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Some Commissioners question incentive deals

Monday, December 15, 2014 by Mark Richardson

Travis County Commissioners reviewed the county’s economic development agreements last week, and despite the fact that they bring billions of dollars in investments and create thousands of jobs, some members of the court wonder whether the county really needs such deals.

Representatives from the Planning and Budget Office told Commissioners that Travis County currently has incentive agreements in place with nine companies. Two of the agreements are tax abatement deals, and the other seven are rebate agreements.

Senior Budget Analyst Katie Gipson told Commissioners that five of the companies — Home Depot Technology Center, Hewlett-Packard, the Domain, Samsung and FRV Solar — are currently meeting the terms of their agreement. Four companies — RRE Solar, Apple, HID Global and Charles Schwab — have not yet reached the point where they are eligible to receive tax rebates from the county.

“In each agreement, we go through a yearly compliance process, especially when they are in the payment terms,” Gipson said. “The economic development policy was revised in January 2014. The policy breaks down into two parts: One is the base requirements that every company must have in order to have an agreement with Travis County. And then there are the other optional opportunities to increase those incentives.”

She said the basic criteria includes companies making a capital investment, being competitively located, offering benefits, using HUB vendors and building in a preferred location. Beyond that, there are generally negotiations over items such as job incentives, workforce development, LEED certification, local hires for company and local hires for construction.

For example, the terms of Samsung’s 2006 deal included a minimum investment of $3.5 billion, the creation of 700 jobs at an average salary of at least $54,000 a year and the use of local HUB vendors. According to the PBO report, Samsung has complied by investing $9.6 billion, hiring more than 2,500 workers at an average salary of $68,487 and documenting their use of HUB vendors.

“Our two older agreements — the Home Depot Center and Hewlett-Packard — are abatement agreements,” Gipson said. “Abatement is the difference off your tax bill; you get the discount up front. The remainder of the agreements are rebate agreements. That means the companies must pay their tax bill in full, and then after the compliance process is completed, they are eligible for a rebate of a certain percentage of their tax bill.”

She said the county no longer uses abatement agreements, preferring to verify compliance before rebating a company’s tax dollars.

Despite the investments and jobs created by the local agreements, two Commissioners say they have doubts about whether Travis County should making such deals at all.

“The truth of the matter is we continue to have a number of people, and I think it’s a sizable number in the community, who question whether or not we need to be doing these kind of things with companies,” said Commissioner Gerald Daugherty. “Especially given as hot a market as Austin is.”

He said he questions whether it is good business to give rebates to huge companies like Apple when they would likely locate in Austin anyway.

“When you’ve got somebody that’s probably got more money than the federal government and they are wanting incentives, it does kind of make you squirm a little bit,” Daugherty said. People on the street ask, ‘So what kind of a fool are you?’ I mean, why would you do that?”

Commissioner Ron Davis also questioned whether there really is support in the community for economic incentives.

“I’ve also been asked by folks in the community, ‘Commissioner, if incentives such as you are giving with the county …  if you can do that, then we ought to pay people not to come to this community. (Just) take that same money and pay people not to come here.'” he said. “I kind of looked at it a little bit and wrestled with it a little bit, and it came to mind that companies will come here without incentives.”

Davis also expressed concerns over companies that Travis County nominates to the state’s Enterprise Zone Program. He said the county does not have any way to account for whether the company is meeting the goals of its agreement.

“There is some confusion about the Enterprise Zone concept, where you have companies coming in that are being nominated to get incentives, but those particular incentives are granted through sales tax relief,” Davis said. “And, of course, the county gets nothing — we don’t collect sales tax at all. That is a state deal.”

He said Enterprise Zone companies do not have to verify to the county if they are meeting their goals; they are responsible only to the state.

For a look at all of Travis County’s Economic Incentive Agreements, go to the Planning and Budget website.


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