As the final phase of budget talks carried on this week, council revived the debate over the fate of the 20-year, estimated $37.5 million tax abatement deal with Simon Property Group LC, the real estate group that owns The Domain. Some council members have suggested backing out of its remaining $23 million commitment 11 years early. The city is slated to pay the developers back $2.1 million in sales and property tax revenue this year.
While the suggestion—initially made by District 7 Council Member Leslie Pool last week to make up for the city’s unexpected shortcoming in sales tax revenue—garnered support and scorn from council members, interim City Manager Elaine Hart confirmed on Monday that the city would be within its contractual rights if it decided to back out of the deal.
According to city documents outlining the deal:
“This agreement shall not be construed as a commitment, issue, or obligation of any specific taxes or tax revenues for a payment to owner.
"All payments by the city under this agreement are subject to city’s appropriation of funds for such payments in the budget year for which they are made. The payments to be made to the owner, if paid, shall be made solely from annual appropriations from the general funds of the city or from such other funds of the city as may be legally set aside for the implementation [of the economic agreement]. In the event the city does not appropriate funds in any fiscal year for payments due under this agreement, the city shall not be liable to owner for such payments, and the owner shall have the right but not the obligation to rescind this agreement."
In summary, according to the city manager, appropriating city tax revenue to meet these economic development deals is a year-to-year negotiation of the council, and a former council’s decision about how to spend money cannot be forced onto a future council.
What do the taxpayers say?
Pool said eliminating incentive deals with developers was a campaign platform for her and other council members, one that was “heavily supported by the electorate.”
However, the city’s electorate did get a chance to vote on the city’s incentive deal for The Domain. In 2008, the city held a referendum on Proposition 2, which proposed the city stop giving tax subsidies to the developers of The Domain. A 52 percent majority of the electorate voted against the proposition, and the city maintained the agreement.
A 'price to pay'?
District 6 Council Member Jimmy Flannigan said the city needs to work with the business community, and prematurely ending an economic development agreement will only make it tougher and more expensive for the city to negotiate them in the future.
“There is a price to pay for canceling agreements we’ve already made,” Flannigan said.
If the council decides to cancel the deal, that price may come sooner than the next economic development agreement. City staff is looking into how much affordable housing the developers committed to creating as part of the deal. If the city opts out, the developer may opt out of providing affordable housing within The Domain.
Separately, the city of Austin and surrounding communities have also expressed interest in landing Amazon's $5 billion second headquarters.