Why you should care about California's ban on commissions for site-selection consultants

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Is the Brown administration hurting California by banning commissions for consultants who help companies win tax credits? Some consultants themselves disagree on that question.

Allen Young

Staff Writer- Sacramento Business Journal

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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.

Read a PDF of the lawsuit

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.

Allen Young covers state legislation, regulation and contracts, as well as economic news, international trade and economic development for the Sacramento Business Journal.