 'We want a similar deal.'"
GOED officials contend that flexibility is needed in order to negotiate with businesses looking at coming to the state.
"The program would not work without the ability to maneuver and tailor incentive offers to specific companies," Hale said. "There is no one-size-fits-all method of recruiting companies in the global business recruitment arena."
Where to draw the line between flexibility and strict adherence is unclear in statute, but Hale says overall economic conditions and unemployment rates should largely determine how companies are selected for the program.
Calls for action
The report recommends that parameters within the program be clarified and that legislators should decide how several key terms and concepts are to be defined in statute. The report also calls on GOED to administer the incentives program "consistently, fairly and equitably."
Auditors said additional stakeholder involvement would increase the accountability and transparency of the program. Regular in-depth reports should be given to policymakers and the public, the report states.
Derek Monson, director of public policy at Sutherland Institute, a conservative public policy advocacy group, expressed disappointment in the "defensive posture" of GOED officials.
"Rather than circling the wagons in defense of power and special interests, the better path forward is to seek to restore public trust in GOED by thoroughly examining and reforming corporate incentive programs," Monson said in a prepared statement. "We hope that all stakeholders will recognize the primacy of encouraging public trust through genuine transparency and accountability, as proposed corporative tax incentive reforms are likely introduced and debated."
Matt Lyon, executive director of the Utah Democratic Party, said GOED's former executive director and GOP candidate for Utah House District 31, Sophia DiCaro, should answer for issues raised by the audit before entering other fiduciary capacities.
"(DiCaro) needs to address and be held accountable for these concerns," Lyon said in a prepared statement. "Our top levels of state government are under additional scrutiny, and even the appearance of impropriety should be addressed."
Hale acclaimed the program's subsequent success in bringing jobs and dollars to Utah's economy. A separate audit released in January found that for every dollar GOED rebates to a company through the economic development tax increment financing program, $3.19 is generated as direct income to the state.
Since 2006, the program has committed more than $600 million in corporate incentives, an amount projected to double by 2024 at current rates, according to the state audit.
Hale admits it's a lot to pay out, but he says it's only a portion of new revenue that would be generated for the state.
"It's a very lucrative return on investment for the state," he said. "A lot of people think, 'You're taking tax from the state.' The way this works (is) we're not taking tax from the state. This is tax revenue that wouldn't be here if the company didn't add these new jobs. So 70 percent of something is better than 100 percent of nothing."
The audit will be discussed further by legislators next month to determine what action should be taken in light of the report and whether more legislative oversight is needed in the program.
Email: [email protected], Twitter: MorganEJacobsen