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Utah: Moving to the Head of the Class


Gov. Gary Herbert is busy cultivating an economic “garden” in the Beehive State, planting a culture of enhanced entrepreneurship in fertile soil for business expansions yielding a bountiful crop of homegrown jobs.

When thoughts turn to Utah, spectacular vistas usually come to mind. Beautiful red-rock canyons, sprawling salt flats and, of course, the majestic Rocky Mountains.

In recent years, another picture of the aptly named Beehive State has come into focus: a Utah that is buzzing with activity as one of the most dynamic economic development success stories in the nation. This success is not limited to big-ticket projects the state has been unveiling month after month—by almost any measure, Utah is surging forward and heading to the top of the rankings.

This surge was well-documented in our annual Rankings Report, which placed Utah first in Quality of Life, second in Best Education Climate, third in Best Business Climate, and seventh in Economic Growth Potential, among other rankings.

We were not alone in these accolades: Utah also was named the “Most Fiscally Fit State” by Forbes magazine, which cited Utah’s lowest debt per capita of any state in the nation (Utah is one of only eight states to maintain its AAA bond rating during the Recession); the state was hailed as the “Best Managed State” by the Pew Center for Research, which ranks states based on budget management, infrastructure, and recruitment and retention of qualified employees; in its annual state study, Pollina Corporate Realty placed Utah second in its “Top Pro-Business State” ranking.

“From a policy standpoint, clearly Utah is making the statement that it has set up a very pro-business operating environment. Economic development efforts and incentives are going to be their tools for attracting business and investment,” says Brent Pollina, vice president of Pollina Corporate Realty and the author of the study. “Utah is the most pro-business state with close proximity to West Coast markets, lending strong weight for distribution and other industries that rely on being a day’s drive from California.”

Gov. Gary Herbert, who became the state’s chief executive last year when Gov. Jon Huntsman was named Ambassador to China, has made successful economic development a hallmark of his career dating back to service as Lt. Governor and earlier as a Utah County Commissioner. Recently, Herbert’s expertise was acknowledged by his peers—the governors—who named him chairman of the Economic Development and Commerce Committee for the National Governors Association (NGA). NGA will hold its 2011 annual meeting in Salt Lake City.

FOCUS ON ‘THE THREE E’S’

Gov. Herbert has established three priority areas for his administration, ‘The Three E’s’: education, energy and economic development.
Utah’s economic development strategy is built around seven industrial clusters, including software and IT development; life sciences; energy and natural resources; financial services; defense and homeland security; aerospace and aviation; and outdoor products/recreation. In each of these sectors, Herbert is working to establish what he calls “competitive accelerators of empowerment and collaboration.”

Gov. Herbert is a staunch believer in the private sector as the primary engine of growth. Government’s role is to get out of the way, or, as Herbert put it in a recent interview with Business Facilities, “get off your back and out of your wallet.” The governor has placed special emphasis on facilitating entrepreneurship, proudly noting that Utah is leading the nation in approved Small Business Administration loans, which he cites as solid evidence of “a culture of enhanced entrepreneurship.”

“I like to call it economic gardening, or growing your own jobs,” he says, adding “about 85 percent of the jobs we have created resulted from existing businesses expanding.”

While Utah has proven to be fertile ground for entrepreneurs, the state also has had remarkable success in attracting big-ticket projects from major corporate players, especially in its burgeoning data center, software and IT cluster, which now includes Adobe, eBay, Twitter, Oracle, Microsoft and Goldman Sachs.

The common threads that link all of these major projects are long-term commitments by the companies to the creation of high-wage jobs, generous financial incentives provided by the state, and, in some cases, the foundation created by a homegrown business. The recently announced Adobe project encompasses all of these elements.

Adobe Systems Inc. says it expects to create up to 1,000 high-tech jobs at its new $100-million technology campus in Utah. The new Adobe campus, to be completed in 2012 at a still-to-be-selected site in either Salt Lake County or Utah County, will accommodate future growth for the company and its Omniture Business Unit operations, currently based in Orem. The multi-phase project provides space for additional facilities expansion.

“Adobe’s plans for expanding in Utah are a natural extension of the growth and success of our Omniture Business Unit operations,” said Mark Garrett, executive vice president and chief financial officer, Adobe, adding that the software maker was attracted to “Utah’s vibrant communities, skilled talent base and business-friendly environment.”

Adobe acquired Omniture, a homegrown Utah company, for $1.8 billion in October 2009. The Omniture unit currently employs 620 people in Utah and 1,100 worldwide.

The Governor’s Office of Economic Development (GOED) Board approved a generous post-performance, refundable economic development tax incentive for the campus project. New state tax revenue is expected to exceed $134 million over a 20-year period as a result of Adobe’s projected expansion, job creation and capital investment in Utah. The maximum value of the tax credit incentive is $40.2 million, or 30 percent of new state revenue for 20 years.

Gov. Herbert notes that the incentive for Adobe is structured so that it costs nothing to taxpayers.

“Post-performance incentives are a good model, a fair model,” he told Business Facilities. “At no time are the taxpayers at risk. We are creating 1,000 new jobs that may pay up to 175 percent of the average county wage and we will get well over $100 million in new tax revenue.”

Before he became governor, Herbert played a pivotal role in one of the state’s largest economic development investments, the transformation of Micron Technology Inc.’s long-dormant semiconductor fabrication plant in Lehi, UT into IM Flash, a joint venture between Micron and Intel to produce NAND flash memory products. After projecting the state would gain more than $120 million in increased tax collections over 10 years from the project, GOED approved an incentive rebate for the project of 30 percent of new state revenues on a post-performance basis over five years. Additionally, a portion of local property taxes paid by the company have been used to fund infrastructure improvements needed to accommodate the joint venture facility.

Herbert says the IM Flash project gave him an appreciation for the value of post-performance incentives, but he emphasizes that the primary lesson he took from the evolution of the Micron plant into IM Flash was that in job creation, patience is a virtue. “You have to take the long view, and consider the benefits of long-term development and job creation. You have to recognize that you are banking jobs for the future,” he says.

EDUCATION KEEPS PACE WITH EXPLOSIVE DEMOGRAPHICS

Utah’s top-tier universities— including the University of Utah, Utah State and Brigham Young University—are holding their own in the national competition to produce graduates who are ready to move directly into high-tech jobs. The University of Utah tied with MIT last year for first in the nation in number of start-ups generated by technology developed at the school. Utah’s three major universities all excel at developing technologies for commercialization in sectors including IT, aerospace, medical devices, genetic diagnostics and drug delivery.

In 2006, Utah made a strategic investment in the University of Utah and Utah State when it created the Utah Science Technology and Research Initiative (USTAR), which funds interdisciplinary R&D facilities, recruitment of leading researchers and the formation of “science, innovation and commercialization teams” across the state. USTAR’s Technology Outreach Innovation Program drives commercialization activities. Research teams have been formed to focus on six strategic innovation fields, including energy, biomedical technology, brain medicine, nanotechnology, imaging technology and digital media.

When it comes to maintaining Utah’s overall standing in education, demographics pose a unique challenge. The state has the second highest rate of population growth in the nation, accelerated by the country’s highest birth rate and the largest average household size in the U.S.

“We have larger families, high birth rates and a younger population, which places a tremendous demand on education,” says Gov. Herbert. “To be able to train and educate such a fast-growing population, which adds another 10,000 to 12,000 students every year to the education system—with the smallest base of taxpayers relative to our population of any state—is something no other place in America has to face.”

Utah is meeting this challenge by preparing the nation’s youngest and fastest-growing school-age population to quickly transition into the workforce for the state’s dynamic entrepreneurial growth companies. “The key to creating and leveraging these opportunities is to empower the state’s private sector and create effective collaborations between Utah’s businesses, government and education communities,” Herbert says.

According to Gov. Herbert, economic development and education “are really joined at the hip.”

“If our companies succeed, there will be more money to put into the education system. By the same token, if we improve our education system, we will have stronger people coming out [of our schools] to develop our economy,” Herbert says.

MARTIANS LAND IN UTAH

Utah established a strong foothold for its ambitious development plans in the digital media sector when Disney Interactive Media Group chose to locate in Salt Lake City. The Disney group develops interactive entertainment and services for Internet, mobile, and video game devices in the U.S. and internationally, including a portfolio of multi-platform games.

Gov. Herbert, a big fan of the Edgar Rice Burroughs Mars trilogy science-fiction novels, proudly notes that Utah’s growing film-making industry no longer is limited to Westerns—the red-rocked landscape of southern Utah is starring as a doppelganger for the Red Planet, a.k.a. Mars. The Walt Disney Studios recently completed principal photography in southern Utah for the upcoming feature film, John Carter of Mars, directed by Academy Award-winning filmmaker Andrew Stanton (Finding Nemo, Wall-E) and produced by Colin Wilson (Avatar).

“As Governor, I am particularly happy that Utah has been host to the recently completed production of John Carter of Mars this year. The book series was a favorite of mine when I was young, and I can’t wait to see the finished film,” says Gov. Herbert. “This project has stimulated the state’s local economies at a critical time and provided hundreds of jobs for Utah’s film professionals.”

Gov. Herbert has taken a special interest in bringing film production to Utah, dating back to his service as a commissioner, when he spearheaded the establishment of the Utah County Film Commission. He wants Hollywood to keep in mind that in Utah, “we’ve got four seasons here and every type of landscape you can imagine.”

ABUNDANT ENERGY, BUT IT’S ON UNCLE SAM’S LAND

Utah is blessed with abundant energy resources, including natural gas, coal and shale oil deposits. However, the state must maneuver around a formidable obstacle if it wants to develop those resources—the federal government. More than 60 percent of the land in the state is under federal management, including vast acreage controlled by the National Forest Service, Bureau of Land Management and the Defense Department. Utah also is home to some of the nation’s largest Indian reservations.

Earlier this year, Gov. Herbert authorized the use of eminent domain to take some of the U.S. government-owned land in the state and turn it over to economic developers. Herbert signed a pair of bills into law intended to level the playing field for economic development on energy-rich parcels currently owned by Uncle Sam. According to legal analysts, Utah’s move was intended to provide the basis for a U.S. Supreme Court challenge to vast government land holdings. State officials told the Associated Press they hope Utah’s initiative will prompt other Western states that are home to large federal land holdings to join the fight, but they conceded that a favorable ruling is a long shot.

However, Utah Attorney General Mark Shurtleff said the case is still worth fighting, since the state could reap millions of dollars for state schools each year if it wins.

Initially, the state plans to target three areas for the use of eminent domain, including the Kaiparowits plateau in Grand Staircase-Escalante National Monument, which is home to large coal reserves. President Bill Clinton designated the area as a national monument in 1996, a move that stopped development on the land. Eminent domain also would be used on parcels of land where Interior Secretary Ken Salazar last year scrapped 77 oil and gas leases around national parks and wild areas, officials said.

Utah lawmakers contend the federal government should have long ago sold the land it owns in the state. Because it hasn’t, they say, the federal government has violated a contract made with Utah when statehood was granted.

Gov. Herbert told Business Facilities he currently is working closely with Salazar to reach an agreement to develop a huge natural gas reserve that the governor estimates could have an economic impact of more than $2 billion. Herbert says he believes the state can develop its energy resources without disturbing the environment.

“We are working with environmentalists and Secretary Salazar, and we will make this a model for the nation,” Gov. Herbert says.

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