As the revenue caps handed down by the Texas Legislature shape the future reality of Austin, City Council is weighing its options for backing out of active multimillion-dollar tax breaks given to developers and companies in economic development deals.
A bill recently signed into law by Gov. Greg Abbott mandates that in each new fiscal year starting in 2020-21, Austin can only collect 3.5% more in property tax revenue from the properties on its tax roll the previous fiscal year. If the city wants more, a majority of voters will have to give their blessing.
The 3.5% election trigger, known as the “rollback rate,” is a significant decrease from the 8% rate Texas cities such as Austin have operated on for years. Between the new cap and another bill that will limit the city’s ability to collect franchise fees on telecommunication companies, Ed Van Eenoo, Austin’s deputy chief financial officer, predicts a general fund budget shortfall of $18.5 million in 2021 and $58.2 million by 2024.
Preparing for budget austerity in the coming years, City Council has started discussing ways to free up tax dollars, and a growing majority support examining the possibility of backing out of the city’s active tax break deals with corporations that cost millions of tax dollars each year in exchange for investments into the local economy.
“We definitely need to look at them to see if there is any cost savings, especially before we consider cutting programs that help our most vulnerable population,” Mayor Pro Tem Delia Garza said. “I think corporate incentives should be the very first thing we look at.”
Garza and Council Members Jimmy Flannigan, Greg Casar, Sabino “Pio” Renteria, Leslie Pool, Kathie Tovo and Alison Alter have all said they support, in some way, taking a look at potentially backing out of the deals.
The city has eight active agreements with companies—such as Apple, Samsung Semiconductor, The Domain, Visa and Merck & Co.—that have invested about $4.5 billion into the local economy and created 7,594 jobs. In 2017, the most recent data immediately available, the city paid $13.4 million in tax incentives through these eight deals; as of 2017, Austin still owed $33.1 million in tax breaks to the companies over the life of the agreements.
The tax incentive agreements are led by Samsung Semiconductor, whose $4 billion investment since the agreement was inked in 2005 has resulted in 700 jobs and $77 million in tax breaks from the city. Austin paid Samsung $11.2 million in tax breaks in 2017, and the agreement is set to last through 2025.
The deal for The Domain, however, has earned the most scrutiny from elected officials. In exchange for the $130 million Northwest Austin investment, 1,100 new jobs and some income-restricted housing, the city in 2003 agreed to property tax breaks totaling $37.5 million over the 20-year life of the agreement. The deal sent $1.9 million to Simon Property Group in 2017 and as of 2017 cost the city a total of $14.8 million.
Pool and Renteria have been vocal in their support of exiting The Domain deal. Tovo said she wants to look at all the deals but said The Domain agreement has “raised the most questions” since it dealt with subsidizing retail use.
“As we look for different sources of funding to cover our gap, that’s one of the first places I’m going to go,” Tovo said.
Alter said she supported re-evaluating the agreements but emphasized not every agreement was made equal. She said exiting economic incentive deals is not something the city should take lightly.
“There are always consequences when the city backs out of a commitment, but at the same time we write into every contract the ability to do that,” Alter said. “Yes, we should consider it, but that doesn’t mean I definitely support [ending the agreements].”
Tovo said City Council reauthorizes the agreements each budget session. She said she hopes City Council decides on the agreements before voting on the FY 2019-20 budget in September.
Community Impact Newspaper reached out to Samsung Semiconductor and a representative of Simon Property Group but neither were immediately available for comment.
For more background on each of the city’s eight active corporate tax incentive deals, read our coverage from 2018.