Southwest Austin - Dripping Springs Edition - February 2021

The necessity of incentives Ellen Harpel, an

of Oracle and the expansion of Google, the cityof Austinhas not struck amajor economic incentive deal since 2017, when pharmaceutical giant Merck agreed bring a $28.7 million lab project in exchange for tax rebates estimated at $856,000. Merck later pulled out of the deal. Tesla’s Gigafactory deal in 2020 was outside city limits and included no city of Austin incentives. Apple’s 2018 deal to build a second campus was within city limits but only received property tax incentives from Williamson County. Jensen said tax incentives for economic development should focus on correcting market failures. “What is [themarket] not providing? There’s been some talk about food deserts. Maybe we should incentivize health care to come to our community or renewable energy,” Jensen said. Austinpolitical leadershave criticized the city’s deals as unnecessary. In 2016, the most recent data available, Austin paid$13.6million inproperty tax rebates






the Smart Incentives, said incentive deals allow communities to address specific economic development goals, such as creating more middle-skill jobs, revitalizing downtown or diversifying the economy. Virginia-based firm “Incentives should never just be about winning a deal or completing a transaction ... It’s always connected to a larger economic development strategy; ... it’s foundational,” Harpel said. Aside from the failed Merck deal, Austin’s most recent corporate tax incentive deal was struck with Apple in 2012. Before Tesla in 2020, Travis County’s last deal was struck in 2014 with Charles Schwab. Most of Austin’s agreements, and half of Travis County’s, were reached between 2010 and 2012. John Hockenyos, founder of economic firm

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to seven companies, $9.9 million of which went to Samsung for its existing chip plant. ThelatestSamsung deal represents the first test of the city’s new-look incentives policy. Rewritten in 2018, it sets a maximum incentive of 50% property tax reimbursement at

TXP Inc., which consults the city on such deals, said during that time, governments were focused on recovery during the Great Recession. Hockenyos said the economy has since been “pretty darn good.”


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Timothy senior economist with the UpJohn Institute of Employment Research, said the influence of tax incentives in luring companies is “exaggerated quite a bit” and that governments should refrain from these deals unless they are in a distressed regional labor market. His analysis of tax incentive deals across the country showed companies that received government tax incentives were, in most cases, coming anyway— especially when the project was a local expansion. Documents show Phoenix, Bartnik, a Genesee County in upstate New York and South Korea are also contenders for the plant. Austin already hosts Samsung’s largest manufacturing plant in the U.S. In October 2020, the company bought more than 257 acres of land right next to the existing plant and rezoned most of it to allow for industrial use.

five years for local expansion projects and 10 years for “external relocations.” However, the policy includes a crucial clause that allows consideration of “high-impact projects, unique developments andmarket competitive or other non-conforming projects” on a case-by-case basis. Travis County is also revising its own incentives policy. In December 2019, the county adopted a strategy that recommends targeting small and medium-sized businesses. Earlier that year, county commissioners placed a moratorium on incentive deals after the Texas Legislature passed its 3.5% property tax revenue cap. Sarah Eckhardt, county judge at the time, saidthecapmeant thecountycould not afford “preferential tax treatment” for wealthy corporate citizens. However, the county has lifted the moratorium twice in the past year—to negotiate with Tesla, and, in January, to accept a tax rebate application from “Silicon Silver”, the name Samsung used in documents relating to the potential deal with the city.

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