Charles Schwab becomes the latest Fortune 500 company to announce a major investment in Texas, and they’ll get help from state and local government to do it.
The question being debated: is the loss of significant tax revenue worth the job creation? Put another way, do these deals really offer a return on this kind of investment (ROI) by the government. And can the state and local municipalities compete for re-locations and expansions without them.
The deal is this: Schwab plans to create 823 technology-centered jobs over a period of 10 years and make a capital investment of $ 196 million dollars in equipment and a new building in North Austin; in return, the city of Austin and Travis County will provide 3.3-3.6 million dollars in the form of property tax abatements for the new building. The state’s Texas Enterprise Fund will provide $ 4.5 million in direct cash investment for the project.
A county economic analysis says Travis County would see a net benefit of $ 2.5 million tax dollars after allowing for costs associated with various services to support the growth.
The company will also create 445 jobs in El Paso and make a $ 21.5 million dollar investment in that city, for which the Enterprise Fund will provide $ 1.45 million.
The Texas Legislature is also looking hard at the value of incentives, including the Enterprise Fund and myriad other state programs (http://governor.state.tx.us/ecodev/edt_incentives/). The interim Texas House Select Committee on Economic Development Incentives recently heard testimony on the topic and will continue its work leading to the regular state legislative session beginning in January of 2015. By the way, State Tax Notes says Texas is 7th in the U.S. in the amount of incentives and subsidies it provides for economic development.
Proponents of incentives argue that the positives outweigh the negatives by 1) creating jobs to support long-term economic growth; 2) creating a positive net return for taxpayers from the economic activity generated by the job creation; and 3) incentives tie the company to a particular market with specific long-term obligations — from the number of jobs, the amount of investment, employee benefits packages and more that the company must meet in order to qualify for the deal.
Local business leaders say the City of Austin has made money on every one of the 20 incentive agreements it’s done over the past ten years with some of the leading companies in the world like Apple, Samsung, Visa, Facebook, HID Global, Legal Zoom, Hanger Orthopedic and now Schwab, pointing to the City’s $14 million budget surplus in fiscal 2013-2014.
Supporters also note the creation of “pathways to prosperity” these jobs offer those in a community without a high school or college education.
Some conservative economists beg to differ on the need for incentives. At the Select Committee hearing, Bill Peacock of the Texas Public Policy Foundation said this: “Texas should reduce or eliminate current economic development programs while restraining growth in overall government spending and regulation. This is the path toward expanding the prosperity of all Texans.”
With no incentives, what else could keep Texas attractive to expanding or re-locating businesses? There are rumblings of eliminating the state’s business tax – aka the Texas Franchise Tax — altogether.
Those in the middle say that incentives aren’t an “if” proposition but a “when;” that incentives should only be used for companies that provide significant or unique opportunities to grow and/or diversify the economy.