He is further disgruntled after eBay accepted a $2.1 million corporate-tax incentive in December 2009, its third in two years. Previous incentives were $27.3 million in 2008 and $1.7 million in May of 2009. And eBay is not alone: In the fiscal year ending June 30, 2009, the Governor’s Office of Economic Development (GOED) awarded more than $67 million in incentives.
Sanders relates that other shop owners in the local-dominated retail district of East Broadway share his sentiments about the use of state funds to spur the economy [see “Where´s my Incentive,” Letters, Dec. 31, City Weekly], especially when giant competitors—as eBay is to antique stores and other small businesses—are given aid. Instead, he would like to see more money used to promote local businesses.
“I believe that our economy will be built on small businesses. We should be encouraged and helped along in that process,” Sanders says. “Now, we are taxed at local and federal levels without a break. There are all sorts of incentives for bigger companies.”
The GOED incentives are designed for larger companies in specific business sectors, says Spencer Eccles, executive director of GOED. He said there are a lot of misconceptions about the incentives that have only gotten worse because state incentives are often confused with federal grants.
But the main purpose of the incentives is to improve the state economy, Eccles says, which is why they are based on performance, and not given up front. “By adding a company, you increase the tax base. Second, you are adding jobs with family-sustaining wages. What this does is employ somebody, that individual pays income tax, and that individual is a consumer. The final inferred benefit, on the education side, is you create a greater job pool for the universities and colleges.”
Eccles insists the incentives are not given to large retail competitors. “The state does not incentivize retail, we are not inviting a big-box group like Home Depot ... we don’t [because] that’s something that the Legislature chooses not to address. Therefore, we do not create direct competition to retailers,” he says. In fact, many of the incentives have been awarded to local businesses.
But even local companies have to be at least medium-size to qualify, since a company must create a minimum of 50 new jobs that are 125 percent of the median income for the Wasatch Front and 100 percent in rural areas, plus benefits, to qualify for the incentives.
“We’d like to see that change,” says Carla Wiese, economic development director of the Downtown Alliance. “Small businesses can’t get incentives because they can’t [create that] number of jobs, [but] one job can have ripple effects.” She believes that small businesses that only create a few jobs, such as a manufacturing company, should be able to receive the GOED funding with incentives proportional to new jobs.
The challenge with the incentive program is determining the difference between net new growth and what would already be occurring. GOED does not award for organic growth.
Wiese proposes a compromise: “If you are a small retail business with a loan, and you generate sales-tax revenue after a threshold, [the state could] forgive part of the interest. The state is able to keep sales tax, the business is able to benefit from creating growth [from capital].”
Some argue that it is imperative that GOED use incentives to attract new businesses or Utah will lose out in the long-run.
“Incentives go to companies that will create the greatest number of jobs, which tend to be larger companies,” says Bob Farrington, economic development director for Salt Lake City. “What is the purpose of this incentive? To give one employee a job, or hundreds? ... We are competing—these companies could take these jobs elsewhere. If we, as a state, do not provide this incentive, then we will lose [these jobs].”
Small retailers in the service industry benefit from job-market expansion.
Farrington says that these new employees are spending their money at local businesses.
Another misconception is where these funds come from. “It is important to distinguish between what the state of Utah and what each city is doing. Each city has a different policy,” Farrington says. “The state’s policy is how do we lure companies, while the city’s purpose is to give loans to companies that are already here.”
In Salt Lake City, the primary tool to aid business is a revolving-loan program, created in the early ’90s, aiding more than 100 companies. But that doesn’t help everyone, even with the low-interest rates of the loans, because many small-business owners are reluctant to take on additional debt, Farrington says.
At the local level, the city offers nothing that replicates the state’s program because vigorous monitoring is not in the city’s capacity.
Still, others think that the state investment in big, out-of-state companies goes beyond economics. “It’s sexier, it excites people, and it sounds like a huge accomplishment, as opposed to small, generational businesses,” says Ellen Reddick, president of Vest Pocket Business Coalition. “Small businesses are saying, ‘Quit patting us on the head. Can we do something more substantial?’”
Something more substantial wouldn’t necessarily be tax incentives nor do many local businesses expect it. “I’d love to see [government implement] some safe-zoning districts, neighborhoods that were protected for small, independent businesses,” says Matt Monson, owner of Salt Lake Citizen and state coordinator for Buy Local First. Monson points to zoning ordinances proposed by former Salt Lake City Mayor Rocky Anderson about three years ago, which would have protected business districts such as Broadway, 9th & 9th and 15th & 15th, as something that could be resurrected. He would also like to see rent controls, especially after seeing the rent at his former Broadway location increase 60 percent in two years.
Without those protections, he fears that the local businesses will have to find new homes.
“When these neighborhoods become desirable, they get priced out, and we see chains [moving in],” Monson says.