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Charter amendments spur debate on incentives

Supporters want new voice for taxpayers but opponents say job recruitment will suffer.

Sunday, May 07, 2006

The incentive deals used to attract and retain businesses are among Austin's most important yet least debated decisions.

In a city where a single zoning case can prompt endless hours of public deliberations, the Austin City Council took just minutes last August to offer a 20-year, $58.5 million incentive package to Samsung Austin Semiconductor, which announced last month that it would build a next-generation chip plant in the city. The details had already been hammered out during months of delicate, private negotiations.

"The community is effectively locked out from really evaluating and participating in the decision-making process," said Bill Bunch, executive director of the Save Our Springs Alliance.

Backers of two citizen-initiated charter amendments on the May 13 ballot, including SOS, say taxpayers need a seat at the negotiating table so that money is spent wisely. They want open discussion, disclosure of confidential company information and new ways to ensure that tax dollars do not facilitate development in the Barton Springs watershed. Proposition 1 calls for future public records to be available online; Proposition 2 limits development in the Barton Springs watershed.

But business leaders opposing the amendments say the public would end up seeing little if any activity because companies will shy away from entering into discussions with Austin.

"Economic development as it is practiced around the world will be dead on arrival in Austin, Texas, if these two propositions pass," said Gary Farmer, president of Heritage Title. Farmer leads a regional job recruitment effort called Opportunity Austin.

The city would be alone among its competitor commun- ities in requiring such public disclosure, said John H. Boyd, a national corporate site selection consultant. And the strictures would give companies a reason to reject Austin.

"It is a process of elimination," said Boyd, president of a Princeton, N.J.-based firm, the Boyd Co. "You're just making it easy, very easy, for a corporation to write off Austin."

Austin is quite picky when it comes to offering incentives, rejecting about 20 requests for every one offered, said Jubal Smith, the city's economic development manager.

Since 1991, Austin has granted incentive packages to 19 companies, a tally dwarfed by the 208 offered by Dallas over the same span. The city gave incentives worth $185 million in return for company investments totaling $8.1 billion. The state, county and school districts added even more honey to draw some of the company investments.

"It's not what you're giving to attract these companies," Farmer said. "It's what we're getting when we do win one."

The incentives are targeted at projects that will import wealth into the region by exporting products, Smith said. Those kinds of companies are a key to a healthy, vibrant economy because they spur jobs and create business for other local companies, he said.

Samsung, for instance, is expected to create 900 full-time positions at its new facility and spawn more than 2,800 support jobs, ranging from maintenance to legal services.

"Every one of them is a solid economic deal," Farmer said.

Austin crafted a policy in 2003 establishing criteria for a determining whether a proposed project is eligible for city incentives.

At a minimum, the project must be in the Desired Development Zone away from the watershed and must comply with environment regulations. Other criteria involve wages, diversity and how the project will affect the local economy.

By offering incentives, Austin gets some leverage to secure commitments from a company, Smith said, including diversity hiring requirements or building away from the Barton Springs watershed.

Council approval of a deal tends to bring out local business luminaries who gush about the project. Few other Austinites, however, come to address the deals.

Farmer said people are welcome to weigh in at the council meetings, and their absence speaks volumes.

"I think their silence is validation for the policy and the council," he said.

Bunch sees the silence differently.

"People understand it's a done deal and it's a waste of time," Bunch said. He added that without access to the data behind the deal, taxpayers are at a disadvantage to weigh the merits of a package.

So one of the amendments, if approved by voters, would swing the doors wide open long before the deal is done.

Before Austin could begin negotiations for an incentive package, the company seeking incentives from the city would have to waive its confidentiality rights permitted under the state law.

That law protects from release trade secrets and commercial or financial information because it could be plans and data desired by competitors. Such information includes engineering or architectural drawings, product time lines or plans for developing a new product or technology.

Any company information given to the city would be available to the public on the Internet.

If the company refuses to waive those rights, the city may not negotiate.

For companies that waive confidentiality, negotiations for potential agreements over $500,000 would be held in public.

Glen Maxey, a former state representative running the campaign to support the two amendments, said the city cannot build a library or a fire station without voter input. Similar scrutiny should be applied to these deals, which have far-reaching implications for the community, he said.

There is nothing in the amendment that prevents economic development agreements, it just adds conditions.

"What is wrong with making your case to the community that this is a wise investment of limited city resources?" Bunch asked. "It would make the companies think twice about whether they can make a compelling case to the community that the incentives they would like to have are needed."

Boyd said companies will probably pass on Austin rather than waive confidentiality and negotiate in public.

"I would fully expect our client to pause at the possibility that their private dialogues with the city and its economic development staff laced with proprietary, project-specific information could easily be accessed by their competitors or other third parties," Boyd said, citing media, suppliers, vendors or Wall Street analysts as potential consumers of the confidential information. "The new legislation could be a deal-breaker in many instances."

And that will hurt Austin's ability to attract jobs now and in the future, Farmer said, adding that Austin cannot rely solely on its charm and good looks to recruit quality employers.

"We don't have a monopoly on unique and special in Austin, Texas," Farmer said.

The other amendment seeks to use city incentives to steer companies — and their relatives — away from the Barton Springs watershed.

An incentive recipient located outside the watershed would have to repay the full value of the city package if "it or any subsidiary, parent, spin-off, or affiliate company" locates a major employment center in the watershed or claims its project is exempt from current SOS regulations.

Because one company can rarely control the actions of another, business leaders said the provision puts an incentive recipient in an untenable legal and accounting position.

Bunch counters that companies commonly protect themselves against potential liabilities when a new entity is formed. Other lawyers say that is an unrealistic burden that companies are not likely to assume.

Michael Oden, an assistant professor at the University of Texas with expertise in local and regional economic development, said "openness can be completely consistent with strong and vigorous economic development."

Austin's program suffers from a lack of transparency and little opportunity for serious, thoughtful public scrutiny that could, in the end, help the city avoid "turkey deals," he said.

Although these amendments shed light on some crucial problems, the measures will not improve the situation because they are poorly designed and convoluted, he said.

"It's a pity," Oden said.; 445-3618

Economic development agreements in Texas

(1991 to January 2006)

Dallas 208

Houston 91

Plano 86

San Antonio 67

Fort Worth 45

Austin 19

Source: City of Austin

The ballot language

Proposition 1

Shall the City Charter be amended: (a) to provide online access to public information, which for the most part is already available, by creating an online electronic data system for most City communication and documents at taxpayer expense; (b) to require that private citizens' emails to public officials be placed on the city website in "real time," including emails or electronic communications between private citizens and public officials in all City departments, and limit the ability of citizens to keep private the details of these communications, unless legal exceptions apply; (c) to require that the heads of all City departments, all city manager's staff and all city council members and their staff post online in "real time" information about meetings and phone calls with private citizens; and (d) to prohibit the City from exercising state law protection for information that could expose the City and taxpayers to greater financial and legal liability and risk?

Proposition 2

Shall the City Charter be amended to: (a) limit investment in roads, utilities, water quality infrastructure, drainage infrastructure, and other infrastructure extensions and capacity expansions in the Barton Springs Zone, which includes a large portion of southwest Austin and Travis County, including neighborhoods such as Oak Hill, Barton Hills, part of Zilker, Circle C, Travis Country, Village at Western Oaks, and Westcreek; (b) limit the City's ability to influence development in proposed utility and special districts in the extraterritorial jurisdiction; (c) limit the City's ability to enter into agreements that may subsidize private development in the Barton Springs Zone; (d) make all "grandfathering" decisions in the Barton Springs Zone under state law subject to city council approval; (e) disqualify certain individuals from exercising certain property rights under state law in the Barton Springs Zone; (f) severely limit the City's ability to enter into economic development agreements city-wide; (g) prohibit the City from participating in or supporting certain road projects; and (h) add an environmental policy statement?

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