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Derek Monson: UTA's ethics problems show crony capitalism in economic development

Published April 24, 2017 3:47 pm
This is an archived article that was published on sltrib.com in 2017, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

The Utah Transit Authority (UTA) has hit another rough patch. UTA's exemption from federal prosecution and its board chairman's comment that it lifted a "dark cloud" hanging over UTA suggest the likelihood of prosecutable activity. This would seem to be corroborated by the recent indictment of a former UTA board member, in part because of allegations of business deals using insider knowledge about UTA economic development projects.

This is the latest in a long line of ethics and accountability problems at UTA. But here's a question no one is asking: Is the indictment of a UTA board member simply a failing at UTA, or is it a symptom of a disease of ethics and accountability common to state agencies in pursuit of economic development?

Insiders profiting off economic development efforts is certainly not unique to UTA. For instance, in 2009 the Governor's Office of Economic Development (GOED) awarded post-performance tax deals worth more than $2 million to several of its board members' businesses. In 2010, the chair of one of GOED's advisory committees joined the Sundance Institute's Utah Advisory Board; today GOED board members and employees serve on Sundance's advisory board, and vice versa. Between 2010 and 2016, Sundance Institute received $4,454,850 in payments from GOED, according to transparent.utah.gov.

State audits have revealed other ethically questionable practices at state economic development agencies in recent years. GOED, the Utah Fund of Funds and the Utah Science and Technology Research initiative were all found to be reporting misleading numbers that inflated their economic impact.

Are these isolated incidents, or a pattern explained by how the state pursues economic development? Reason suggests the latter.

The state's current approach to economic development breeds crony capitalism. They actively bring together individuals seeking financial benefits from government and unelected state actors with the power to make financial deals with these individuals, under the banner of business recruitment, university research or venture capital. Because private personal or confidential business information is often involved, crafting these deals usually occurs behind closed doors.

In other words, these economic development efforts marry the incentive of a business or individual to make money from tax dollars with the incentive of a state agency to help businesses make money to justify their existence, with nobody watching because "that is how business is done." What would normally be considered an ethically questionable activity – because it uses taxpayer funds – is transformed in the minds of those involved into a noble economic pursuit.

When that kind of rationalization is required of "economic development," is it any wonder it leads to internal agency struggles with ethics and accountability?

In a free market, government can and should encourage economic development. The government should set economic rules in law that treat everyone fairly and encourage entrepreneurial innovation, job creation and economic mobility. But when "economic development" means using tax dollars to finance deals for select businesses behind closed doors, ethics and accountability become hopelessly eternal struggles.

Limiting the outsized ethical problems of modern economic development efforts will take outsized doses of transparency, barriers to insider deals and public accountability. It will mean things like publicizing the names of businesses seeking post-performance tax breaks long before those deals are done, and barring a business directly connected to agency board members from tax breaks or contracts with the agency.

These kinds of policies will mean fewer rough patches for Utah's economic development agencies. More importantly, they will increase trust from Utahns as they see state agencies fighting crony capitalism.

Derek Monson is director of public policy for Sutherland Institute.






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