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Split Council Approves Incentives

5-2 Vote on Websense and Dropbox suggests shifting perspectives
Michael King, 9:00am, Mon. Feb. 24
Last Thursday, Feb. 20, City Council approved incentive deals with two high-tech companies – Websense and Dropbox – planning to move roughly 640 high-salaried jobs to Austin over the next 10 years. But the deals were the third in a row in which CMs Laura Morrison and Kathie Tovo balked at paying corporate incentives during relatively good economic times.

The deals had been briefed to Council at its Feb. 13 meeting, as Newsdesk summarized last week:

Websense: City to grant $438,000 over 10 years, pending the company’s relocation of headquarters and creation of 470 full-time jobs with annual average wage of $82,000 (state's Texas Enterprise Fund contribution $4.5 million); net direct economic benefit to city: $1.7 million

Dropbox: City to grant $244,500 over 10 years, pending the company’s addition of 170 full-time jobs with average annual wage of $59,000 (state TEF contribution $1.5 million); net direct economic benefit to city: $594,680

Beyond the simple attractions of Austin – that include cheaper cost-of-living than either San Diego (currently home to Websense) or San Francisco (Dropbox) – the state TEF funds are the bigger financial reward, but are contingent upon local support. The state deals are basically an administrative decision, but city incentives require public presentation and formal debate. Firms apply under the city’s standard economic incentive program administered by the Economic Development Department, and if they meet the city’s standards – quality and number of jobs, wage standards, benefits, anti-discrimination policies, etc. – they are recommended to Council.

Websense is a cyber-security firm, marketing security software to businesses and governments; Dropbox is a file-hosting firm, a cloud-based service that facilitates file storage and transfer between computers. As the numbers reflect, Websense is the larger prize, in staffing and financial terms and because it will be a headquarters move (to Stonelake Blvd. in Northwest Austin), likely to generate more ancillary economic activity. Dropbox plans to expand its Downtown presence at 501 Congress, from 30 to 200 employees.

But there was some tension in the audience and on the dais over these proposals, both in principal and detail. David King of the Austin Neighborhoods Council argued that economic inequality in the city has only worsened in recent years despite incentive deals dating back to 2005 and Samsung, suggesting that most Austinites are not benefiting from the exchanges. Eco-activist Paul Robbins argued that incentives only raise taxes for most Austinites and reinforce “uncontrolled growth,” and repeated his mantra from last week, “A rising tide does not lift all boats, unless you happen to be on a yacht.” But other speakers welcomed the deal as meaning good jobs for the city over the long haul that would generate additional economic activity, and therefore additional jobs.

Websense initially stumbled in its application to the city, failing to mention four employees who already work here (although online and out of their homes, which the company called a misunderstanding), and also advertised online for Austin employees. That suggested they were planning to relocate, incentives or no incentives, and among the city’s program standards is that the application must be “competitive” – i.e., Austin is competing with other cities. Websense explained the recruitment ads (pulled after city staff inquiries) as only “testing the waters” of prospective employees, and company CFO Jim Hagan reiterated to Council that other cities were still in the running, pending Austin’s decision on incentives.

Morrison argued that the burgeoning list of incentive deals – staff reported 10 proposals pending in the city’s pipeline – seem unrelated to actual declining unemployment in the city (offering a graph reflecting the disjunction), and she wondered (as she had in the case of Athenahealth) whether there are sufficient local high-tech workers seeking employment to meet Websense’s expectation of hiring 90% of its employees locally. More specifically, she again argued that paying incentives in relatively good economic times is unnecessary, and that the city’s money would be better spent on direct social needs, like early childhood education.

Other Council members defended the proposal as financially beneficial to Austin. “We’re not talking about spending money,” said Mayor Lee Leffingwell, “we’re talking about an action that will increase revenue to the city.” CM Bill Spelman echoed Leffingwell’s judgment, insisting that “we’ll have more money for things like early childhood education" if we incentivize companies to bring jobs and thereby more tax revenue to the city. Spelman noted that the city’s incentives policy has changed over time, in response to experience and citizen input – “before 2008, we were flying blind” – and that such deals enable the city not only to increase revenue, but negotiate standards that otherwise wouldn’t apply to a new employer. (The two companies had applied prior to last fall's latest revisions of the incentives policy, and could have been "grandfathered" - but both agreed to abide by the upgraded standards.)

Nevertheless, CM Tovo echoed Morrison’s criticisms of the deal, and said she would be voting no. “Every public dollar we spend on this kind of investment,” Tovo said, “is a public dollar we can’t spend on another kind of investment,” and added that Austinites have been telling her they don’t like these deals. That evoked a response from CM Mike Martinez, who noted that the city’s incentives policy has been revised and improved over several years, with public input, as a benefit to the city, and that once citizens understand how the deals work, they support them. “We have to take the time to educate people on the policy,” he said.

In the end, the vote (on both deals, taken separately) went according to form: Leffingwell, Mayor Pro Tem Sheryl Cole, Martinez, Spelman, and Chris Riley voting yes, and Morrison and Tovo voting no. Whether that split vote reflects a wider public disenchantment with corporate incentives – or more specifically a widening political split on Council – remains to be determined.

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