Not right use for public incentives
The
Austin City Council’s endorsement of awarding millions of dollars in state tax subsidies to organizations or companies after they have decided to stage events in Austin again raises concern about publicly-financed incentives.
Such state incentive programs have been sold to the public as an investment — a way of attracting new business that would generate new dollars and jobs from companies or events that would not have located in Austin or Texas without such concessions.
But what happened last week at the council regarding an award of as much as $5 million in state tax subsidies to motor sports events looks more like corporate welfare than strategic investment. Council Member Bill Spelman, who nonetheless voted to go along with the $5 million award, recognized the giveaway nature of it.
“The state is probably losing money on this,” Spelman told us. “But as a representative of the city of Austin, this particular transaction is very good for the city. We’re getting 100 percent of the benefits on this transaction.”
Spelman was one of five council members who voted last week to sponsor the application by Circuit Events Local Organizing Committee and Circuit of the Americas to the Texas Event Trust Fund in reimbursements of state sales, alcohol, hotel/ motel and car rental taxes that a later study would determine were generated by four motor sports events. The other council members who voted to approve the deal are Sheryl Cole, Chris Riley, Mike Martinez and Mayor Lee Leffingwell. Council Members Kathie Tovo and Laura Morrison voted no
Under the agreement, the city would, as Spelman noted, retain all local taxes produced by the races. And the city would not have to put up any money to draw down state dollars from the events fund. On the surface, it sounds like a good deal because Austin is able to leverage state funds to beat out competition to lure four major sports events to Circuit of the Americas’ highly touted racing and events venue near Elroy, which has been annexed by the city of Austin.
But it begins to look a lot less attractive, given that the events have already announced their plans to come to Austin and, in some cases, are already selling tickets for those events. That raises questions about whether Austin was engaged in true competition for such events and whether tax incentives are being awarded wisely. Neither the city nor the state should be engaged in picking winners or losers, nor should taxing jurisdictions divert limited tax dollars to enterprises that would locate in Texas without such publicly financed incentives. In the latter case, Texas is losing tax money
Against that backdrop, the City Council’s actions look self-serving.
it would otherwise collect to pay for roads, health and human services and public education.
Against that backdrop, the City Council’s actions look self-serving.
The City Council’s action to endorse local organizers’ request for state dollars comes after MotoGP (one of the beneficiaries of tax incentives) announced several months ago its plan to stage a major racing event at Circuit of the Americas. The event, motorcycling’s equivalent of auto racing’s Formula One, is now selling tickets for the April 19-21 event.
V8 Supercars, another beneficiary, also announced several months ago its decision to stage a race at Circuit of the Americas from May 17-19 and is selling tickets for that event. The series has been called “Australian Rules NASCAR.” Similarly, two other beneficiaries, the American Le Mans and World Endurance Championships, have announced they would stage events at the circuit next year. Those are the organizations the city voted to help. The obvious question: If they were already coming to Austin, why do they need incentives after the fact?
It’s a question that Richard Suttle, who represents local organizers, answers by saying the money “is required to lure an event we might or might not get, absent that.”
Others point out that the incentives essentially come from tax money generated by the events, so if the events chose a different location outside Texas, the city and state would lose out in way of new dollars and jobs generated by those events.
It’s also worth noting that the city awards tens of thousands of local tax incentives each year to draw down state dollars from events trust funds without going through the City Council, so the public rarely has knowledge of those deals involving public tax dollars. That is because the city manager has authority to award up to about $56,000 in local money without approval by the City Council. We asked for a list of such deals in 2012 and will make that list public when we get it.
Certainly, there is a place for incentives when they are used selectively as true incentives to lure companies or events that would go elsewhere without them or when they come with strings attached to public benefits.
The city and the state should adopt policies that would require promoters to give more than their word that the city and state are competing for their events.