With Merck deal nearly signed, Austin is turning its focus to making its economic incentives policy more equitable

Incentives versus payouts

Companies that got the biggest payouts from economic incentive deals hit targets outlined in the deals, such as job creation. (via )

Fourteen years after the economic incentive policy was conceived, Austin city officials said they are set to change their approach to business recruitment—with an eye toward equity in the types of jobs created.

City Council struck a deal in mid-April offering $850,000 in incentives to pharmaceutical company Merck & Co. Inc. so that they can develop an information technology innovation hub in Austin. But the jobs Merck’s development will create—high-tech positions with an average wage of $84,000—are not ones the city struggles to attain, two dissenting council members argued.

“If you need a minimum of a college degree, you are automatically excluding a huge majority of Austinites,” Council Member Delia Garza said. “I’m more interested in giving low- to middle-income families these opportunities.”

David Colligan, manager of global business expansion at the city of Austin Economic Development Department, said the policy will be reviewed in the next few months with a presentation due to Austin City Council by October. The city can better use the policy, he said, to develop the local workforce, retain local businesses and help them expand. Additional focus would be placed on mid-skill jobs.

“The incentive policy was written for prosperity,” Colligan said. “Right now, the name of the game is equity. That is what we are going to look to achieve in terms of restructuring our Chapter 380 policy.”

What Merck would bring

The city’s economic incentive deal with Merck is the city’s first such deal since 2014. The $20 million total investment by the company is supposed to bring 600 information technology jobs to the city and yield $1.9 million in annual tax revenue.

As of press time May 23, the agreement remained unsigned. Colligan said Merck is still evaluating different locations for its next IT hub.

“The ball is kind of in their court at this point in time,” he said. “It may be that there are other locations that we’re competing with, and they haven’t fully made a decision to date. This is not a done deal.”

Merck officials declined an interview with Community Impact Newspaper for this story because the agreement is not finalized.

Although various locations in Austin are being considered, priority could go to a location in Austin’s downtown Innovation Zone near the The University of Texas Dell Medical School and the soon-to-close University Medical Center Brackenridge.

Construction of a long-term space, proposed to be up to 90,000 square feet in size, could begin toward the end of 2018 and be completed by 2020, according to Merck.

Per the terms of the 10-year agreement, today’s seventh- and eighth-graders would be entering the workforce when the Merck jobs are created, Colligan said.

The average annual salary for Merck’s proposed Austin center is projected at $84,586, with the lowest 10 percent of employees earning an average of $54,511 annually. By 2026, the company projects its median annual salary for Austin-area employees would be $79,500.

Tamara Hudgins, executive director of Girlstart, which aims to increase girls’ interest in careers in science, technology, engineering and math, or STEM, said her organization met with Merck officials about their commitment to diversity in the workforce.

She said Merck seeks to have women make up 50 percent of its workforce.

“We know there are many reasons why Merck is opening an innovation hub,” Hudgins said. “But we know a company like Merck in Austin will open doors as well as open futures.”

Education level and employment breakdown for Texas residents

Two Austin City Council members voted against an economic incentive deal with pharmaceutical company Merck because they said the proposal lacked jobs for lower-skilled workers. This data shows Austin’s workforce by highest educational level and how the city compares to other major Texas cities. (via )

Changing focus 

Since Austin first began its economic incentive policy in 2003, it has provided 22 packages in return for jobs that have average wages ranging from $51,569-$132,085, according to city data.

Garza, whose Austin City Council District 2 spans the primarily low- to middle-income South and Southeast Austin areas, said she does not see jobs in this package for her constituents.

The expectation is that, out of the Merck project, jobs will eventually trickle down from the investment to low-skill workers.

“For me, my priority has been … if we are using taxpayers’ dollars, I don’t want to wait for the trickle-down effect,” Garza said.

As an example of the type of employer she would like to see the city of Austin and chamber recruit, Garza points to the city of San Antonio’s 2003 economic incentive agreement with Toyota for an automobile manufacturing plant.

But as Austin has filled out over the years, the number of land parcels that might appeal to a manufacturing company, for example, are declining, said Charisse Bodisch, senior vice president for economic development at the Austin chamber.

If the city hopes to attract large employers with a diversity of opportunities, Bodisch said it ought to be strategic with its acquisition of real estate and purchase property that might appeal to certain types of industries.

In the past, the city has purchased pieces of land, such as The Domain and Mueller developments, with the aim of attracting the right developers.

The city provided $12.83 million in economic incentive payments to The Domain developers as part of a 2003 deal that brought 1,100 jobs and
$130 million in investment.

Although the city will look to create new programs that benefit smaller, local employers through its update of the economic incentive policy, Colligan said it will always need projects, such as the proposal from Merck and Samsung’s $4 billion fabrication plant, to maintain a competitive edge.

Ideally, the city would not have to incentivize any projects, Colligan said.

“Unfortunately, that’s not the nature of business development,” he said. “[But] we know that the return on [the city’s economic incentive deals]has been substantial—well over 200 percent.”

Evan Marczynski contributed reporting to this story.

Share this story

Comments are closed.

JJ Velasquez
The Central Austin editor since 2016, JJ covers city government and other topics of community interest—when he's not editing the work of his prolific writers. He began his tenure at Community Impact Newspaper as the reporter for its San Marcos | Buda | Kyle edition covering local government and public education. The Laredo, Texas native is also a web developer whose mission is to make the internet a friendly place for finding objective and engaging news content.
Back to top