Cities lure businesses with incentive deals

It's a complex game involving cities, site consultants, brokers representing major corporations, local landowners — and the public trust.

"It's almost expected," said Dan Truex, economic development manager for the City of Grapevine.

He and his counterparts in Westlake, Southlake and Colleyville said they are approached regularly by prospects.

City staff members have to determine whether a business is what the city needs and whether it can perform as promised.

"It's a real tricky game that you have going on," said Terry Clower, director of the Center for Economic Development and Research at the University of North Texas in Denton. "The incentives themselves are a necessary part of the game now."

Incentives grew to become a crucial part of the process over time, Clower said. They were in play at least as early as the 1930s, when Southern states used them to attract industry.

In the end today, city councils make the decision, usually after the deals are discussed behind closed doors, which is permitted by the state Open Meetings Act.

Sometimes the process starts when a city approaches the business. That was the case with Colleyville and Whole Foods.

Finding a good fit

Not every business is right for every city.

Colleyville wants to become a destination, so leaders were looking for something that would draw customers from miles around.

Marty Wieder, economic development director, said the city became interested in the natural foods grocer after a city-hired consultant put it on a list of desirable businesses to help reach Colleyville's goal. Whole Foods also had come up in conversations with citizens.

City officials approached a broker, and almost three years later the deal was done. The property owner, Centennial Real Estate Co., also will redevelop all of Village Park shopping center.

Wieder and Mayor David Kelly said they expect the city to recoup the $2.25 million in sales tax in six years.

"Economic development professionals and city managers really earn their wages here," said Clower. "Because it's how do you balance this? How do you know which deals are deals you really want to go for and how do you know when the competition gets so heated you're better off letting that deal pass?"

Grapevine wanted more family attractions and hospitality businesses to go along with Grapevine Mills, Truex said.

Great Wolf Lodge, Bass Pro Shops/Outdoor World, Sealife Discovery Center and Legoland all received incentives.

The four cities, unlike many in the U.S., do not need to focus on bringing in traditional manufacturing jobs.

Southlake has been adding retail development since Town Square was started in 1997, but also continues to look at corporate prospects. Verizon Wireless is the city's biggest taxpayer, said Greg Last, city director of economic development and tourism. It paid about $680,000 last year, now that a tax abatement incentive has expired.

Sometimes, though, a prospect doesn't request any incentive. That was the case with Central Market, Last said, although the developer of the project received help with Central Park at The Shoppes at Southlake.

'Ironclad' agreements

All four cities require prospects to submit detailed financial information, which generally requires economic analysis.

Direct benefits like property tax are easier to quantify than secondary benefits that come from families moving to the city, purchasing homes and shopping.

Once a city and a business have negotiated an agreement, safeguards are built in. One is the clawback, which lets the city take the money back if the business doesn't fulfill its part of the agreement.

"We use clawback provisions where we can pull the money back," said Wieder. "And we have deadlines. To receive certain payments, certain things have to be in place. Most every city includes something like that, to make it ironclad."

Truex said incentive amounts can be tied to performance or to longevity. The Eatzi's Market and Bakery at 1200 W. Hwy. 114, for example, was given $300,000 for opening; $100,000 a year thereafter for three years; $75,000 with opening of a smaller Eatzi's Depot in Grapevine; and $25,000 per year for three years for the depot.

Tax abatements, by their nature, require a business to be operating before it can reap the full benefit.