Thursday, August 11, 2016 by Jack Craver

Adler: Business incentives shouldn’t be ‘bad word’

In a booming city with an unemployment rate south of 3 percent, it’s not surprising that people might be skeptical of spending taxpayer dollars to lure more jobs into town.

In a recent survey of Austinites about city spending priorities, business recruitment was the city program for which by far the greatest number of respondents suggested reducing spending.

The role government should play in stimulating business activity will be one of many points of contention during budget talks this year.

At a City Council budget work session on Wednesday, Mayor Steve Adler acknowledged that “incentives have become a bad word in this city,” perhaps due to the perception that Austin will attract businesses and skilled workers regardless of government assistance. But he stated firmly that he wanted a more aggressive economic development program aimed at addressing inequities in the local economy.

The focus of economic development programs, explained Adler, should not be simply to attract employers but to focus on stimulating opportunities, both for jobs and training, for the middle- and low-income Austinites who are increasingly struggling to find affordable housing in a market shaped largely by an influx of professionals with high incomes. Festering inequities, he said, were the greatest threat to the city.

“We are not playing this game as aggressively as our competitors are playing this game,” he said. “We’re not doing everything we can.”

Council Member Don Zimmerman, one of five Council members campaigning for re-election, seized on the antipathy toward corporate welfare that he insisted is universal among the constituents he meets as he campaigns door to door in the evening.

The city, said Zimmerman, is home to two influential political blocs: One is vehemently anti-growth and wants to “build a wall around Austin” to prevent people and businesses from moving here; the other is a “pro-growth” bloc that wants the city to lavish subsidies on companies. But most people, he said, are between the two positions.

“Don’t prohibit growth, and don’t subsidize it,” he said.

In an interview with the Austin Monitor after the meeting, Council Member Greg Casar said the question of subsidizing businesses was a complex one without easy answers.

“We subsidize and incentivize things all the time as a city,” he said. “The question is: For how much and for what?”

His take on subsidizing jobs is similar to his take on subsidizing housing: It should benefit those who need it most.

“We should not be subsidizing high-wage jobs in a city where we’re getting lots of high-wage jobs; we should be incentivizing things that we don’t have,” he added.

A former labor organizer, Casar has championed efforts to require or incentivize city contractors and businesses to provide higher wages or agree to certain working conditions. In April, for instance, he authored a resolution directing the city to favor companies that employ workers from low-income areas and pay decent wages.

On Wednesday, he raised concerns about the $2.5 million that the city received from a settlement with White Lodging, the hotel builder, in 2013. The settlement was a result of the company breaking its promise to abide by certain wage standards in exchange for millions of dollars in city fee waivers.

The settlement money was originally deposited in the Economic Development Department’s Business Retention and Enhancement Fund, which was set up in 2007 as part of an effort to preserve local businesses downtown through low-interest loans and other forms of financial assistance.

The fund has hardly ever served its purpose, however, and has not made any loans in the past three years. The department is thus proposing to end the program and shift the remaining money to the city’s general fund to be used on “one-time budget needs,” according to Ed Van Eenoo, the city’s deputy chief financial officer.

Casar said he hoped that some of that money would be used to address the reason it was there: underpaid workers.

Over the past year, the Economic Development Department has focused a great deal on efforts to improve or maintain the city’s arts and music economy, and in its budget presentation to Council members on Wednesday, it said it anticipated increasing spending by $1.7 million next year on support for culture and arts organizations as a result of growth in revenue from the city’s hotel room tax.

Overall, the budget the department has proposed would increase overall spending from $47.9 million to $51 million and add two full-time employees, bringing the total to 60.

Funding for the department is invariably linked to the ongoing review of electricity rates charged by Austin Energy. The city-owned utility currently contributes 0.77 percent of its annual revenue to the department, a sum that amounted to over $9 million this year.

The impartial hearing examiner hired by the city to weigh stakeholders’ arguments about the utility’s finances recently recommended that that transfer program should end, writing that economic development programs not related directly to providing electricity were not a “reasonable and necessary” responsibility for ratepayers to bear.

If the utility stopped transferring the funds, AE would be able to lower its rates slightly. To make up for the lost funds, the city would have to draw upon property tax revenue instead.

Adler said on Wednesday that he was inclined to support the current AE transfer system, saying that he did not want to shift more of the burden of paying for economic development programs to property taxpayers.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Economic Development Department: This city department heads up business recruitment, urban regeneration, small business development, arts, and music for the city.

Economic Development Incentives: This is shorthand for a series of programs designed to lure business to a given region. In Austin, the program tends to take some form of tax-based incentives. These can include rebates or grants that are often tied to a set of stipulations. These tend to include local hiring goals, same-sex partner benefits, or, more recently, wage floors for construction workers who build facilities for the incoming organizations.

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