Cities set strategies to direct business boom

Local styles vary for economic development

Like all city economic development corporations, or EDCs, the EDCs of the Austin suburbs are tasked with selling businesses on relocating to their cities.

Bringing in new companies creates new jobs, expands cities' tax bases and diversifies the region's employer base.

But with area economic and population growth reaching record highs, Greater Austin has begun to sell itself, said Joey Grisham, CEO of the Hutto Economic Development Corp.

"The buzz is Austin above Dallas or even Houston," Grisham said. "Austin is the brand, the hottest market in the country."

As selling Austin's regional brand gets easier, area cities' true challenge is more likely deciding what kind of growth is best and how far they should go to get it.

"Economic development is about incentivizing what a community wants and needs," said Amy Madison, assistant executive director of the Pflugerville Community Development Corp., or PCDC. "It is a matter of how we grow, what we want and where we want it."

A Texas-built model

The state of Texas has allowed cities to create EDCs since 1979, and roughly 700 cities have opted to do so since then, according to the Texas comptroller's office. EDCs are governed by boards of directors who are appointed by city councils and mayors. Councils also oversee EDCs' operations and approve major projects.

While EDCs are not unique to Texas, the state has a unique way of funding them. State regulations allow cities to adopt special sales and use taxes for use in economic development. EDCs use the money collected from the tax—which must be approved by voters and is capped by state law at 1 percent—to market the city to companies and put together incentives for firms considering relocating or expanding. Cities can also use part of the tax for transportation projects.

"If you go to [other states] they just don't have those local option sales taxes that are going directly to their communities for economic development," Grisham said. "That has allowed us to be competitive."

Incentivizing growth

Texas EDCs' often large and flexible budgets can come in especially handy for incentives, which are concessions given to a company. They often include direct payments to the company, utility connection fee waivers, accelerated permitting, rent assistance or long-term property tax abatements.

Ben White, vice president of economic development at the Round Rock Economic Development Partnership, said the incentives are granted only when an EDC determines that the long-term economic benefit of getting a company will outweigh the initial investment. Round Rock tends to prefer nonmonetary incentives, White said. The city also prefers deals with short payback periods—the time it takes the city to earn back the value of the incentives.

EDCs also tie incentives to the performance of the company, meaning a firm must meet its agreed-to economic impact targets to keep receiving the promised incentive. If a company does not perform, the city can take back its incentives. These "claw-back provisions" are required by the state, said PCDC executive director Floyd Akers.

Not all economic development is equal for all cities, however, and EDC leaders have different priorities.

"Every community has its own goals," Akers said. "Cedar Park built a hockey arena. Buda used their money to bring in Cabela's. Everybody's got their own vision."

Round Rock

Round Rock has generally preferred to target businesses in the health care, technology, clean energy, advanced manufacturing and corporate headquarters sectors. It also wants to develop destination retail, which includes large stores that draw shoppers in from surrounding areas.

The EDP incentivized Benchmark Electronics, a global electronics maker, with accelerated permitting and an training agreement with Austin Community College.

"The payback period for that deal is zero," White said. "The day they move in, we're benefiting."

When the EDP offers incentives, they are determined by economic impact calculations, he said. The EDP does not offer cash incentives to companies right away. White said he prefers to see what kind of non-cash deal the city can strike.

The city also needs time to see if a company will be a "good corporate citizen," White said. The EDP wants large employers that will stay in Round Rock instead of leaving after a short time for another city.

"If incentives are the driver of the project, that's a big red flag that they may not be there for the long term," White said.


In Pflugerville, meanwhile, the approach to economic development is far more aggressive. Akers said Pflugerville wants to expand its relatively small commercial tax base, and it is less selective than its neighbors when it comes to picking companies.

"We're not pigeonholed into certain industries or certain salaries," Akers said. "We're equally enthusiastic about bringing [all] opportunities to our community."

Unlike Round Rock, which uses part of its special use sales tax for road projects, Pflugerville uses its entire tax for economic development. The PCDC had a budget of $3.2 million last fiscal year, and Akers said he is not shy about using that money for cash incentives.

"When you're looking at these companies, cash is king," Akers said.

The PCDC has been aggressively filling the business park at 130 Commerce Center, located at SH 130 and Pecan Street. SH 130 gives Pflugerville a chance to develop a commercial corridor with office space and easy traffic flow. But to fill up the area as hoped, Pflugerville will have "strike while the iron is hot," Akers said. The PCDC will be less aggressive after the local economic boom subsides, Akers said. Hutto

Given Hutto's smaller size and relatively recent development compared to its neighbors, the city is still plotting its course. Grisham said Hutto has had to be conservative because of its budget.

"We don't throw dollars at companies. We incentivize target companies and look at a host of factors," he said.

But what Hutto lacks in raw economic power it makes up for in unique features. The city has several long-term water supply agreements, giving it enough water to accommodate a factory that a drought-stricken city would have to turn away, Grisham said. Hutto has also struck an agreement with Union Pacific Railroad Company to expand the local railroad network if a new company needed it.

Friendly competition

Most Austin-area EDCs see economic development as a regional venture, said Dave Porter, senior vice president of the Greater Austin Chamber of Commerce. White called regionalism a "best practice."

"We'll always go for Round Rock first. [But if a business] can't land in Round Rock, then we want it in Williamson County or the region," White said. "Not every employee is going to live in that community. They could live in Round Rock."

But that regionalist mentality is not universally shared. While he stressed that the PCDC does not try to poach companies from nearby cities, Akers said he does not mind taking a more aggressive stance.

"The problem with best practices is that if everybody else is doing it, it doesn't really seem to be the best practice anymore," Akers said. "[This] is absolutely a competition between communities, and it's a competition Pflugerville intends to win."