Guest Commentary by Paul Clayson
Transacting business around the world is a fascinating and often revealing experience. In traveling globally to build Utah businesses, I have observed that every nation and culture I’ve visited is devoted and sincere in working to build the economic base of business for their areas and companies.
In Utah, we enjoy a reputation nationally and globally as an entrepreneurial state with honest, hard-working people. These traits have helped make Utah the second fastest growing state in the US, with projections for future rate increases. Quality of life and an attractive culture in Utah are major factors in the state’s growth.
Unfortunately, Utah is also known as a state with low wages. In part, this is due to a municipal tax distribution system that favors low wage jobs in retail, food services and leisure industries. Pew Research reported earlier this month that just less than 70% of minimum wage jobs nationally are held by food, leisure and retail workers. These are industries that collect sales tax for the state. Because a substantial portion of state sales tax collected at the point of sale are distributed to Utah cities to support city tax revenues, city officials have a huge incentive to locate retail jobs within their city boundaries. This incentive drives city economic development – and often real estate and planning – to favor retail and food service industry businesses that generate sales tax revenues for the city.
Our city and county elected officials are not to blame. They are using every arrow in their quiver to create jobs and attract businesses to their city that will add to the municipal revenue base and allow them to provide services to citizens. However, Utah’s tax distribution laws force them to pursue industries that pay low wages. If Utah is going to compete in future decades with high wages and increase the quality of life here, the Utah legislature needs to change this regressive incentive now and implement changes rapidly.
In 2012, a high-tech, high wage business where I served as CEO was searching for a new headquarters office and production space in the Salt Lake Valley. Our team found space in a particular city and I personally called the city’s office to inquire if there were any city incentive programs that would benefit our business. I explained that our business was an advanced materials technology company that would grow from its current employee base of 24 to over 100, and generate revenue growth from pre-revenue to over $15 million in two years. I told the city that our average non-executive wage per employee at the company was over $74,000 per year – very high-income jobs.
The city employee’s first question was if there were any retail sales in our product line. I indicated there was not and that we sold our technology all over the world. The employee then informed me that if our company had no retail sales, the city could provide no incentives, but “we would really like to have you here.” In other words, the high wage jobs our business could create held no impact on economic development in that city. The same was true in every other city we called. Since then, our company has exceeded the targets we projected.
The Utah legislature must change the antiquated municipal tax distribution system to favor high wage, progressive industries and give city and county officials tools to attract technology, energy and other high-income industries. Worse than simply attracting low-wage jobs, cities often use funds earmarked for public schools to attract retail stores to their city. This is an unconscionable abuse of public monies.
As one who has traveled the world selling Utah technologies, I have seen the impact that tax law can have on the growth or decay of communities. Using tax dollars to fund economic development is a worthy project, but we must make sure that economic development efforts render high-paying jobs that will increase the quality of life for our growing population.
Paul is an entrepreneur, business executive, political strategist and co-inventor on 13 patents. He can be reached at email@example.com.