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Utah's business climate: a pro-business stance?

Utah's Business Climate: A PRO-BUSINESS STANCE?

Economic development has become the buzzword of the decade. Every town, county, city and region in America is promoting itself as "the place to live, work, and do business." Take away the name on the cover, and any city's brochure looks just about like the next. So what are the incentives Utah has to offer?

Different businesses thrive in different climates, just as the needs of English ivy differ from those of a barrel cactus. Thiokol International found downtown Ogden an ideal location for its corporate headquarters, while the Thiokol plant is suited to the wide-open spaces of Box Elder County.

As communities across the nation compete with one another to attract and keep businesses, Utah has been ahead of the game in touting its pro-business atmosphere. In the last several months, Utah has appeared on the covers of three national business magazines as the best place to do business. The first big apple came in October of 1990 when Fortune magazine identified the best city for business. "Brace yourself for a surprising No. 1: Salt Lake City," said Fortune. But it was not surprising to the many economic development people working to promote Utah. Fortune elevated Salt Lake City to the place of honor because of Utah's infrastructure, moderate taxes, educated (and plentiful) work force, and quality of life. Financial World in 1991 rated Utah as the nation's top financially-managed state. Money magazine named Provo/Orem the best metropolitan area in the country.

Why Utah?

There are many reasons given for Utah's recognition as a great place to live and do business. Some of those reasons are cited again and again. Cressona Aluminum Executive Vice President Raymond C. Dee said location was the key for locating a new plant in Utah. The Pennsylvania-based company purchased a 210,000 square-foot building in Spanish Fork to produce aluminum products for customers in the western United States. The plant is expected to open by mid year (1992). Dee said the company looked at other western states for possible locations. Economic development packages of many western states, with the exception of California, were very similar to Utah's. Utah was selected, even over a slightly more attractive Nevada economic development package, because Utah's work force has a reputation for a strong work ethic. Government officials, particularly Spanish Fork's City Manager Dave Oyler, were easy to work with and cooperative, Dee said.

"We don't have to give all the incentives (to businesses ) that some states do," said Utah County Commissioner Gary Herbert. "We've had a lot of accolades. One thing about Utah is the feeling generated by the people--a |can do' spirit. I think it is one of the reasons why we are finding economic development while much of the country is in a recession."

Family Health Plan (FHP) Manager of Government and Community Relations Ron Fox described Utah's economic climate as very competitive with that of other states. "Frankly, I think Utah will do better in the economic recession than many parts of the country, due in part to the fact that many individuals and companies that have left Utah for California are coming back." The big attraction? Fox said Utah's taxes, cost of living, and quality of life are big comparative advantages.

One company bucking the trend--and leaving Utah for California--is LAN Times. "We're moving our headquarters to the Bay area strictly to consolidate," said Publisher Michela O'Connor Abrams. LAN Times, a computer magazine, is now part of McGraw Hill, which is consolidating its operations. "The momentum is to move here from California because the cost of doing business is lower here," Abrams said, "but our business of writing about computers makes it sensible for us to locate near the hub of the computer industry--Silicon Valley."

Utah's Best Advantage

"One of the most significant advantages Utah offers employers is the quality of its work force," said the 1991-92 Utah Fact Book available from the Utah Development of Community and Economic Development. "Major national companies that have located in Utah during the past few years report productivity advantages of 25 to 30 percent for their Utah facilities." Utah's high birthrate has created a work force younger than the national average. Youth, combined with a healthy life style, means less time lost to sick days. Utah also leads the country for literacy rates and a high percentage of high school graduates.

Less than 5 percent of Utah's manufacturing workers belong to labor unions. Utah is a "right to work" state, making union affiliation as a condition of employment illegal. The Utah Fact Book states "Utah's average manufacturing rate compares favorably with the wage rate in other western states." Utah has training programs to prepare workers. The "Custom Fit" plan is an ambitious program that will train workers for a particular industry.

Cutting the Red Tape

Utah's Economic Development Director Stan Parrish said Utah's economic goal is to improve the quality of life for Utah citizens. The focus is not creating jobs but to raise the average household income in the state. Parrish explained that Utah doesn't want to attract businesses only interested in cheap labor. Utah wants to attract and keep businesses that pay their workers a good wage.

State and local governments have a number of tools that help determine the hospitableness of the business climate. Taxation is one those tools. Utah's National Business Development Director Marian S. Hein said businesses with large inventories, like distributors (Nu Skin International, for example) benefit because Utah has no state tax on inventory. Property taxes vary depending on where in the state a business wants to locate. Many municipalities in Utah offer tax incentives to encourage businesses to locate in their communities. Sales taxes and state income taxes are considered moderate.

State Department of Commerce Executive Director Dave Buhler said the state has worked hard to streamline the permit and licensing requirements for businesses. "Our objective has been to improve the business climate." With the Utah Tax Commission, the commerce department has developed a "one stop center" where a business can register with all regulatory agencies at one place. "Now a business can register by mail. There used to be 20 forms to fill out. We've consolidated them to one," Buhler said. Special financing arrangements are part of Utah's business climate. The Industrial Assistance Fund provides loans or other financial aid for the development or relocation of a firm in Utah. Technology-based firms can apply for grants, as well as loans, from Utah Technology Finance Corp. Manufacturing firms can benefit by locating in an "Enterprise Zone" (see UB, July 1991). Director of Utah Rural Development Ed Meyer said Enterprise Zones were created by the state legislature to encourage economic development in counties suffering from out migration, an unemployment rate 50 percent higher than the state average or per capita income at 80 percent of the state's average.

Local Incentives

Local governments have funding tools not available to the state. Many communities use revolving loan funds with money provided by federal Community Development Block Grants. Local communities are sometimes willing to negotiate tax benefits for companies locating in their communities.

Utah's Economic Development Office is supplemented with regional, county, and some city economic development organizations. Parrish said the state has two main policies for economic development. "A couple of years ago, with Gov. Bangerter, we created a blueprint for Utah's economic future. We outlined a plan that we feel meets the economic needs of the state. First, it is the state's responsibility to bring business to Utah from outside the state. Second, it is the responsibility of the local entity about where those companies locate."

While it is difficult to avoid some duplication in effort, Parrish said, generally economic development organizations within the state compliment one another. Cooperation is common. Ogden's Director of Business Development Richard McConkie agrees. "I'm impressed with the cooperation up and down the state. There is a natural inclination to compete. In Weber County, for example, the Weber County Development Corp. represents all the cities that pay into it to market the area on a regional basis. But when there are competing sites up and down the Wastach Front, we try to stay out of a bidding situation. All you can do is put together a reasonable package of what works well for your community and put it on the table."

Cache Economic Development Director Bobbie Coray said "We offer the same incentives the state does." In addition, Coray said the economic development office emphasizes the strengths of the Logan area. "We have good relationships with Utah State University and a diversified scientific population. We have an educated work force (one out of every four adults has a college degree) and a nice quality of life. We always think we're the best place in the world to live." Free land and tax rebates are also available for firms that create secure jobs. The result? Coray said the area has added 6,000 jobs in the last five years.

Rural Utah Can Offer the Perfect Fit

Economic development is booming along the Wasatch Front, but St. George has been nothing short of an economic miracle. St. George Community Development Director Bob Nicholson said tourism and retirement have reaped quality of life benefits because of mild winters and year-round recreational opportunities. St. George hasn't been as successful at attracting industry. "Compared with the Wasatch Front with its proximity to an international airport, we're somewhat isolated. We also lack the critical mass (for some industries) and lack access to a major research university," Nicholson said.

Ed Meyer travels the state to help develop rural Utah's economic base. He said there are some negative misconceptions about rural Utah's development potential. Rural Utah, in fact, has some definite advantages for businesses that require a fairly small but dependable work force. Two examples of successful entrepreneurs in rural Utah are Roland Christensen in Fayette and Mike Taggett in Hurricane. Taggett has been featured nationally for his handy "Chums" eye-glass retainers. Christensen is a composites engineer who set up business in a garage, then two, then finally moved to his own plant. He manufactures artificial limbs.

Rural Utah is not without its frustrations. Meyer said early phase financing is a serious problem. "It is true of the whole state but it is worse in the rural areas." Green River Mayor ReyLoyd Hatt said. "We have a constant uphill battle."

A small population coupled with Green River's isolation have made economic development difficult. Hatt said Green River would like to turn the disadvantages into advantages. Green River has made efforts to develop some tourism. He said he would also like to see Green River become the site for recycling research. "The soil structure is ideal for recycling, because if you happen to spring a leak, nothing can penetrate this soil and contaminate ground water (which is 300 feet below the surface)."

Cost of Incentives: Defeating the Purpose?

The Council of State Governments asked its members for the state's most pressing issues in the coming years. Some responses appeared in the October 1991 edition of State Government News. Speaker of the Missouri House of Representatives Bob F. Griffin said "We have to devise ways to stimulate economic development without eroding the tax base. Keeping taxes low as the leading strategy for attracting and retaining business often harms education and other state services important to the businesses we want to attract. Also, as states compete with each other, the tax-break strategy has no positive effect."

Colorado Secretary of State Natalie Myer raised the same concerns. "While tax incentives may bring new business, someone still must pay for state-provided services." Myer questioned whether increased population and business could compensate for the loss of a traditional industrial tax base.

University of Nevada at Reno economists Glen Atkinson and Ted Oleson also questioned government incentives in an article in the 1991 Nevada Public Affairs Review, Legislative Issues. "Quality firms tend to prefer a quality community with adequate public services and facilities. Footloose firms are attracted by low wages and low taxes, but since they are footloose, they are likely to flee to a better offer and leave the community to pay for such long-term capital facilities as sewers and roads."

Dropping Out of the Competition

New Mexico is one western state not involved in government giveaways to business. Randy Burge, with New Mexico Economic Development, said New Mexico is prohibited by law from using state money for private gain. He said most western states have similar "anti-donation" laws on the books stemming from railroads soliciting giveaways in the 1880s and 1890s. New Mexico has chosen to interpret the old anti-donation laws to include the economic development incentives like those used by Utah.

Burge said New Mexico's economic development people have seen Utah's national recognition with some envy. The long term gains or failures of economic development strategies are impossible to predict. Utah's government-supported economic incentives have nourished Utah's pro-business climate. Time will tell if the benefits of those incentives outweigh the cost of less tax revenue for education and other services.

Getting the Most for the Dollar

Part of Utah's success in attracting business is the young and well-educated work force. Utah's high birthrate translates directly into increased education costs per worker. Utah invests more money for education than any other state, yet spending per pupil in public schools is the lowest in the nation. "We get an incredible bang--a nuclear explosion--for our buck," said Utah Education Association President Lilly Eskelsen. But statistics that show New Jersey paying $9,159 a year per student and Utah spending $2,993 with the national average at $5,261, give Utah's education system a black eye. "The rest of the nation is getting the impression that we have a destitute public school system, and that is not true." Eskelsen said what Utah has is a system satisfied with being average. The low expenditure per pupil translates directly into large classroom size, which means average students learn the basics, while the more and less gifted fall through the cracks.

"I think that there is no question that things will deteriorate with Utah's low comparative education spending over time," said Dr. Don Richards, Executive Secretary of the Utah School Superintendent's Association. "You can continue to do more with less, but over time, the ability to do that fades." Eskelsen believes that Utah could be a "beacon" of educational achievement with better funded schools. Great schools are a big enticement for companies to locate in Utah. An even greater benefit down the road is the quality of the emerging work force.

PHOTO : Green River Mayor Rey Hatt says his part of the state is the perfect location for a recycling plant.

PHOTO : Michela O'Connor Abrams, publisher, says LAN Times is one Utah company going against the grain--it's moving to California.

PHOTO : Ron Fox, Public Affairs FHP Health Care

Pat Birkedahl has a degree in economics and writes about business issues.
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Title Annotation:national business magazines rank Utah as best state for business because of state's infrastructure, moderate taxes, educated work force and quality of life
Author:Birkedahl, Pat
Publication:Utah Business
Date:Feb 1, 1992
Previous Article:Vital connections.
Next Article:Business with a southern accent.

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