A consultant hired by the state to study the sales-tax breaks given to encourage economic development recommended Friday that Geneva Steel's exemption be repealed.
The exemption tailored specifically for Geneva Steel, which costs the state about $2 million annually, is likely the most controversial tax break being examined by the state Tax Review Committee.Consultant Lawrence Walters, a Brigham Young University professor, told the committee Friday that it would be unfair for Geneva to continue to get a tax break for money spent modernizing its plant unless other companies did, too.
Walters mentioned Nucor Steel and Kennecott Copper. Nucor, for example, is planning to spend $50 million over the next three years, and extending the exemption to that company would cost the state $3 million, he said.
Geneva officials won't be able to formally respond to Walter's presentation until later this month. But Ken Johnsen, vice president and general counsel, said after the meeting the recommendation was not expected.
"We were very surprised," Johnsen said in an interview. "I think he doesn't fully appreciate the kind of competitive pressures we're facing," particularly when it comes to finding financing.
Geneva executives met with Gov. Mike Leavitt earlier this week to make their case for keeping the exemption. Company chairman and fellow Republican Joe Cannon spent more than an hour detailing how the exemption on replacement equipment will play into Geneva's retooling and contributions to the Utah economy.
"Our new processes will allow us to use more of our local resources," Cannon told Leavitt.
While Cannon stressed Geneva doesn't compete with Nucor's northern Utah plant, he noted the tax breaks Nucor receives in Arkansas and Indiana, where it does compete with Geneva.
Capital markets, or lenders, look at the local tax breaks a steel company gets, Cannon said. Without the Utah exemption, "we can't compete against other steel companies for money in the capital markets," he said.
Cannon acknowledged that the exemption won't play as critical a role, however, after Geneva completes its $320 million modernization.
Leavitt responded by acknowledging Geneva's role in Utah's economy. He also praised the firm's "bold investments" since it has been given the tax break.
Much has been made of the Legislature's decision last session to extend Geneva's exemption another two years, an exemption originally granted to help reopen the Utah County mill.
Besides the fairness issue, the reason may be timing. The extension came shortly before Gov. Mike Leavitt called lawmakers back into session to consider a different plan for easing school crowding.
Leavitt had vetoed the Legislature's plan to fund new classrooms because it would have required local school districts to raise property taxes. His plan calls for only an additional $5 million annually in property taxes.
The rest of the money needed - some $14 million - will come from reducing or eliminating sales-tax breaks. The committee has until October to come up with recommendations for the 1994 Legislature.
Other sales-tax breaks being examined this year include new and expanding manufacturing equipment, coin-operated laundry and car-wash facilities, vending machine sales, and pollution control devices.