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Taxpayer-funded economic development incentives typically have been reserved for companies expanding in Utah - companies with proven track records that bring good-paying jobs to the state.
Yet earlier this month the Governor's Office of Economic Development (GOED) Board approved a total of $800,000 in cash incentives for two organizations that don't fit that criteria, raising some serious questions about the state's economic development strategy.
The organizations approved were the Center for Applied Media, a nonprofit start-up organization that aims to promote the digital media and entertainment technology industry in Utah, and the Utah Student Investment Program, a venture capital fund designed to give college students "real-world" experience. The applied media center was approved for $550,000, while the university program was approved for $250,000.
Although both qualify for state funds and appear to be worthy causes that will help create jobs in Utah years from now, should they get taxpayer money that typically is used to recruit new businesses to the state?
Another issue: Arguing passionately in favor of funding the Center for Applied Media was Martin Frey, GOED managing director who resigned after the meeting on April 21 in which the two incentives were approved. In the meeting, Frey disclosed the fact that he had been asked to serve on the center's board.
Although he is not a member of GOED board and could not vote for the incentive, Frey did help convince board members to approve the $550,000 cash incentive to the center. Some board members contacted by The Tribune said they felt this may have been a conflict of interest. But none want to publicly criticize Frey, appointed by Gov. Jon Huntsman 16 months ago.
Frey doesn't see any reason for concern because he disclosed the fact that he was asked to serve on the center's board before he spoke out in favor of it.
"This is a really good thing for the state," said Frey, adding that if he does serve on the board, he will not accept any compensation.
In any case, radio station owner David Simmons, GOED board chairman, is conducting a rare review of the two deals. That review could include a public meeting examining the larger question of what types of companies should get incentive money. It even could include a re-evaluation of the two deals approved on April 21.
Simmons, who missed that meeting, is concerned about the fact that the two organizations are not typical recipients of incentive money. He's also concerned that the board, which usually unanimously approves incentive offers, had some members abstaining from voting, or in one case even voting against one of the groups getting funding.
"I'd like to talk to the board members involved" in approving the two deals," Simmons said. "These may be great projects, but I have a number of questions I would like answered."
Gov. Jon Huntsman, through a spokesman, declined comment and referred questions to Jason Perry, executive director of GOED. Perry said he supports the idea of public discussion of state incentive policy.
"The board needs to meet not only to discuss these two deals but the policy direction for the board itself to ensure we are doing the right thing with public funds," Perry said.
GOED works closely with the Economic Development Corporation of Utah, which under a state contract aims to bring more companies to the state. The 15-member GOED board appointed by the governor is made up of private and public-sector community representatives who play a key role in the recruiting process by reviewing applications for incentive money from corporations considering expansion in Utah.
One issue is that the Center for Applied Media in Park City is not a company considering Utah as a site in which to expand. It is a start-up that aims to promote and develop an industry comprising companies that provide entertainment-based and educational computer games, Internet and wireless applications and computer animation services and products.
The Utah Student Investment Program also is not a company; it is a college-level program that by its very nature offers the state no clear-cut return on its investment.
Although the board approved both deals, some board members had serious concerns about whether the two groups should receive any taxpayer money.
Board member Mary Draper, development officer for the Utah Museum of Natural History, questioned whether giving $550,000 in cash to the Center for Applied Media, which according to a GOED memo will have seven people earning nearly $80,000 annually, is a good use of taxpayer dollars.
Draper said her concerns were based on getting no clear information about how many jobs were being created by the center or what the state's projected return on investment would be. Typically, in each deal brought before the board, companies can estimate how many jobs they would create in Utah, their capital investment in plant and equipment, and their average wage.
Typically, money has not been given to help companies to meet payroll expenses. But in the case of the Center for Applied Media, "It looks like we are making a grant here and paying part or all of part of seven or eight salaries with it," Draper said.
Board member Mel Lavitt said at the meeting he wanted to know more details about the center, which seemed to be in short supply, such as how much of their own money the organization's principals were investing in the center.
Even with the concerns, the center got approved for funding, with two of nine board members present at the meeting - vice chair Dell Loy Hansen and Draper - abstaining from voting. Hansen resigned after Friday's meeting, citing a heavy workload. Lavitt did not return calls seeking further comment about his vote or his concerns.
Jim Banister, executive creative director for the Park City-based Center for Applied Media, said the center will have a staff of seven, including himself, who will earn $50,000 to $60,000 annually initially - not the nearly $80,000 highlighted in the memo presented to GOED board members. He said the goal is to use state funds to start up and become self-sustaining with a year.
Salaries could rise to nearly $80,000 only if the center is successful and generating its own revenue, he said.
In response to concerns about how much the seven founders have invested in their enterprise, Banister said he has "invested many thousands of dollars and the collective group has invested thousands of hours of their own time to get this initiative off the ground."
"I personally don't know why it's relevant how much money we've put into this because it's not a commercial enterprise," Banister said, noting that it is a nonprofit organization whose goal is to develop a specific industry, which will have a great benefit to the state's economy.
The $250,000 in cash for the Utah Student Investment Program was approved by the board, with Hansen abstaining and Lavitt voting "no."
Under the program, students invest money in "potentially profitable" companies with help from faculty and an industry advisory board of professional venture capitalists and entrepreneurs. Kent Millington, entrepreneur in residence at Utah Valley State College, which is offering the program, said he was told by the state late last week that they were reconsidering the grant to his program.
GOED board member Richard Nelson, CEO of the Utah Technology Council, supports the idea of a meeting in which board members discuss what types of companies they think should be funded - and which should not.
Nelson declined comment about the two deals approved April 21, but said he did have some concerns about another deal approved on Wednesday.
At that meeting, the board approved an incentive worth as much as $2 million for Iowa meat processor West Liberty Foods.
Nelson questioned whether the company would expand in Utah, even without getting state money. And he also was concerned about giving taxpayer money to a company whose wages average about $29,900 annually, asking other board members, "Are we in the business of [attracting] high-paying jobs, or what?"
Nelson believes the board should meet to discuss whether low- to moderate-paying employers should be allowed to get incentive money.
"We need to reassess our criteria specifically to make sure we're meeting the governor's high-wage job goals," Nelson said. "It's something we need to do."
Whether or not the West Liberty deal, or the two others, meet Huntsman's goals is unclear because the governor would not return calls seeking comment.
GOED board members
l David Simmons Simmons Media Group, GOED board chairman
l Vice Chairman Position open
l Richard Nelson Utah Technology Council
l Bill Boyle San Juan Record
l Molonai Hola Icon Consulting Group
l Jerry Oldroyd Ballard Spahr Andrews & Ingersoll, LLP
l Joel A. Bradford Utah Valley State College
l Mark D. Howell Wells Fargo & Co.
l Gerald Sherratt Cedar City
l Jack Brittain David Eccles School of Business
l Mel Lavitt C.E. Unterberg, Towbin
l Debra Tanzi Davis County Salute to Hometown Military Heroes
l Mary Draper Utah Museum of Natural History
l Amy Rees Lewis Mediconnect
l Clifford White First Western Advisors