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Thursday, August 9, 2018 by Jack Craver

Council seeks to steer incentives from big business to local business

In Austin, the city’s practice of providing financial incentives for companies to relocate or move operations here has garnered plenty of criticism, ranging from outright opposition to the practice to concerns about whether the incentives are leading to jobs for those most in need and whether the city is favoring large international corporations over local businesses.

Such incentives are typically paid to companies over a multiyear period. The only incentive that has been authorized since the creation of the 10-1 Council in 2015 was an $856,000 subsidy to Merck Sharp & Dohme Corp., paid over 10 years, that Council approved last year.

In June, City Council approved a resolution creating a new “guiding principles” for economic development. It highlighted creating jobs for “hard-to-employ” populations, such as those with criminal records or mental disabilities; creating middle-skill jobs; providing key services to underserved communities, such as healthy food in food deserts; and supporting small local businesses or arts organizations that are struggling to find affordable space.

On Thursday, Council will consider a proposed policy from Economic Development Department staff that attempts to realize those goals.

However, discussion of the proposal at a Council work session on Tuesday showed that some Council members are worried that the new policy might undercut the city’s “living wage” goals. Under current policy, the city only subsidizes companies that pay all of their workers at least what the city pays its lowest-paid employees. That is currently around $14 an hour but is set to rise to $15 an hour in October.

Instead of setting a wage floor, the proposed policy would instead focus on whether the company seeking incentives is paying workers above the median wage for its sector in the Austin metro area.

Jon Hockenyos, a consultant who helped craft the proposed policy, argued that the goal of the incentives should be to get businesses to pay their workers more, but that subjecting every type of business to the same minimum is unrealistic, particularly if the city hopes to incentivize the creation of jobs for those who are often struggling to find employment to begin with.

Council Member Greg Casar agreed with Hockenyos. During the work session, Casar said he planned to introduce an amendment that would not set wage requirements for construction projects worth less than $500,000.

It was somewhat counterintuitive that Casar, who has led the push for paying city employees a living wage and requiring local employees to provide paid sick leave, would be the one to suggest allowing an exemption from the wage requirement. However, he said that he had come to that position after talks with local worker advocacy groups, including Workers Defense Project, where he used to work as an organizer.

Projects that are worth less than half a million dollars often only last a few days, said Casar.

“Just getting the wage bump for those three or four days, probably isn’t the intent of this (policy),” he said.

He stressed that he wanted to reward companies that do pay more than $15 an hour, particularly in industries that often pay far less. He highlighted the Purple Fig cleaning company, a home cleaning service whose living wage and retirement benefits are in stark contrast to the very low wages that domestic workers are typically paid.

Casar’s amendment also specifies that construction firms must comply with a number of safety and training guidelines, including providing workers’ compensation insurance to employees. Finally, the amendment specifies that city incentives should not go to “high-wage” employers unless they are also providing “other community benefits,” including providing jobs that bring people above 200 percent of the federal poverty level.

The idea is to encourage employers to boost wages for jobs that are often low wage, rather than to reward firms that employ white-collar workers who are already generously compensated. The Economic Development Department touted the Merck deal, for instance, by pointing out that the jobs created by the new tech hub would pay an average of $84,000 a year.

“Incentivizing high-wage jobs that aren’t being taken by working-class people isn’t what I want to be doing,” Casar told the Austin Monitor later.

Others on Council were not sold on the idea of allowing a living wage exemption for smaller firms. Mayor Pro Tem Kathie Tovo signaled concern and Council Member Leslie Pool suggested that exemptions only be granted by a Council vote.

By the end of the day, Casar had eliminated the exemption from his amendment. He told the Monitor he was comfortable setting a living wage standard across the board, and that Council could revisit the issue in the future if it proves to be a problem.

“I’m not stressing out too much about it because it’s all about putting together our best guess,” he said.

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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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