How well is the Governor’s Office of Economic Development (GOED) handling its corporate recruitment and retention incentive program? It depends on whom you ask.
GOED was criticized last week in a performance audit by the state auditor’s office, which found fault with several elements of GOED’s administration of the program. In contrast, an independent review commissioned by GOED found that, other than a few “minor” issues that are “not pervasive,” the state agency is complying with ethical, statutory, contractual and procedural requirements.
The core of both the audit and review is the state’s Economic Development Tax Increment Financing (EDTIF) program, used to entice companies to place operations in Utah or expand in the state. The program can provide a company with a tax credit of up to 30 percent of new state tax revenue created by a project over up to 20 years, with the company receiving the credit after it has reached job-creation benchmarks.
The audit said the EDTIF program lacks oversight and transparency. Among its critiques are that GOED has gradually reduced the requirements for incented companies since 2008, that GOED in 2010 began counting health benefits toward wage calculations for companies getting an incentive, that companies are required to create only a fraction of projected jobs to receive an incentive, and that GOED has reported misleading figures for wages and job projections for companies receiving incentives.
The audit report, available at http://auditor.utah.gov/news, includes 32 recommendations for GOED and the legislature, including clarifying the incentives statute; instituting moves to ensure that the program is administered consistently, fairly and equitably; and having more accountability of the program.
Speaking about the report last week at a meeting of the legislature’s Executive Appropriations Committee, auditor officials noted that the changes are needed because of potential growth of the program. Since 2006, GOED has committed more than $600 million in corporate incentives, but the figure could reach $1.3 billion by 2024.
Chris Otto, performance auditor supervisor, said consistency is needed in GOED’s policies and procedures. He said GOED has inconsistently applied certain techniques to some underperforming companies to justify the issuance of tax credits.
“Our main concern … is these techniques are done absent any policy or procedure,” said David Pulsipher, performance audit director. “Therefore, we’re concerned such techniques may be applied inequitably, inconsistently, and may potentially open the state up for future lawsuits.”
Otto said state statute allows GOED to develop rules, policies and procedures, but “GOED instead chose a maximally flexible approach allowable within the broad parameters of statue to manage the EDTIF program.” He voiced concerns about the latitude and rationale for incentive amounts and time periods.
But Val Hale, GOED’s new executive director, said the program’s post-performance element — awarding the tax credits after the jobs are created — and its statutorily granted flexibility are the main reasons for the program’s success.
“The program would not work without the ability to maneuver and tailor incentive offers to specific companies,” he told the committee. “There is no one-size-fits-all method of recruiting and retaining companies in the global business-recruitment arena.”
Whenever GOED has adjusted incentives contracts with companies, those changes benefited the state, he said.
“We acknowledge the auditors have heartburn about the latitude [that] statute gives GOED to administer the program,” he said. “But remember, flexibility is the flywheel that keeps the program operating in today’s fiercely competitive and dynamic global economy.”
Rep. Rebecca Chavez-Houck, D-Salt Lake City, questioned whether the flexibility is too great. “What I’m seeing here is a very large discrepancy between discretion and accountability. … I understand there needs to be some nimbleness, but nimbleness on the backs of the taxpayers is something that some of us are not very comfortable with,” she said.
Hale said GOED is meeting statutory provisions and has already implemented or will implement some of the audit recommendations. Meanwhile, the Executive Appropriations Committee advanced the matter to an interim legislative committee.
During his testimony, Hale lauded the success of the incentive program, saying it has led to the creation of nearly 13,000 jobs over the past eight years and $128 million in net new tax revenue during that time.
“I can tell you that Utah’s program has done such a great job of attracting and keeping companies in a very competitive environment, that several other states have looked at our program and copied all or parts of it,” he said.
As for EDTIF, “it’s been a great tool to pull Utah out of the Great Recession. Now, are there things we could have done better? Absolutely.”
A few days before the committee meeting, the GOED board received a report from Tanner LLC indicating that Tanner found only minor errors in its sampling of the EDTIF program. Some were likely the result of clerical errors or rounding and in some instances benefited the state.
With those exceptions, “we did not encounter any instances of non-compliance with relevant ethical, statutory, contractual, or procedural requirements,” Tanner said in its report.
Tanner said GOED appears to be overly conservative in its job counts by not including new jobs created and filled by contracted employees.
The firm recommended that changes to incentive payouts or amendments to EDTIF contracts need advance approval from the GOED board, and it called for GOED to add more staff to handle the growing program.
As for the program’s flexibility, “based on the results of our procedures, GOED management used that flexibility judiciously,” Tanner said.
“We have no substantive findings with the administration and reporting of the EDTIF program,” Tanner partner Kent Bowman told the GOED board. “We’re not here to cheerlead; we’re independent. But just for all of you to be aware, that is a tremendous result and I think you, as members of the board, should be pleased with that.”
Bowman called the competency of GOED staffers “very high.” “And, quite frankly, we came into this a little bit suspect of that. We were impressed,” he said.
Mel Lavitt, the board’s chairman, described GOED as “as good as any investment banking firm …. I know we’ll keep up the work and I know we’re going to get better and better.”
GOED’s administration has undergone changes in recent weeks. Hale succeeded Spencer P. Eccles as executive director. Eccles rejoined the private sector. Kimberly Henrie became deputy director, succeeding Sophia DiCaro, and also has the title of chief operating officer. DiCaro is campaigning for the Utah House of Representatives. Theresa A. Foxley became managing director of corporate recruitment and business services. She succeeded Christopher Conabee, who subsequently was appointed as a member of the GOED board.