Monday, April 10, 2017 by Chad Swiatecki

Pharma giant’s proposed incentives draw questions in first review

City Council members have tended away from using incentives packages in recent years, averaging one approval per year to lure large employers to the area. Based on questioning and feedback from an initial discussion last week, it appears that 2017’s approval could go toward a proposed information technology hub for the pharmaceutical and biosciences giant Merck Sharp & Dohme.

Council members appeared guardedly in favor of the hub, which would bring 600 jobs split between local hires and transfers from existing Merck operations.

The proposed incentive would award the company a maximum of $856,000 paid out over 10 years. That amount is calculated based on $200 awarded for every full-time job created and retained from 2017 through 2026.

During Council’s first of two hearings on the issue, Council Member Delia Garza said the project’s median income of $79,500 indicates it would not create enough of the middle-class jobs that she and other Council members have made a priority in economic development projects.

The company’s application for the incentive package notes it will have 180 jobs at approximately $64,000 per year and another 360 positions at $87,000 per year.

Mayor Pro Tem Kathie Tovo said she wants to see a commitment to a set number of employees hired from Austin’s workforce.

Other Council members expressed similar concerns during the session but also appeared to see benefits of bringing a global health care giant to Austin to partner with the Dell Medical School. The next hearing and vote to approve or deny the package is scheduled for Thursday’s Council meeting.

David Colligan, manager of global business expansion for Austin, said Merck picked Austin as one of a few dozen candidate sites because of the new medical school and local economy that supports new businesses.

“They wanted a strong collaborator and entrepreneurial environment with a focus around life sciences,” he said, adding that there are 206 life-sciences businesses in the Austin area with 6,000 jobs and more than $1 billion in economic impact.

“We’ve been able to introduce them to places like Capital Factory, and they’ve seen how companies like MapMyFitness and others can fit with them to be part of a new health care ecosystem here.”

Austin leaders have identified health care as a potential major area of economic development in the future, with Merck setting up as a possible anchor for the proposed innovation district located near the medical school. Massachusetts-based athenahealth, which became the major tenant of the redeveloped Seaholm Power Plant, was the recipient in 2014 of an incentive package valued at $679,000. That project, which was slated to receive $5 million from the state, was expected to create 600 jobs as well.

While some residents objected to Merck’s possible incentives – the company hasn’t made a final selection on the IT hub’s location – local educators spoke in favor of the plan because of the company’s history of collaborating with higher education institutions for training and jobs programs.

Huston-Tillotson University President Colette Pierce Burnette said Merck would likely fit well with the school’s existing menu of programs, and Austin Community College also submitted a memo expressing support for the company’s possible presence in Austin.

Mini Kahlon, the medical school’s vice dean for strategy and partnerships, said Merck officials have expressed a desire to use data and its broad resources to change how health care is delivered. That goal, she told the Austin Monitor, fits well with the medical school’s goal of improving health in Austin’s most vulnerable populations.

“It’s a great opportunity to amplify an institution like the medical school, and when we partner in making new models, we need pharma and device companies who are looking for change,” she said.

“Pharma is interested in how drugs make an impact, and the question becomes, how do we partner with them to figure out new pricing and delivery models?” Kahlon continued. “When they learned what we were working on, they became very interested in the focus of the medical school.”

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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 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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