Oracle may have played incentive game

A sweeter incentive package reportedly caused software giant Oracle Corp. to pick Utah over southwest Idaho for construction of a major facility, the Idaho Business Review reported earlier this month.

Neither Redwood City, Calif.-based Oracle nor the economic development chief for Utah Gov. Jon Huntsman, Jr., would confirm that the company plans to build another facility in Utah.
Regardless, the incentive game is getting more competitive. The Idaho Business Review first broke the news last week that Oracle had investigated relocation to the Treasure Valley. Sources in Idaho confirm the company, had looked to Idaho, but now were moving the facility in the Cache Valley in Utah.
Utah identifies companies as soon as the state offers incentive money, and the state had made no such offer to Oracle as of early last week, said Jason Perry, economic development director for the Governor’s Office of Economic Development in Utah.
“Oracle is a great company, and has a presence in Utah,” he said. “Whether or not they are looking at the state of Utah, we are not prepared to comment further.”
Companies that consider Utah, or apply for incentives that ultimately are not granted, are not identified.
Utah’s Industrial Assistance Fund provides grants or loans that companies can use to pay relocation costs. And under the state’s Economic Development Tax Credit program, Utah can rebate up to 30 percent of a state’s corporate income tax, sales tax and withholding tax for up to 20 years. Perry said a company receives incentives after performing all tasks promised when it applied for them.
The rebate program took effect about two and a half years ago in Utah. Procter & Gamble, Hershey, Disney, Goldman Sachs, and the Micron-Intel venture IM Flash have used it, he said.
“Utah is involved in a bigger way than they were,” said Jeff Thredgold, economic consultant to Salt Lake City-based Zion’s Bank. He issues a report on the Idaho economy monthly.
Tax-based incentives and convention facilities have something in common, he said.
“You need to build them bigger just to stay up with everyone else.”
Expanding incentives can be unpopular and viewed as too costly during an economic lull, but the business-attraction game gets more competitive when the economy cools, Thredgold said.
“We’re seeing states in the West, especially when the economy slows, providing more attractive tax-based incentives for companies to expand current operations or to bring new companies in,” he said.
A slowdown in job creation can spark concern about where new jobs will come from. “Some states will get more aggressive in terms of providing incentives … When things are slow, states will start to bid up the cost of incentives to get the jobs from somewhere,” Thredgold said.
Utah has been more aggressive in money spent and tax abatements given since Huntsman came in as governor, he said.
Labor availability and cost probably are more important than incentives in attracting companies or encouraging them to expand – at least in the long term, Thredgold said.
Idaho is not known as a leader in offering incentives. Traditionally, state officials emphasized Idaho’s balanced tax system rather than its incentives.
However, the Idaho Legislature this year acted on several incentives.
Lawmakers eliminated the Corporate Headquarters Incentive Act – which targeted headquarters operations planning many highly paid jobs, but was never used – and revised the Small Employer Incentive Act so that more businesses that pay well could use it. Gov. C.L. “Butch” Otter signed one bill that caps a company’s property tax assessment at $400 million if the company invests $1 billion, and another bill that allows a county to provide property tax relief to companies investing $3 million in a rural area. The Legislature repealed the research and development tax credit, but Otter kept the credit in place by vetoing the bill.
Efforts to attract nuclear company Areva inspired the $400 million property tax cap bill, although it has greater significance, Idaho Department of Commerce Director Don Dietrich said.
“The thing particularly nice about Areva is that it would be a $2.6 billion investment. You don’t take it and pack up and leave, unlike a call center that could look at the next incentive down the road,” he said.
“You don’t want to incent something that doesn’t accomplish basic goals,” Dietrich said.
One current goal is to add jobs that offer benefits and boost Idaho’s average wage, he said. The state a few years ago doubled the hourly wage to qualify for workforce development training funds to $12, and saw no decrease in usage, he said. The jobs must offer health care benefits.
States surrounding Idaho use incentives and advertise a good quality of life, Dietrich said. Incentives represent one piece of the pie, and Idaho’s advantages outside the realm of incentives include energy and workers compensation insurance costs, and a convenient location for many types of businesses, he said.
“We don’t want to give away the store. We want to be competitive while encouraging the right behavior,” Dietrich said.
Suzi and Travis Cunningham are chiropractic physicians and certified strength and conditioning specialists. Earlier this year they moved from Las Vegas to Meridian and opened Spinal Dynamics Chiropractic and Rehabilitation Specialists. In Meridian, rent and power costs are lower, and the labor pool is strong – and much less transient that the labor pool in Las Vegas, Suzi Cunningham said. The cost to hire people also is lower, she said.
Dietrich said many of the “meaty” incentives in Idaho are offered at the local level, such as urban renewal agencies using tax-increment financing, and individuals, at times, donating property.
In Mountain Home, a property owner donated the 40 acres that the Marathon Cheese plant now occupies, and the city extended utilities to the donated site so that services would be available to the rest of the property owner’s business park, said Ron Swearingen, the city’s economic development director.
The owner donated the property to Mountain Home’s urban renewal agency, which in turn donated it to Marathon. The city funded the infrastructure extension with state grants and state loans to the urban renewal agency.
Creating an urban renewal district might provide opportunities for some economic development incentives, but complexities are involved, said Boise attorney Ryan Armbruster, whose clients include Boise and Meridian urban renewal agencies. For example, transferring property to an urban-renewal agency involves a disposition process including a fair-use reappraisal to determine fair value, and a competitive selection process for an occupant or developer, he said.
Swearingen said the timing of the Marathon Cheese deal in Mountain Home was ideal in that the city already had an Idaho Department of Environmental Quality sewer loan in place, and just had to amend the project plan.
“If everything hadn’t aligned just right, they might have ended up somewhere else,” he said.