In case you missed it amidst the status updates, news feed, likes, photos and pokes, Facebook has made its long-awaited decision. The company that created modern social networking and connected the world in ways heretofore unknown will build its massive data center in New Mexico, not Utah.
The project had the potential to bring up to $1.5 billion in capital investment to Utah and would have joined a long list of notable companies that have moved to the Beehive State, including Proctor & Gamble, Adobe, Goldman Sachs, eBay, Boeing and many more. In the corporate recruitment world where success begets success and reputation matters, this loss has consequences. In the long run, there are lessons to be learned that if ignored will produce an even greater loss.
The first lesson is it’s better to risk losing a recruitment project than to become the casualty of a bidding war of incentives between competing locations. Some decry the use of any incentives from state and local governments. There is no doubt that in an economist’s utopia, incentives would be unnecessary, but we don't live in that perfect world. The reality is states compete for the jobs and investment that come with corporate recruitment projects. In a free market, companies have choices on where to do business, and the resulting competition means states that want to attract jobs must produce a skilled workforce, stable business environment and high quality of life.
This healthy competition goes off track when locations get into an incentives bidding war. We saw this beginning to happen when New Mexico sweetened an already enticing offer of 100 percent tax rebate with an additional $10 million subsidy. A state with strong "natural" incentives of well-educated employees, low taxes and reasonable regulations should not have to play that kind of game when recruiting companies. If a state wins every recruitment project, it is an indication that the financial incentives may be too rich. Losing a project now and then helps a state to be reflective and refine the incentives process.
The second lesson is incentive parameters must be determined before negotiations begin. It is risky to try to figure out how far is too far during the heat of the moment, when emotions are heightened and the party sitting across the table can get the better of you. The Facebook recruitment clearly suffered from internal disagreement on how much incentive was acceptable. The city made an offer. The county disagreed. And the school board approved something in the middle.
Having your internal negotiations play out in the public forum is not an effective way to win deals. For any company looking to relocate, no amount of financial incentive is ever enough. By nature the company will always want more. This is why it is important to have parameters set on your side of the table before you start negotiating.
The third lesson is all partners must get and stay on the same page. There's no shame in losing a recruitment project when it becomes a "dialing for dollars" exercise and the company is simply searching for the highest bidder. Losing a project because of internal misunderstandings is a different matter, especially when it spills onto the front page of the paper.
Elected and community leaders in Utah rightly tout our economic development “secret sauce” as our willingness to cooperate and ability to collaborate. Utah’s secret sauce has produced a long string of great results under the leadership of the Governor’s Office of Economic Development, supported by the Economic Development Corporation of Utah, in coordination with local counties and cities. The Facebook project was an unfortunate loss but gratefully a rare exception. Learning from the loss will help ensure this exception does not become a pattern.
Derek B. Miller is the president and CEO of the World Trade Center Utah. Previously he was chief of staff to Gov. Gary Herbert and managing director of the Governor’s Office of Economic Development.