SALT LAKE CITY — The state’s most active economic development tool granted over $150 million in potential future tax credits in the past year for 21 private companies that collectively pledged to create more than 13,000 new, high-paying Utah jobs.
And while the promise of thousands of new positions is timely news for a state economy that’s reeling in the face of the impacts from the COVID-19 pandemic — including record high unemployment — most of the plans call for hiring to occur over the course of the next few years or, in some cases, decades.
Utah’s long-running Economic Development Tax Increment Financing program grants credits up to 30% of a qualifying company’s newly generated sales, corporate and withholding taxes. Earning the credits requires, in part, the creation of new jobs that pay 110% of the county average where the positions are located. Launched in 2005 and administered by the Governor’s Office of Economic Development, about 60% of participants hit the marks to earn the entirety of granted tax credit packages and 2 out of 3 awardees are Utah businesses looking to expand versus companies new to the state, according to program managers.
The efficacy of government-funded corporate incentives has come under deeper scrutiny in recent years, thanks at least in part to highly marketed projects like Amazon’s secondary headquarters and mammoth manufacturing facilities, like those planned by electric car maker Tesla. The promise of new jobs and capital investments associated with those projects has in some cases led to frenzied competitions pitting states against each other in games of monetary one-upmanship, with extravagant enticements typically backed by taxpayer-generated funding.
Governor’s Office of Economic Development Executive Director Val Hale said Utah distinguishes itself from many other states through its approach to award sizes and a program that functions on a post-performance basis. He also noted what he characterized as ongoing public misconceptions about the demographic of companies that receive the tax incentives.
“One of the biggest misconceptions is that we use the incentives to bring in out-of-state companies,” Hale said. “But two-thirds of the awards go to Utah companies … to keep jobs in the state rather than take them out of state.
“The other is that we use taxpayer money to give to these companies but the reality is we use a post-performance tax credit. The companies agree to pay x-amount of taxes over the years and if they do that, if they pay in their taxes, then they are give a rebate back. Really there’s not taxpayer money at risk upfront, like there are in many states that write big checks first.”
While no big checks will be written for companies — benefits come in the form of future tax credits granted after benchmarks are reached — four of the deals offered in the just-ended fiscal year land well into eight-figure values.
The biggest among those? Aerospace and defense giant Northrop Grumman was granted a $60 million deal in January on plans to hire 2,250 new employees in the next 20 years while making capital investments of some $380 million.
The company currently employs over 5,000 across the state and helped cement its status as Utah’s biggest private defense employer after acquiring Orbital ATK in 2018 for a deal worth almost $8 billion. At the time, Orbital ATK, a company well-known for its dramatic Box Elder County rocket engine test firings, had some 1,300 Utah-based employees.
Following the state’s announcement of the monster deal, Hale said Northrop Grumman’s investments would boost Utah’s economy for years.
“This project could create jobs for Hill Air Force Base for generations to come,” Hale said in a statement. “As one of the top 10 military-friendly employers, the proposed expansion would better serve Weber County and our growing aerospace industry.”
Northrop Grumman was one of six companies in last fiscal year that wrapped up June 30 to earn awards with plans to add 1,000 or more employees.
Utah customer experience innovator Qualtrics earned the second largest award of the past year with its own package that could be worth almost $33 million in the next 10 years on plans to create 2,245 new jobs along with $45 million in capital investments.
The Provo-based company was acquired by European software behemoth SAP in an $8 billion deal announced in 2018 and has been on an expansion tear ever since.
On the same day its tax incentive was announced last November, Qualtrics unveiled plans to more than double the space at its longtime Provo offices to 355,000 square feet. The project that will also include two new parking structures and a three-story outdoor terrace equipped with conference areas, meeting spaces and views of the 6-acre gardens. Qualtrics also announced plans to build Cloud Village, a 40,000-square-foot onsite child care facility. The employee-only facility will accommodate 250 kids and feature “a tech-infused curriculum offering age-appropriate science, technology, engineering and math education.”
The latest endeavor from the Utah-raised oracle of passenger air travel and JetBlue founder David Neeleman earned its own tax incentive package late last year.
Breeze Aviation will be the fifth carrier startup for Neeleman, whose previous endeavors include Utah-based Morris Air (acquired by Southwest in 1993), WestJet (currently the No. 2 Canadian carrier), JetBlue and Azul (currently No. 3 among Brazilian domestic carriers).
A Breeze spokesman told the Deseret News that due to conditions brought on by the COVID-19 pandemic, a planned launch for late 2020 has been bumped until next year. Neeleman’s plan for Breeze is to carve out a market niche using efficient new planes in providing nonstop service to underserved, non-hub airports across the U.S. Perhaps ironically, Salt Lake City will likely not be among them but the company does have plans in place to hire some 370 Utah employees in the next five years and make over $3 million in capital investments.
And in a win that could be marked down as a consolation prize for Utah’s failed pursuit of hosting Amazon’s so-called HQ2, Amazon Web Services earned an award that could garner the company up to $2.5 million in tax breaks in the coming decade. To earn those credits, Amazon’s cloud storage subsidiary will need to follow through on plans to hire 300 new Utah employees in that time frame while making $25 million in new investments in the state.