Summary—

There is no controversy about the effect of further deterioration of our business climate. Locally established policies will impact our economic well being. The threat is immediate. Government cannot grow the economy. That phrase doesn't even make sense. The economy will grow on its own if government gets out of the way. Four things the state can do to foster a climate in which private enterprise may thrive include:

• Ensuring a business-friendly, predictable tax structure so businesses have the confidence to make long-range plans.
• Working with financial institutions to allow tax-advantaged capital creation and secondary market development to free up more money to lend.
• Making our education system the very best it can be by targeting our limited funds first and foremost on basic instruction in the classroom.
• Fostering public/private partnerships to develop business incubation and resource centers that serve startup companies.

2012 Legislative Summary—

In 2012, the Legislature reduced the cost of doing business. Lowering the unemployment insurance rate and rejecting costly state health care mandates leaves more money for Utah businesses to hire and expand. The legislature was also able to restore previously-cut USTAR funding to strengthen this proven economic winner. USTAR accounts for $66 million in external research funding to the state. Life science and high tech credits foster an industry that employs 25,000 Utahns and contributes $15 billion in revenue to the state.

And we should mention fireworks once again. Utah’s new fireworks law brought in a substantial amount of revenue. In 2012, the Legislature modified the times during which fireworks may be sold and discharged. But there was no change in the nature of the fireworks permitted, so private sector profits and tax revenues should remain strong.

2011 Legislative Summary—

We balanced the budget once again in 2011, bonded for for state construction projects at a time of favorable construction costs, and gave cities, towns, and school boards more options for how to contract for construction services.  Keeping government solvent and doing construction now instead of later is good for our jobs picture.  And there were a few unexpected surprises.  The new fireworks law resulted in far more sales (and certainly associated employment) than had been expected.  And some claimed that the decision to reverse the governor's policy on state employees' workweek (back to five eight-hour days instead of four tens) will improve our economic outlook as well.

An Essay I Wrote on the Subject in 2010:

Business Climate Change

The Imminent Threat

We hear frequently about impending global climate change and how the anticipated deterioration of our climate may threaten our children's future. But consider the climate for business—the local business climate. What if it continues to deteriorate? Local business climate change threatens our children’s economic future, their ability to find jobs in our communities, and the financial well being of everyone around us.

I reject the claim by presidents Clinton and Obama that government can grow our economy, the way you and I might grow a garden. Even in gardening, you and I cannot take credit for the rain, the sunshine, nor even the seeds. Likewise government doesn’t supply the basic needs of businesses and shouldn’t pretend to do so. When our leaders try to grow our economy, their efforts generally make things worse. The best thing government can do is work to optimize conditions for economic growth and then “get out of the way,” as President Reagan used to say. If businesses are not prevented from prospering, they will grow.

What kinds of things prevent businesses from prospering? Among the biggest challenges businesses face today are hostile and inconsistent tax policies, inability to obtain capital, an inadequate labor pool, and lack of access to business resources.

Is there any way we can work to eliminate these impediments? Here are a few things government can do to help eliminate impediments to economic growth: enact and maintain a business-friendly tax structure, establish temporary measures to allow financial institutions to build capital tax free, improve the quality of our education system, and forge public/private partnerships to create small business incubation and resource centers.

Let’s look at these opportunities one at a time.

First, our tax structure must be business-friendly, and it must be stable. We must resist efforts to change our modified flat income tax back to a more progressive tax with increased tax burdens for the wealthy (who, by the way, are the most likely individuals to create jobs). The economist Walter Williams once said, “It’s simple. If you want more of something, subsidize it; if you want less of something, tax it.” So if we want less wealth and job creation, higher taxes on the wealthy will lead to that. Not a good idea.

What about consistency? When local businesses contemplate expansion and companies from out of state consider moving to Utah, they prepare a detailed business plan that balances all factors, including local economic conditions, cost of construction, availability of the necessary skilled workforce, the cost of financing, lease rates, and state and local tax rates. In difficult economic times, competition is intense. Successful companies operate on extremely small profit margins. Even small changes in the factors (including tax rates) underlying its business plan can make the difference in whether a company succeeds or fails. Before a new or expanded business venture pulls the trigger on a ten-year lease or relocates key corporate personnel, it must have confidence that the tax policies of tomorrow will not invalidate the business plan they are building on today.

During these times of crisis, the state should also work with financial institutions to develop means to allow tax-advantaged capital creation and secondary market development to allow financial institutions to free up more money to lend. There is currently so little money flowing into state coffers from retained earnings and secondary market creation by financial institutions that a temporary tax break in this arena would have little or no impact on our current revenue situation. But for lenders, it could make a difference of just those few basis points that would be necessary to get capital to start flowing again. It’s worth pointing out that every dollar in tax savings the state allows will typically turn into ten dollars of additional loans available to qualifying businesses and individuals.

In all of this, we must not lose sight of how important a quality education system is to economic development. It is really a chicken/egg kind of thing. We need to have a well-educated workforce in order for businesses to thrive; at the same time, we need thriving businesses to help pay the cost of educating that workforce. The key here is to get the most out of our investment. And we are already doing remarkably well here. If there were a national metric for educational productivity—obtaining the highest educational achievement for the lowest overall cost, I’m certain Utah would be the best in the nation. If state revenues continue to decline, we will be hard pressed even to keep funding level for our burgeoning schools, but we can work even harder to get the most out of each dollar we spend. We need to focus first and foremost on the line teacher in the classroom. Right now there is not enough money to do everything we’ve done traditionally. Schools must become more lean and focused. We must trim away everything, including administration and narrow state mandates, that siphons money away from the classroom and the core academic mission of our schools.

One more thing we can do to help businesses thrive and create jobs is to use public/private partnerships to develop business incubation and resource centers that serve startup companies. Incubators provide bricks and mortar facilities that can serve as a jumping off place for a small business once it moves out of the entrepreneur’s garage. Shared services and resources like a receptionist and conference rooms can be augmented by general financial, personnel, and business consulting resources. The state has already launched successful business support facilities in the Salt Lake valley working with the Larry H. Miller group. Similar public/private are in place or underway at the DATC in Kaysville, the USU campus in Vernal, and other areas of the state. Price and Brigham City have projects in various stages of planning. The state of Utah should continue to engage in public/private partnerships to create facilities that give emerging businesses the support they need to succeed.