City OKs tax refunds for Transocean, Chase
City Council on Wednesday approved a pair of tax refunds for Transocean Offshore Deepwater Drilling Inc. and JPMorgan Chase Bank through the state’s economic development program targeting economically distressed areas.
The companies, both of which are located outside areas defined as economically distressed, will receive up to $1.25 million in sales and use tax refunds over five years, helping offset projects that are expected to create 10 new jobs each. Transocean is receiving the tax refund for the company’s plan to update its systems for transporting rigs to offshore platforms, while JPMorgan is renovating and performing technology upgrades on its office building in downtown Houston.
Each project will cost about $50 million, according to city council documents. Transocean says it will retain 426 existing jobs at its west Houston office through the project, while JPMorgan says it will retain 490.
Houston and other cities with at least 250,000 residents may allot up to nine projects every two years for Texas’ Enterprise Zone Program, which provides refunds of sales and use taxes to companies based on the number of jobs a company creates or retains through a project. The JPMorgan and Transocean projects are Houston’s fifth and sixth of the two-year period, leaving the city with three remaining slots through the end of June.
Neither project is located within an enterprise zone, or an area where a significant number of residents lack high school diplomas or are below the federal poverty line or unemployed. Companies are allowed to receive tax incentives for projects outside enterprise zones as long as they fill at least 35 percent of new jobs with residents from an enterprise zone or “individuals who are economically disadvantaged” — four out of 10 jobs, in this case.
Nathan Jensen, a professor at the University of Texas at Austin who studies economic development and tax incentives, said cities almost always award Enterprise Zone projects to huge companies, many of which already receive other “bundles of incentives” from local governments and the state.
“The Texas Enterprise Zone program is described as offering an incentive for investment in distressed areas of the state. But the reality is that most of these sales tax incentives go to very large companies in areas already receiving investment,” Jensen said.
City Council’s decision to award Transocean the tax refund is “a prime example of giving incentives to something that would occur anyway,” he said.
“Is this a good use of taxpayer resources? No, giving incentives to very large companies that are probably investing in Texas anyway (and in many cases are already receiving million in incentives) is bad policy,” Jensen said.
Timothy Bartik, a senior economist at the nonpartisan W. E. Upjohn Institute for Employment Research in Michigan, said the tax refund awarded to each company — $2,500 per job on up to 500 jobs — is “relatively modest” compared to other tax incentive programs offered around the
country.
“In terms of the economic development fish, this is a minnow or a tadpole,” Bartik said.
The program could be targeted more toward companies that would be likelier to relocate outside Houston or Texas if they did not receive the refund, Bartik said. And it could have stronger controls to ensure the companies hire employees from underemployed areas, he added.
Council members Letitia Plummer and Abbie Kamin voted against the Transocean tax refund, while Plummer was the sole “no” vote on the JPMorgan item.
Plummer said she wants to revamp the city’s process for awarding enterprise projects so that more “smaller mid-size businesses” participate.
“I think at this time we should reevaluate our approach and the approval process,” Plummer said. “The purpose of this program was never to aid large multinational corporations located outside of the enterprise zone. And I understand there are loopholes that allow said corporations to take advantage of these programs. However, we do not have to take part allowing them to do so.”
Mayor Sylvester Turner did not directly respond to Plummer’s criticism. He encouraged her and other council members to weigh in on the three remaining project slots.
“You all are more than welcome to participate and offer suggestions in terms of who you think would be excellent candidates,” Turner said.
Transocean faced the threat of bankruptcy last year amid the coronavirusinduced energy slump, before trimming more than $800 million in debt through a $1.5 billion restructuring maneuver, Bloomberg reported in October. Two hedge funds tried to stop the debt exchange in court, arguing it amounted to a default, but a federal judge upheld the deal in December. Transocean has enough liquidity and contracts to continue operations until 2023, according to Bloomberg.
Eric Hangen, a senior research fellow at the Carsey School of Public Policy at the University of New Hampshire, said city officials should consider whether they want to use tax incentives “to try to keep companies alive, or to set up future growth.”
“I would prefer to identify companies that would help solidify some kind of economic niche for my region that has real growth potential, and where I can take a risk with public investment that’s going to create hundreds of jobs down the line,” Hangen said.