The Sacramento Business Journal examines the recent regulatory limitations GO-Biz has placed on consulting fees:
Is the Brown administration hurting California by banning commissions for consultants who help companies win tax credits? Some consultants themselves disagree on that question.
In August, the Governor’s Office of Business and Economic Development prohibited site-selection consultants from taking a percentage of the California Competes tax credit, a tax break given to businesses planning on locating or expanding in the state.
Some consultants say the move will hurt the state.
“It will make California less competitive, because companies that cannot afford to pay consultants are going to look to states where consultants can operate under those needs,” said Tom Stringer, a site selection consultant for Ryan LLC, a Dallas-based firm.
Ryan sued GO-Biz shortly after the agency implemented the tax credit ban, alleging the prohibition violates the state of California constitution.
GO-Biz declined to comment for this story. But some industry practitioners praise the governor for attempting to reverse a rising pay-to-play trend that creates a conflict of interest for consultants. Critics of the practice argue it creates an incentive for consultants to recommend that companies move to regions where they cannot thrive.
“Good for California,” said Bruce Maus, owner of the Maus Group, a Minneapolis-based consultancy firm. Site-selection consultants have increasingly relied on tax-credit commissions when helping companies plan for relocation. That compensation structure motivates consultants to get the best deal for their own firm and not the client, he said.
“In order to take big incentives, you have to ignore or deemphasize other factors,” such as a company’s ability to find skilled workers in a new region, Maus said.
“You get what you pay for,” Maus said. “You can say, ‘I’m going to get $250 million in Nevada.’ Well you know what, when you get up in the morning you will be in the middle of the desert … What kind of education system do you think you have? What kind of trained labor force?”
In September, Tesla Motors accepted a $1.3 billion tax incentive package from the state of Nevada to locate a giant lithium battery factory outside Reno, a deal that some economists have greeted with skepticism.
Maus said he hoped that other states would approved similar bans on consultant commissions, but he also was concerned that consultants would privately boycott GO-Biz, effectively losing business for the state.
Stringer of Ryan LLC said the issue was not about consultants taking unfair commissions but the realities of the site-selection business. The commissions-based payment structure allows companies of all sizes to afford consultants who are paid to help them understand the costs of moving to one location verses another.
“Lots of small and mid-size businesses cannot afford the cash out of pocket to pay people,” Stringer said. “They can’t afford to bring on outside advice unless they can operate under a system like this … Nobody is going to take the assignment if they can’t be paid.”