Subsidizing companies is problematic for city growth
Already a major presence in the Austin area, Samsung has invested billions and received millions of economic development incentives through grants and tax abatements. The company is now reportedly seeking another $1 billion in taxpayer-backed incentives for its potential new $17 billion investment in Austin to build a factory that would produce advanced computer chips.
If the city of Austin and Travis County consider granting Samsung these taxpayer incentives, they’ll be violating the very spirit of the hard reforms they’ve made to limit cash handouts to large corporations.
After 15 months of work, the city put together a new policy for the Chapter 380 agreements, its main economic development incentives program. It recognized that subsidizing companies such as Apple, Facebook and Visa is a problematic strategy for a booming city that is struggling with affordability for residents and smaller businesses alike. In May 2019, the county also recognized the need to rethink its economic development programs, choosing to enact a moratorium on giving out cash to big companies to encourage relocations.
These reforms were a breath of fresh air in a policy space that is dominated by special interest and a lack of program evaluation. A few cities across the state, like Houston, have reformed their programs. The city of Austin and Travis County made the sort of bold decisions that many economic researchers who follow public policy would applaud. If they actually meant it.
Just over a year after their decision to pause this program, the county lifted its moratorium for Tesla, a company that is notorious for paying lower manufacturing wages and having weak labor standards. Tesla pitched its investment as creating “middleskilled jobs,” and the county turned back the clock for them. They rushed to offer an incentive with little public discussion and no policy framework in place as Tesla threatened to locate its factory in Tulsa, Okla.
So far, Austin officials have stuck to their policy, providing incentives to a number of small businesses and continuing their support for the local arts community. But now a deal with Samsung, code-named “Project Silicon Silver,” is in the works.
Despite the open secret of Samsung’s potential expansion, which was first revealed in its application for a state tax incentive, any potential deal is shrouded in secrecy. What they are asking won’t be revealed until they formally apply. But a news report said the city offered a 10-year tax abatement worth $650 million, which is much larger than all of the city’s active incentive agreements combined. This deal was reportedly rejected by Samsung, and the company countered by asking for an unprecedented 25-year incentive deal.
None of these details has been verified by the city or county — which is a feature, not a bug, of economic development. One thing seems clear, however: Even with the best of intentions and serious revisions to the rules, government officials seem willing to bend the rules for the biggest of companies.
Small or midsize businesses are shut out from the county’s incentive programs; and if they want support from the city of Austin, they should read the rules closely. The city is serious about sustainability, labor standards and a focus on small business, providing a maximum incentive of five years and 50 percent of taxes to protect local taxpayers.
But the rules also state: “Highimpact projects, unique developments, and market competitive or other non-conforming projects will be considered on a case-by-case basis.”
Basically, the rules state that they can rewrite the rules for the big guys.
Unfortunately, this story isn’t unique to Austin. State programs, such as the Texas Enterprise Fund, have been willing to bend the rules for major companies. And many cities across the state don’t even list the incentives they have given to companies.
Samsung is a stress test for the city and the county. The city and county took their first steps toward reform, but the reforms are meaningless if they don’t apply to the exact types of investments that led to reform in the first place.