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CAPCOG analyzes Travis County economic incentives

Monday, June 9, 2008 by Kimberly Reeves

The Capital Area Council of Governments has run a computer analysis of the financial impact of the four most recent tax abatements on county government, showing that Travis County has gotten more bang for its buck from deals with high tech companies Samsung and Hewlett Packard than with retailers Home Depot and The Domain.

The analysis, presented by CAPCOG’s Brian Kelsey, considered factors based on the information the county knew at the time it entered into the contracts, rather than any subsequent performance results. It also took into consideration the shifting of jobs across Austin’s job markets – more common of retail projects – as well as the possible creation of new jobs. In addition, it included the financial impact of the project – and the cost of each new household created – on the county budget.

According to the analysis, the financial impact of The Domain subsidy on the county’s budget will be $1.9 million over the life of the 20-year tax abatement. The tax abatement for Home Depot will bring $1.1 million.

The software also calculated that The Domain would add 433 households to the Austin market over the course of the abatement. As Commissioner Gerald Daugherty noted, that breaks down to about 20 households a year.

By comparison, Samsung is expected to bring $42.8 million to the county over the life of its contract. Hewlett Packard will bring $5.7 million to the county.

Of course, it might be noted out that The Domain is a $130 million retail project while the Samsung wafer plant is a $3.5 billion investment in the Austin economy.

Kelsey said that although his numbers were not intended to be a policy direction for Travis County, they could certainly inform policy. Commissioner Ron Davis, for instance, wanted to know whether data could reveal how beneficial The Domain, or any other project, had been to employment in his district.

“When we looked at entering into agreements with these particular companies, one thing that I continue to stress over and over again, is to make sure that (we include) the economically disadvantaged and those that did not have a lot of opportunities towards employment,” Davis said.

“The reason why I posed that question was because of the fact that the precinct I represent is the poorest precinct economically in Travis County,” he said. “If you look at the location of some of these facilities, they reside in the area where they live.”

That led to a fuller discussion of just what Travis County could dictate in a contract. During public comments, Brian Rodgers of Stop Domain Subsidies noted that Ikea had entered into one subsidy contract where it guaranteed that 30 percent of its employees would live in disadvantaged zip codes. Right now, that percentage is up to 38 percent, he said.

Rodgers, who has led the petition drive to put The Domain subsidy issue on the November ballot, noted his own concerns about subsidies and the analysis done by the software used by CAPCOG.

The first, and foremost, Rodgers said, was that, in his opinion that The Domain would have existed with or without the subsidies of the local government.

“The computer models should not replace common sense. For instance, The Domain never needed county subsidies,” said Rodgers, who then referred to a packet of documents he brought commissioners. “If you look on the first page of Exhibit A, the value of improvements — as revealed by the developer – was $158 million. The cost, which was a completely different number, was $130 million. So this project was $28 million in the black before the incentives. So the county subsidy was not needed; neither was the city subsidy.”

Rodgers also raised other concerns: whether this deal took the land off the market for a higher, and better, use; the need to keep Simon accountable for generating the jobs and the salaries it promised to create; the failure of Simon to submit compliance numbers to the city, seven months after they were due; and the shifting of the direct impact of the center on the area around it.

“In the future, when a subsidy package is before the Commissioners, they should be able to tweak the program for – like you said – a sensitivity analysis to see how this thing fairs in a real-world situation,” Rodgers said. “CAPCOG inserted property taxes earned in the county by The Domain, but as you can see in Exhibit D, it doesn’t take into account what other unintended consequences there are.”

Budget Manager Leroy Nellis did note that Travis County was carefully monitoring whether The Domain had met its end of the tax abatement contract.

Rodgers said that Highland Mall’s value had dropped by $12 million, to $70 million, since The Domain opened. It is likely to close in the next three or four years, and the addition of similar anchors in the future at The Domain, only speeds that process along, he said.

Commissioner Sarah Eckhardt was interested in tweaking the model to give more weight to industries the county might want and to acknowledge the unintended consequences that a project might bring.

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